THE
WALL STREET JOURNAL.
Markets
BlackRock CEO to Companies: Pay Attention To ‘Societal Impact’
Laurence Fink called
on CEOs of companies in which BlackRock invests to articulate
long-term plans and how their organizations contribute to society
Laurence Fink, chief executive
of BlackRock Inc., spoke on an investment panel in New York in
November 2017. PHOTO: LUCAS JACKSON/REUTERS |
By
Sarah Krouse
Updated Jan. 16, 2018 3:11 p.m. ET
The boss of the world’s
largest money manager told corporate chiefs to prepare for
BlackRock Inc. to become a more
assertive shareholder.
Laurence Fink in his annual letter to chief executives of
companies in which BlackRock invests called on them to better articulate their
long-term plans and how their organizations contribute to society, and said the
New York money manager will have more frequent and in-depth conversations with
them. He has made similar appeals to CEOs in past letters.
BlackRock’s assets have swelled to $6.3 trillion as investors
have plowed hundreds of billions of dollars into index-tracking funds. That has
given large index-fund managers like BlackRock
increasing clout on important corporate decisions such as takeovers
and the fates of chief executives.
“The time has come for a new model of shareholder engagement—one
that strengthens and deepens communication between shareholders and the
companies that they own,” Mr. Fink wrote.
BlackRock and rivals Vanguard Group and State Street Global
Advisors are increasingly among the largest shareholders in many S&P 500
companies. But unlike Wall Street’s traditional stock pickers, index-fund
managers are unable to sell companies whose actions they disagree with, because
those money managers must own shares in the companies that comprise a given
benchmark.
That leaves proxy voting and talks with the company as the main
avenues index-fund managers can use to press for changes.
“The growth of indexing demands that we now take this function to
a new level,” Mr. Fink wrote of the firm’s corporate governance efforts.
The three largest index-fund providers owned 18.5% of the S&P 500
at the end of the third quarter, compared with 14.7% five years earlier,
according to research by
Lazard Ltd.
BlackRock plans over the next three years to double the size of
the team that engages with companies in which the firm’s funds invest, to more
than 60 people, he said.
Michelle Edkins, the executive who leads those efforts, will now
report to Barbara Novick, a co-founder of BlackRock who leads its government
relations and public policy work. “As the objectives of investment stewardship
and public policy often intersect,” Mr. Fink told employees in a memo Tuesday,
Ms. Novick will lead both groups though they will operate separately.
In the annual letter, Mr. Fink reiterated his call for companies
to articulate long-term strategic plans and said board members should be able to
describe how they oversee those efforts. This year, for example, he said
companies should tell shareholders how changes to the U.S. tax law will impact
their long-term plans.
Corporate strategies should cover financial metrics, he wrote,
but to achieve those “you must also understand the societal impact of your
business, as well as the ways that broad structural trends—from slow wage growth
to rising automation to climate change—affect your potential for growth.”
In 2017, BlackRock and Vanguard supported a successful
shareholder proposal at
Exxon Mobil Corp. that
called for the company to share more information
about how climate change and regulations could impact its operations.
BlackRock also cast votes over the past year against directors at
some companies due to
concerns that they sit on too many boards.
Corrections & Amplifications
BlackRock Inc. and Vanguard Group supported a successful shareholder proposal
for Exxon Mobil in 2017. An earlier version of this article incorrectly said it
was in 2018. (Jan. 16, 2018)