There’s a balance to be struck in order to obtain corporate success, penned Larry Fink, BlackRock’s boss: “Businesses need to deliver financial performance, while also serving a social purpose.”
The latter, Fink noted in his message, is too often neglected. He alluded to a fixation on the short-term, which has seen CEOs skimp investing in employee development and innovation – “expenditures which are necessary for long-term growth.” This will also ensure companies struggle to meet the demands of customers.
Government bodies are failing to prepare for the future, he opined. “As a result, people are increasingly asking companies to respond to broader societal challenges. And businesses that don’t deliver will end up providing subpar returns to investors.”
To meet these calls, Fink suggests CEOs rethink their corporate strategy and business operations.
He advises: “Having a published statement of long-term strategy is essential to understanding a company’s actions and policies, its preparation for potential challenges, and the context of its shorter-term decisions. It must articulate a path to achieve financial performance. To sustain that, however, you must also understand the social purpose of your business.
“These statements are not meant to be set in stone – rather, they should evolve along with the business environment and explicitly recognise areas of investor dissatisfaction.
“The board’s engagement is just as essential as it is a valuable indicator of a company’s ability to create long-term value. Just as we seek deeper conversation between companies and shareholders, we also ask that directors assume deeper involvement with a firm’s long-term strategy.”
At the heart of Fink’s letter is a plea for companies to take more responsibility for the community, whether that be by boosting employee opportunity – specifically as we enter an increasingly automated world – or by factoring in the environment.
Echoing this perspective is Barron’s ranking of most-respected companies. While it specifically looks at businesses in the US, it points out that investors are placing higher emphasis on the need for ethical practices.
At the same time, those participating in an Ipsos MORI report believe the business scales should tilt more towards “social purpose” than “profit”. Some 47 per cent even claimed it would be better for the economy.
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