by Gael O’Brien
What is the conscience of Wall Street? Stereotypes of capitalism and greed and symbols like “Fearless Girl” aside, where does purpose fit? And, how should we handle other conundrum questions, like businesses’ relationship to society, the love affair with short-term profits and allegiance to creating shareholder value at the expense of other stakeholders?
Those are all questions which have been raised and answered in different ways across centuries, most controversially in the United States nearly 50 years ago by Nobel Prize economist Milton Friedman’s dictum: “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
However, Wall Street is now showing signs that Friedman’s words are ripe for disruption — or at least recalibration — around how profit and a sense of social purpose can intersect. A driving catalyst is the leadership of Larry Fink, founder, chairman and CEO of BlackRock, the world’s largest asset management firm. BlackRock manages more than $1.7 trillion in active funds. And what better place than Wall Street to be open to power and influence redefining how sustainable performance can occur. Fink’s focus is the bottom line and social good.
While seeds have been planted by many over a long period, Fink and others may be at the right place and time to usher in changes on Wall Street around how companies understand and address their social impact.
Fink titled his January 2018 annual letter to CEOs “A Sense of Purpose” and outlined his expectations that companies in which BlackRock has an investment position will identify their social purpose and incorporate it into their strategic plans. He told CEOs that BlackRock is increasingly integrating environmental, social and governance issues into their investment process because these factors are essential to sustainable growth and stakeholders are rightly demanding it. Last month, Wall Street bible Barron’s featured Fink’s picture on the cover of its June 25 issue with the caption, “The New Conscience of Wall Street.” The issue included a 30-page special report on sustainable investing, a cover story on Fink and a Letter from the Associate Publisher Jack Otter entitled “The Value of Virtue” – topics I didn’t expect to read in Barron’s.
In the article on Fink, “In Defense of ‘Social Purpose,’” Fink expanded upon his definition of a sense of purpose as “an understanding at every level of the company about its role in the world and in the community.” He continued, “Purpose unifies employees, helps companies see their customers’ needs more clearly, and drives better long-term decision-making.” He added that “This is true whether you’re producing oil, making movies, or helping people plan for retirement.”
In his column, Barron’s Jack Otter asked: “Is it possible that companies that treat their employees and customers well, take steps to avoid pollution, and whose boards of directors follow best practices might outperform over time?” He offered an answer Fink advocates: “While low employee turnover, loyal customers and a below-average number of consent decrees won’t affect next quarter’s results, they might produce dramatic results over the next decade.” He added that “Fink’s concept inspired the title of Barron’s special section (‘Investing with Purpose”) which focused on Environmental, Social and Governance (ESG) factors in investing “because we believe 2018 marks a turning point.”
Particularly striking about Fink’s January letter to CEO clients – which has been previously shared in the media – is that more than six months later, it is still being talked about. The timing may not be connected, but it’s interesting to note that last month, after years of discussion about the problems brought on by a preoccupation with short-term results, The Business Roundtable, of which Fink is a member, finally announced “its support for companies moving away from an expectation of providing quarterly earnings per share guidance and potentially dropping such guidance in the future.”
Are we at a turning point, as Barron’s suggests? Well there is still that pesky problem of what more needs to happen so that a company doesn’t “elevate shareholder value above all.” However, a turning point is a start, a shift in a direction to allow for a more desired outcome.
Wall Street is at a cross road. Larry Fink’s road map offers a shift in direction. He is holding the companies in which BlackRock invests or might invest accountable to answer, with their board’s involvement, a range of questions like “what is our impact” and “what is our social purpose” so that the social purpose is integrated with strategy. It is a road less traveled.
“I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.”
Robert Frost, excerpt from “The Road Not Taken”
Gael O’Brien, a Business Ethics Magazine columnist, is an executive coach and presenter focused on building leadership, trust, and reputation. She publishes The Week in Ethics, is a Kallman Executive Fellow, Hoffman Center for Business Ethics, Bentley University and Senior Fellow for Social Innovation at the Lewis Institute, Babson College.