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Governance

BlackRock’s Fink: Companies must contribute to society to survive

Laurence D. Fink

BlackRock (BLK) Chairman and CEO Laurence D. Fink sent a letter to CEOs telling them that in addition to making profits, their companies also need to be contributing to society if they want to thrive or even survive going forward.

"Society is demanding that companies … serve a social purpose," wrote Mr. Fink in the letter. "To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."

Mr. Fink warns that failing to do so will result in losing "the license to fully operate from key stakeholders."

The BlackRock CEO went on to add that companies looking to sustain strong financial performance must also understand the societal impact of their business as well as how broad trends — such as slow wage growth, rising automation or climate change — could affect potential growth.

"BlackRock recognizes and embraces our responsibility to help drive this change. Over the past several years, we have undertaken a concentrated effort to evolve our approach, led by Michelle Edkins, our global head of investment stewardship. Since 2011, Michelle has helped transform our practice from one predominantly focused on proxy voting toward an approach based on engagement with companies," the letter stated.

BlackRock is planning on doubling the size of its investment stewardship team over the next three years to "help foster even more effective engagement," Mr. Fink said. "The growth of indexing demands that we now take this function to a new level. Reflecting the growing importance of investment stewardship, I have asked Barbara Novick, vice chairman and a co-founder of BlackRock, to oversee the firm's efforts. Michelle will continue to lead the global investment stewardship group day-to-day," he said.

In the letter, Mr. Fink notes that having an engaged and diverse board "is essential to helping a company articulate and pursue its purpose."

"The board's engagement in developing your long-term strategy is essential because an engaged board and a long-term approach are valuable indicators of a company's ability to create long-term value for shareholders," he wrote.

Mr. Fink added: "Boards with a diverse mix of genders, ethnicities, career experiences and ways of thinking have … a more diverse and aware mindset … less likely to succumb to groupthink or miss new threats to a company's business model."

Diverse boards are also "better able to identify opportunities that promote long-term growth," Mr. Fink said.

"Companies must 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?" Mr. Fink wrote.

BlackRock had $6.288 trillion in assets under management as of Dec. 31.