January 18, 2018

BlackRock: Serve the Greater Good – Or Else. . .

Earlier this week, BlackRock’s CEO Larry Fink sent his “annual letter to CEOs” of companies in BlackRock’s portfolio. This one’s pretty extraordinary – it makes it clear that as far as BlackRock’s concerned, from now on, doing well isn’t good enough:

Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

Fink’s letter goes on to say that BlackRock intends to focus on whether companies are serving a social purpose in its engagement efforts.  BlackRock expects each of the companies in which it invests to develop a strategic framework for long-term value creation – and that strategic framework must go beyond financial performance:

Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, 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.

These comments are accompanied by a reminder that since BlackRock can’t dispose of shares in its index funds, “our responsibility to engage and vote is more important than ever.”

BlackRock’s new stance is sparking controversy – CNBC reports that investor Sam Zell called its action “extraordinarily hypocritical” and asked whether America was ready to have BlackRock “control the New York Stock Exchange.”  Controversial or not, when the world’s biggest fund manager speaks, companies don’t have much choice but to listen.

Here’s a WSJ article, Davis Polk blog – and a Wachtell Lipton memo. Meanwhile, BlackRock hopes to increase the size of its “Investor Stewardship” team globally to over 60 by the end of 2020…

ICOs: “Mama Don’t Take My KodakCoin Awaaay . . .”

So, now Kodak is getting into the cryptocurrency business – because, well, why not?  Unlike most of these coin deals, I can actually understand the concept behind this one.  Here’s an excerpt from Kodak’s press release:

Utilizing blockchain technology, the KODAKOne platform will create an encrypted, digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform. With KODAKCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and for both professional and amateur photographers, sell their work confidently on a secure blockchain platform.

Kodak is doing this deal on the up & up – it’s structured as a Rule 506(c) private placement, so there’s no attempt to make an end run around the federal securities laws.

Rochester’s my home town, and I’d dearly love to see our fallen giant hit this one out of the park. Unfortunately, while I was kind of intrigued by the concept, the reaction to Kodak’s announcement has been decidedly mixed. Naturally, the stock market loved it because Kodak used the magic word “blockchain” in its announcement – but other observers have been more skeptical. For instance, this article by Bloomberg’s Matt Levine says that there’s a lot less to KodakCoin than meets the eye. Here’s an excerpt:

Look: Kodak wants to run a web crawler and a central database of photographs. You don’t need to do that on the blockchain. It also wants to run a marketplace to match buyers and sellers of photographs. Again you don’t need to do that on the blockchain. You certainly don’t need your own currency to do that; lots of markets — the stock market, the supermarket, the existing market for photographic licensing — run on dollars, and what is convenient about dollars is that if you get dollars for licensing your photographs you can spend them at the supermarket.

The FT Alphaville blog was even more direct – and cutting – in its reaction to Kodak’s announcement:

Listen, a bunch of you out there have obviously programmed your algos to buy any stock that looks sideways at the words ‘blockchain’ or ‘cryptocurrency’. Please, stop it.

More on Our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– More on “D&O Questionnaires: How to Address Board Diversity?”
– NYC Comptroller’s Office Counts on Active Shareholder Engagement
– A Checklist for Voluntary Filers
– The Acceleration of “Social Good” Campaigns?
– Shareholder Proposals: Companies Seek to Exclude Images

John Jenkins