BlackRock chairman and chief executive Larry Fink has encouraged corporate leaders to focus on purpose in a world where democracies have descended into “wrenching political dysfunction”.
In his annual letter to the CEOs of the companies in which it invests, Mr Fink advocated for practices that will drive sustainable, long-term growth and profitability. Profits, his stressed, are inextricably linked to a company’s purpose.
“As we enter 2019, commitment to a long-term approach is more important than ever – the global landscape is increasingly fragile and, as a result, susceptible to short-term behaviour by corporations and governments alike,” he said.
“Market uncertainty is pervasive, and confidence is deteriorating. Many see increased risk of a cyclical downturn. Around the world, frustration with years of stagnant wages, the effect of technology on jobs, and uncertainty about the future have fueled popular anger, nationalism, and xenophobia. In response, some of the world’s leading democracies have descended into wrenching political dysfunction, which has exacerbated, rather than quelled, this public frustration. Trust in multilateralism and official institutions is crumbling.”
The BlackRock boss believes that society is looking to companies, rather than the governments that have failed them, to provide address social and economic issues.
“These issues range from protecting the environment to retirement to gender and racial inequality, among others,” he said.
“Fuelled in part by social media, public pressures on corporations build faster and reach further than ever before. In addition to these pressures, companies must navigate the complexities of a late-cycle financial environment – including increased volatility – which can create incentives to maximize short-term returns at the expense of long-term growth.
Mr Fink told CEOs that purpose is not just a tagline or marketing slogan but a company’s fundamental reason for being. Rather than the sole pursuit of profits, he believes purpose is the “animating force” for achieving them.
“Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked,” he said, adding that profits are essential if a company is to effectively serve all of its stakeholders over time – not only shareholders, but also employees, customers, and communities.
When a company truly understands and expresses its purpose, Mr Fink said, it functions with the focus and strategic discipline that drive long-term profitability.
“Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making and, ultimately, helps sustain long-term financial returns for the shareholders of your company.”
The BlackRock chairman called on CEOs to step up to the plate and meet the challenges of today’s polarized environment.
“The world needs your leadership,” Mr Fink said. “As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity. Companies cannot solve every issue of public importance, but there are many – from retirement to infrastructure to preparing workers for the jobs of the future – that cannot be solved without corporate leadership.”