Larry’s Letter, Sustainability & the Transformation of the Corporate Villain
As business leaders, politicians, celebrities and all stripes of hangers-on strolled in and out of an immense array of sessions at the World Economic Forum’s annual meeting in Davos, Switzerland last week, the sujet du jour for the well-heeled at lunch plenaries, thought sessions, breakout rooms and cocktail tables was “Larry’s Letter.” A CEO’s statement to business leaders on the need to serve the public good, Larry’s Letter is a substantial acknowledgement of the heightening societal demand for C-suite offices, and the companies they operate, to focus on much more than the bottom line. If this comprehensive, growing and long-overdue shift continues in corporate culture, Hollywood may need to revisit one of its favorite bad guys.
Who’s Larry?
“Larry” is Larry Fink, founder and CEO of investment firm BlackRock. One week before Davos, Mr. Fink sent his letter to 400 CEO’s of some of the biggest public companies on earth, suggesting that – in addition to making money – they have a responsibility to meet public expectations that their companies serve a social purpose. Mr. Fink’s letter did not present specifics or directives, and contained notions that are new to few of us, recipients of his letter included. The significance of what he wrote comes via the profile of its sender: BlackRock Inc. controls $6.3 trillion in assets (yes, trillion with a T), making it the largest investment management company in the world. When Larry Fink talks, Wall Street listens.
His letter encouraged CEO recipients to respond to market demand for a sustainability-focused corporate strategy:
"To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate… What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce?” - Larry Fink
“Sustainability” isn’t new
The idea of corporations taking a more active role in social and environmental matters has had many names over the years; from the decades-old “capitalism with a conscience” and “people’s capitalism” to “corporate stewardship,” “corporate social responsibility,” “sustainability” and “sustainable enterprise,” among others. Those of us who have spent time in any of the now-numerous business schools where Sustainable Enterprise was first part of the curriculum (for my part, it was Kenan-Flagler 15 years ago, during my MPA work at UNC) heard first-hand success stories from corporations that had embraced sustainability and had come to court like-minded students who were interested in the “triple bottom line” business model; focused simultaneously on financial gain, environmental stewardship and the social good.
Yet some recipients reportedly bristled at an implication that BlackRock will be evaluating its holdings based, in part, on the extent to which their corporate strategy is reflective of Mr. Fink’s message:
“In the $1.7 trillion in active funds we manage, BlackRock can choose to sell the securities of a company if we are doubtful about its strategic direction or long-term growth.”
Billionaire investor Sam Zell remarked on CNBC in the ensuing days “I didn’t know Larry Fink had been made God.” BlackRock has, in the past, been accused of a “do as we say we do, not as we do” practice, as similar past statements have run counter to their activities, but the response seemed largely positive. Carlos Ghosn, chairman of car giant Renault-Nissan-Mitsubishi, made public statements in support of Mr. Fink’s message of societal betterment, as did Pepsi CEO Indra Nooyi. Pepsi could, of course, start in its own backyard by removing 4MEI, a cancer causing carcinogen which is still - inexcusably – included in its list of ingredients, but I digress.
New Market Demands
While the sincerity of some of Sustainability’s adherents can be called into question; there is little doubt that it is here to stay, and the market increasingly expects corporations to get on board. Deloitte’s 2017 “Millennial Survey” found that 87% of millennials worldwide believe that business success should be measured by more than just the strength of their balance sheet and their quarterly reports. In April 2016, the WSJ referenced data stating 78% of Americans agreed that “companies should take action to address important issues facing society.”
This approach runs counter to the long-held notion that profit is the singular goal of any corporation – at the expense of all else. As Milton Friedman famously stated in his September, 1970 piece in the New York Times Magazine: “The Social Responsibility of Business is to Increase Profits.” Such arguments are predicated on the notion that there is truly a “free market,” which – we are now more readily able to accept – has never been the case. “We’re here to make money,” “My responsibility is to the shareholders,” “We don’t get political,” and “We’re not a social services organization” are the kind of expressions which, in some quarters, fueled a corporate culture which dictated that you check your squeamishness at the door. If you were on the clock, it was quarterly results. Period. Activists of all stripes fought this mindset for many many years. Some for the entirety of their lives. That the very ideas they fought for are now voluntarily being introduced to many board rooms is evidence of the transformation that has begun.
Some critics have referred to this new approach as “renouncing capitalism,” and have spoken critically of activism within the ranks. But Fink himself notes that the role of activist investors is getting “bigger, not smaller,” and it should be. Even the most ardent free market economists are hard-pressed to deny that an escalating chorus of voices, from fund managers and CEO’s to investors and consumers, increasingly expect that corporate practices will be reflective of a desire to “do good” in the world, or - at the very least - “not do bad.”
New Paradigms
Corporations create jobs, support local economies, spur innovation, and create wealth. Without them society would ultimately collapse. But it is their collective influence that makes this paradigm shift so critically important, as those outliers who have historically - and notoriously - pursued money at all costs have blazed a path through history that has, figuratively and literally, laid waste to anyone and anything in its path.
Yet…while this antiquated profit-at-all-costs mindset is one that, blessedly, seems to be waning, it has produced dozens of phenomenal films about the consequences - sometimes unintended - of corporate greed run amok: Blade Runner, Aliens, Soylent Green, Terminator and Robocop, to name a few. We’ve supported the plight of those who have become victim to it or risen up to fight, in Silkwood, Erin Brockovich, The International, A Civil Action and a host of others. (Let’s be honest, it also provided much of the fuel for the punk rock movement, thank goodness).
Corporations are increasingly aware of the need to chart the course to a more sustainable paradigm if they want to stay relevant to those who will be buying products, making investment decisions and working in the C-suite offices where these changes need to occur. Otherwise, the free market will direct their attention, money, and talents elsewhere.
This groundswell will continue, and new ideas for collaboration and accountability will emerge, but it will take work, persistence and the ability to hear unfamiliar points of view.
Our ultimate hope is that those who are reading Fink’s letter, and those who are not, can someday lift that quarterly report from their crowded desk, hold it before themselves and see it from a new perspective; framed within the backdrop of the places we love, the cities we live in and the people we rely on.
This is, after all, our one journey. There’s a world outside…and plenty to be done.
In the meantime, Hollywood may have to think of a new prototype for our favorite villains… but it’s a small price to pay.
Daniel S. Holt is the founder of Washington based Anchorage Partners LLC. Find them on Facebook and Twitter, and subscribe below for insights and updates.
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