An Examination of BlackRock CEO Larry Fink’s Annual Letter

January 30, 2019 | Insights,

“Purpose is not the sole pursuit of profits but the animating force for achieving them”

As we consider the message in Blackrock Chairman and CEO Larry Fink’s annual letter to portfolio companies, we recognize an urgency indicated, but not directly expressed, in the missive.

Linking Profit with Purpose

Fink suggests that companies who link profit with purpose will be best positioned for the long-term. Be wary, he stresses, not to focus on maximizing short-term profit at the expense of long-term growth. The urgency we recognize is that, at some point, the long-term environmental, social and governance (ESG) issues Fink reflects on will become a defining issue of this quarter. Short term valuation depends on long term preparedness.

Some challenges that the letter expresses a call to corporate-based socialism, but Fink’s message is concretely based in the capitalist perspective – stressing that corporate stewardship is fundamental to political and social stability, which in turn is fundamental to corporate success. For example, he notes that by helping employees prepare for retirement, companies will not only create a more stable and engaged workforce but a more economically secure population in their local communities. He concludes his note with an emphatic call on this point, urging that at a time of great political and economic disruption, company leadership is indispensable.

With the rise of the purpose-driven millennial as investor, employee, and customer, Fink reflects on the scale of change at hand and the need to address ESG issues as a cornerstone of that change. Referencing a recent Deloitte study, he notes that far more millennials think that the primary purpose of business is to improve society rather than to generate profit. Fink envisions this shift in investor preferences around ESG issues will be increasingly material to corporate valuations.

For employees, the importance of purpose to profit is not just for millennials. Fink makes the provocative comment that “Purpose is not the sole pursuit of profits but the animating force for achieving them”. His comment mirrors research, such as that catalogued in Daniel Pink’s book Drive, that shows people are more motivated to perform when offered autonomy, mastery, and purpose, rather than financial incentives.

The Anthesis Approach

At Anthesis we council a focused approach to compliment Chairman Fink’s message. Not every company can or should move the needle on every issue. Sort through the vast array of important ESG issues that affect and are affected by your company. Consider the impact of your operations, products, and purchases. Then prioritize action on those critical ESG issues that are material to your business and to your stakeholders.

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