In a January 12th letter that went out to chief executives of the world’s largest companies, the chief executive of one of the world’s most influential investors sent a message. BlackRock’s Lawrence Fink wrote:
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.
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.
Erin Rubin of NonProfit Quarterly highlights that, in 2011, Heron chair Buzz Schmidt was arguing similarly for the need for leadership from businesses and a level of moral accountability—and that the wherewithal of society is at stake. Rubin resurfaces Schmidt’s words:
In the final analysis, how an enterprise operates is fully as important for our productive future as what it produces or what it earns. For society’s purposes, the so-called externalities that result largely from the “hows” of enterprises doing business are intrinsic, inseverable components of their core activity. Before we spend any more time building new corporate forms and collaborative constructions, we must recognize the vast differences in the net contributions these enterprises make to society’s wherewithal and put our money where our values are. This recognition is especially critical in an era in which everyone understands the limitations of government. We can no longer cavalierly ignore the net positive or negative contributions that our enterprises make to society’s wherewithal and effectively abdicate our voting rights in this resource allocation process to financial intermediaries, the interests of whom, it would seem, diverge significantly from our own.
The years since this piece was written have underscored the essential nature of the core features of society’s wherewithal, a term Schmidt uses to refer to “all the means required for a healthy society to advance,” and which includes components such as:
For society’s purposes, the so-called externalities that result largely from the “hows” of enterprises doing business are intrinsic, inseverable components of their core activity. ... We can no longer cavalierly ignore the net positive or negative contributions that our enterprises make to society’s wherewithal.
So, Rubin asks, is BlackRock “a large new ally in the fight for social good?” Rubin’s answer is “probably not,” but she also acknowledges that “what BlackRock has provided is a tool for accountability and an acknowledgement that responsibility to stakeholders encompasses all the people in a community, not just the ones who give you money.” That sounds like a step toward building up society’s wherewithal to us.