Every year Larry Fink, one of the biggest names in finance, writes a letter to the business world. Why has it become one of the most anticipated events in the calendar?
Claudia williams, narrating:
Hello, Iâ€™m Claudia and this is the Sensemaker.Â
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Today, a man and his letter and what it can tell us about the state of capitalism.
Every year, in early January, a letter is published.Â
Itâ€™s usually a couple of thousand words long, and itâ€™s addressed to the chief executives who run the worldâ€™s biggest companies â€“ and the shareholders who invest in them.
The letter is written by a man called Larry Fink.
â€śBlackRock CEO Larry Fink, his annual letter is officially out this morningâ€¦â€ťCNBC
Growing up in California in the 1950s, Larry Finkâ€™s parents saw his older brother as the â€śsmart oneâ€ť. Larry Fink was forced to help out in his dadâ€™s shoe shopâ€¦ whereas his brother didnâ€™t have to.
But several top investment banks disagreed with the Fink parents and he has gone on to become known as the king of Wall Street. Heâ€™s now the founder and chief executive of the investment giant BlackRock.
And over the past decade, his annual letter has become a highly anticipated moment in the corporate calendar.Â
Thatâ€™s because he is one of the most influential voices in business.Â
â€śLarry, itâ€™s great to see you. I imagine clients all around the world want to have a few minutes with you so Iâ€™m so thankfulâ€¦â€ťUCLA Anderson
Since his first letter in 2012 when he publicly criticised his fellow CEOs for pursuing short-term strategies, Larry Finkâ€™s letters have become an event.
â€śNow Finkâ€™s annual letters CEOs closely watch of course and this is considered a watershed in the world of business often times changing the conversation, the dialogue with these lettersâ€¦ â€śCNBC
Theyâ€™re read in boardrooms and newsrooms, and shape the global agenda about how business is done.
â€śIâ€™ve now been to a number of dinners where your letter has already been the topic of conversationâ€¦â€ťCNBC speaking to Larry Fink at Davos, 2018
Every year, Larry Finkâ€™s letter tends to land one big point with companies and the people who run them. Recent letters have covered the importance of long-term strategies, looking outwards, and having â€śpurposeâ€ť.Â
The theme of this yearâ€™s letter?
â€śQuote, stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not â€śwoke.â€ť It is capitalism.â€ťFox Business
Put simply, Larry Fink is hailing the power of capitalism with a conscience.Â
So, what does his 2022 letter tell us about where capitalism is now?
To understand the main point Larry Fink made in his 2022 letter, we need to go back and look at what heâ€™s been saying for the past few years.
This is him speaking in 2018â€¦
â€śI believe the companies that have purpose are the best companies in the world because it unites their employees, it connects the clients, but most importantly it brings the organisationâ€¦â€ťLarry Fink speaking to CNBC
Cue: business leaders rushing to publish their companyâ€™s â€śpurposeâ€ť and announce their green agendas.Â
Because BlackRock is the worldâ€™s biggest investor, managing more than $10 trillion in assets. And if Larry Fink says companies should have a purpose and be more green, companies will follow.because they want to be part of BlackRockâ€™s investments.
â€śAnd Iâ€™m really pleased to say that $4 trillion of money has moved into more sustainable strategies and itâ€™s accelerating, I talked about in my 2020 letter the tectonic shift that we are going to seeâ€¦â€ťLarry Fin speaking to CNBC
His comments are all part of a bigger debate: what is the duty and responsibility of a company? For decades the dominant economic idea was that businesses have no social responsibility, their only duty is to their shareholders.
But Larry Fink has clearly moved the argument, telling companies they need to stand for more than just generating income, and insisting they have a role in both helping society and reducing the risks of climate change.Â
Of course there are plenty of people who argue that capitalism isnâ€™t the answer here.Â
And lots of critics have pointed out that, well, BlackRockâ€™s own business practices can fall short of Larry Finkâ€™s great ideals. The asset manager still invests in fossil fuels and other industries with high greenhouse gas emissions.Â
In the letter Larry Fink explains he doesnâ€™t think that divestment will solve the problem of climate change.Â
And he directs his attention to one key group. Heâ€™s saying to people who only care about making money: it is good business to be a good business.
Thereâ€™s one line in this yearâ€™s letter thatâ€™s grabbed the attention of boardrooms and newsrooms.Â
He wrote, â€śMake no mistake, the fair pursuit of profit is what animates marketsâ€ť.Â
In other words, Larry Fink is saying that investors still want to back companies that make money â€“ but companies who thrive in the long run have to behave well while they go after profit.
â€śWhat Iâ€™m trying to say is, many people believe social values or environmental issues are political and woke. I donâ€™t believe thatâ€¦ and itâ€™s about building deeper, broader connectivity with your stakeholders and for that youâ€™re building durable profitabilityâ€¦â€ťLarry Fink speaking to CNBC
He believes profit isnâ€™t incompatible with doing the right thing.
â€śBasically what he was saying in his letter was you can have capitalism and have appreciation for other stakeholders besides shareholders.â€ťYahoo Finance
So you can keep shareholders happy by making a profit, and, at the same time, appreciate communities, customers and the environment.Â
And the pandemic has shown CEOs also have a duty to look after their staff.Â
For companies that have expected their workers to go to an office five days a week for stagnant wages in an atmosphere where mental health is never discussed, he also has a message: â€śThat world is gone.â€ť
So what is the big takeaway?
Although lots of people think itâ€™s an either or situation â€“ that companies either care about the environment and social causes or they make profits â€“ Larry Finkâ€™s 2022 letter makes his own stance clear. That you can â€“ and must â€“ have both.Â
For Larry Fink, itâ€™s those companies that will be far more sustainable in the long run.
The message is this: Help save the world â€“ and make money while doing it.
Todayâ€™s story was written and produced by Imy Harper.
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