January 19, 2022

BlackRock Threads the Needle: Takeaways for Companies

Yesterday, BlackRock CEO Larry Fink rounded out the guidance we’ve seen over the past week from the “Big 3” asset managers, by sending his annual letter to portfolio CEOs. This year’s tone seems a little defensive – it is less “Moses coming down from the mountain” and more “heading off rebellion in the wilderness.” Here’s an excerpt:

Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.

As far as practical takeaways for companies, one of the most noticeable things is the emphasis near the front of the letter on the importance of workers. Similar to the guidance SSGA just released, BlackRock wants more disclosure about “human capital” oversight. Here’s an excerpt:

At BlackRock, we want to understand how this trend [of worker turnover and new expectations of work and social issues] is impacting your industry and your company. What are you doing to deepen the bond with your employees? How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation, and productivity? How are you ensuring your board has the right oversight of these critical issues? Where and how we work will never be the same as it was. How is your company’s culture adapting to this new world?

Climate is still important too:

Our question to these companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?

We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders. It’s also why we ask you to issue reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD): because we believe these are essential tools for understanding a company’s ability to adapt for the future.

None of this will be very surprising to folks who have been tracking BlackRock’s voting policies and investment stewardship principles. While this annual letter signals broadly applicable themes that BlackRock plans to emphasize, companies should continue to consult those policy documents for guidance on specific topics as we head into proxy season.

Lastly, although BlackRock remains hugely influential and its policies will continue to be a deciding factor in voting outcomes at many companies for the foreseeable future, Mr. Fink took this opportunity to remind people that the asset manager will soon be giving up some voting power (here’s our earlier analysis of that announcement):

Just as other stakeholders are adjusting their relationships with companies, many people are rethinking their relationships with companies as shareholders. We see a growing interest among shareholders – including among our own clients – in the corporate governance of public companies.

That is why we are pursuing an initiative to use technology to give more of our clients the option to have a say in how proxy votes are cast at companies their money is invested in. We now offer this option to certain institutional clients, including pension funds that support 60 million people. We are working to expand that universe.

We are committed to a future where every investor – even individual investors – can have the option to participate in the proxy voting process if they choose. .

That doesn’t mean that BlackRock wants to exit the conversation, though. The asset manager is launching a “Center for Stakeholder Capitalism” – which will “bring together leading CEOs, investors, policy experts, and academics to share their experience and deliver their insights.”

Liz Dunshee