In 2018, BlackRock Founder, Chairman and CEO Larry Fink made headlines for his annual letter to CEOs. The coverage, I believe, was partly because of BlackRock’s influence globally. And, partially, the newness of hearing the chairman and founder of a publicly-traded investment company encouraging CEOs around the world to embrace social purpose.
Mr. Fink’s letter was a mile marker in the conversation about purpose. It reflected a changing view of leadership at the top. As I read and reread the letter, I realized that Mr. Fink wasn’t just encouraging executives to consider their social purpose. He was drafting the roadmap.
First, embrace change.
“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.” – Larry Fink
The demands on businesses to embrace social purpose are steadily growing. A 2017 Salesforce study found 80 percent of customers and employees believe businesses have a responsibility to make a positive impact on society. 76 percent of millennials consider a company’s social and environmental commitments when deciding where to work, according to a 2016 Cone Communications study.
Second, commit to purpose and profit.
“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” -Larry Fink
Said differently, “Leaders of tomorrow understand you have to have a strong mind and big heart.” This is my favorite quote because it is the future of leadership. It signifies the link between purpose and performance. I believe it also foreshadows the shifting sentiment from shareholder value to stakeholder value.
Next, take a long-term view.
“In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth…The statement of long-term strategy is essential to understanding a company’s actions and policies, its preparation for potential challenges, and the context of its shorter-term decisions.” – Larry Fink
Since Mr. Fink’s article was posted in 2018, we’ve seen businesses beginning to embrace the evolution from shareholder primacy to stakeholder value. Considering the needs of multiple stakeholder groups requires prioritization and trade-offs. Trade-offs that may not be realized immediately. It’s becoming paramount for leaders to not only be clear about their long-term value, but also their long term impact.
Prioritize your purpose.
“Furthermore, the board is essential to helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates.” – Larry Fink
In his letter, Mr. Fink highlights the critical role of the board of directors not just in managing value, but also articulating and managing purpose. I realized I looked upon the board of directors as decision-makers and risk managers. What I understand now is that they must assume these responsibilities with the clearest understanding of the organization’s purpose. There’s also a growing case for the board to solidify the relationship between purpose and performance through executive compensation.
“Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model.” – Larry Fink
A 2015 McKinsey & Company study on board diversity found companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. More importantly, commitment to the diversity of your board represents the prioritization of diversity within your business. Change starts at the top.
Finally, get started.
“Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change?” – Larry Fink
In the closing of his letter, Mr. Fink offers some helpful questions for businesses integrating social purpose. Some simple questions that translate to challenges for leaders to consider the ways in which they can embrace social purpose.
It seems the only questions left is what are we waiting for?