business
Larry Fink's Letter to CEOs
Jan 26, 2018 at 04:01 AM
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The Quick Facts

  • Last week, Larry Fink - the founder of the $6.3 trillion asset manager BlackRock - sent a letter that called on S&P 500 CEOs to articulate their societal impact and to explain how they would evolve in the pursuit of long-term, sustainable growth.
  • Fink's letter has reportedly been a big topic of conversation at the World Economic Forum in Davos, an annual summit that brings together the top business leaders, politicians and economists in the world.
  • Fink's letter reflects a much broader debate that has gripped business theorists for years: Do businesses primarily have a duty to maximize shareholder returns (shareholder theory), or should shareholders' financial interests be balanced with the interests of employees, customers and the community (stakeholder theory)?

Food For Thought

Do businesses have societal obligations beyond maximizing shareholder value?

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BlackRock

Larry Fink's Annual Letter to CEOs - A Sense of Purpose

Reader Highlights

This letter, written by BlackRock CEO Larry Fink and delivered to CEOs, was selected as a view in strong favor of 'stakeholder theory' based on the following types of expressed views:

  • For companies today, delivering financial returns is not enough to sustain long-term growth. Citizens are demanding that companies also serve a social purpose.
  • Many believe that the government is failing to prepare society for the future and increasingly are looking to the private sector for broad solutions.
  • BlackRock has a fiduciary responsibility to engage with companies in a way that drives long-term, sustainable growth for our clients and thus, we expect all CEOs to articulate how their companies' strategies will bring make a positive contribution to society.

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Business Insider

It's time for better capitalism

Henry Blodget
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Reader Highlights

This opinion in Business Insider was selected as a view in favor of 'stakeholder theory' based on the following types of expressed arguments:

  • In the early 1980s, companies began began to believe that their fundamental role in society was to maximize short-term profits.
  • Over the past decades, this way of thinking allowed the rich to get richer but importantly, contributed to the decline of the middle class and staggering levels of income inequality.
  • In order to maximize short-term profits, companies paid labor less and less. But businesses missed the bigger picture: one man or woman's wage is another company's revenue. It's time to return to a better form of capitalism that creates value for employees, customers and society (and the shareholder value will follow).

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The Wall Street Journal

Stocks Weren’t Made for Social Climbing

Andy Kessler
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Reader Highlights

This opinion in the WSJ was selected as a view in favor of 'shareholder theory' based on these types of espoused views:

  • Despite BlackRock CEO Larry Fink's vocal endorsement of socially-responsible investing, the hard truth is that investors who say they are willing to accept lower returns are just throwing away their clients' money.
  • The value that a business creates for society is best measured by profits, not social stances. For instance, Amazon is not very active in Seattle's philanthropic community, but they deliver value through low prices, great product assortment and excellent operations.
  • Americans have the right to invest their money however they please, but investors who think that they are being charitable by investing in socially-responsible firms are just accepting lower returns and allowing other investors to cash-in on better opportunities.

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The New York Times Magazine

The Social Responsibility of Business is to Increase its Profits

Milton Friedman
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Reader Highlights

This classic opinion from Milton Friedman was chosen as a strong view in favor of 'shareholder theory' based on the following types of arguments:

  • Businesses are not people and thus, do not have the same social responsibilities as people do. So when people talk about businesses having a social responsibility, they are really suggesting that CEOs and business leaders have social responsibilities.
  • This line of logic runs into issues. A CEO is employed by his shareholders - the owners of the company - and thus, his primary responsibility is to them. This CEO should not have the right to spend his owners' money to support his own personal interests.
  • Business has just one social responsibility: "to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game..."

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Pro-Stakeholder Theory
Pro-Shareholder Theory