Why does BlackRock care about purpose?
I admit secretly cultivating a selection of stereotypes about investment bankers.
Larry Fink, Chairman and #CEO of #BlackRock recently falsified several at the same time: In his 2019 annual letter to CEOs, he passionately and resolutely called for leadership and action when it comes to corporate #purpose. Similarly as he had done in 2018 – with an undisguised and straightforward plea. He reinforced the urgent necessity of strategic corporate #frameworks, which need to explicitly start with a well-stated company’s purpose and should be publicly shared.
His train of thought and line of argumentation are holistic and convincing– encapsulating a variety of reasons why purpose needs to be of priority.
So why is a clearly defined purpose statement of crucial importance for any big corporation or midsize company?
The wider public expects organizations to step in where government action falls short
Expectations towards public and private organizations are rising – indeed they have never been higher. Uncertainty and volatility continue to be high in markets across the globe whilst confidence crumbles. Societies from east to west express frustration and insecurity about the future feeding populism, anger and nationalism. Trust in ability and power of governments and institutions to successfully manage #multilateralism, to lead the way towards industry 4.0 or to provide solutions to global issues (such as climate change) is on decline. That’s why the wider public turns to companies in expectance of solutions, guidance and sustainability. Purpose provides one form of orientation – especially in times of unease. Companies – according to Fink – must step up to serve a greater societal purpose.
Purpose serves as a strategic compass to the cooperation itself
Corporate purpose does not only provide orientation to #society and #communities, it serves as a focal point and strategic discipline to the cooperation itself – guiding management and employees equally. As Fink puts it “purpose is a company’s fundamental reason for being – what it does every day to create value for its stakeholders. It drives ethical behavior and creates an essential check on actions […]. Purpose guides culture, provides a framework for consistent decision-making.”
In his 2018 letter Fink raises a selection of essential questions companies should ask themselves:
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?
Are we adapting to technological change?
Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world?
Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?”
Investor’s demand for social or environmental investment opportunities increases
An unambiguous strategic outlook and business priorities resonate well with shareholders or potential #investors, who in turn increasingly demand social, sustainable, purpose-oriented investment #opportunities (compare The Investor Revolution, Harvard Business Review, May-June Issue, 2019).
Companies hold responsibility for long-term value creation
In times of cyclical downturns and increased unpredictability, companies must shift away from short-term gains and quarterly results, and rather take on the responsibility for #long-term #value #creation. Fink himself does not step away from the task by confirming that responsibilities of asset managers have also grown: “We must be active, engaged agents on behalf of the clients invested with BlackRock, who are the true owners of your company. This responsibility goes beyond casting proxy votes at annual meetings – it means investing the time and resources necessary to foster long-term value”.
Purpose as a driving force for profits
When owning the responsibility and tasks tied to it, purpose turns into a driving force for achieving results – namely profits – in the long run. As Fink states it “It is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.” That way, he expresses his conviction of purpose not only providing a conceptual rationale, but serving a tangible, long-term benefit. As he views it: “Profits are not only of advantage to those generating them, but they serve a variety of stakeholders over time”. In his definition that includes shareholders as well as employees, customers, suppliers, or communities.
Millennials demand purpose
Lastly, Fink points to the new generation on the rise who seriously cares for purpose and vocally demands it – not only as employees and critical consumers but also as (future) investors. Today, #millennials already account for approximately 35% of the workforce – the outlook increasing.
Corporate purposes are distinct and hence can serve as a differentiating factor and even competitive advantage – in particular when it comes to attracting and retaining talent. Larry Fink quotes a recent Deloitte survey, which asked millennial workers what the primary business purpose should be: 63 percent more of them said “improving society” than said “generating profit”.
Millennials are more valiant than other generations to express their view on e.g. corporate purpose, speak up in townhalls or stage walkouts if their expectations are not met. Fink predicts that “this phenomenon will only grow as millennials and even younger generations occupy increasingly senior positions in business.”
Who would have thought that purpose has made it to the heart and brain of one of the most influential investment bankers of our time? And maybe a product tagline such as “if it’s BlackRock, it’s purpose” is only a heartbeat away…