When BlackRock CEO Larry Fink wrote that that businesses must make a positive contribution to society in a letter to shareholders last month, the public debate over gun violence had not reached its current fever pitch.
Now that the topic is showing no signs of going away, the fact that BlackRock is one of the country’s biggest investors in publicly-traded gun manufacturers leaves Fink facing a complex situation, senior associate dean for leadership studies at the Yale School of Management Jeffrey Sonnenfeld told Chief Executive.
“This represents the complexity of acting on such inspiring, high-minded ideals,” Sonnenfeld says. “The subtlety of execution is so much more complicated, as they are the largest owner of two major gunmakers and heavily responsible for close to $1 trillion of U.S. assets that have gone into weapons companies.”
“You can make the pronouncement, but now it’s a matter of how can you show consistency in the follow-through?” – Jeffrey Sonnenfeld
BlackRock owns nearly 11% of American Outdoor Brands (formerly Smith & Wesson), and 16% of Sturm Ruger & Co. through its index funds. Sonnenfeld says Fink needs to find a balance between those holdings and the mounting pressure for gun regulation reform, in order to keep in line with his call for responsible corporate citizenry last month.
“You can make the pronouncement, but now it’s a matter of how can you show consistency in the follow-through, so nobody accuses you of paradoxical or hypocritical behavior?” Sonnenfeld says.
Fink also needs to recognize that this has become a spreading social movement, as the public debate over gun violence has risen to the level of the #metoo movement surrounding sexual misconduct and is showing no signs of subsiding in the near future.
Sonnenfeld says that as movements such as this gain steam, business leaders have to react publicly in some fashion. He points to the actions of Merck CEO Ken Frazier last August, when he quit President Trump’s manufacturing council over Trump’s initial failure to condemn white supremacists in the wake of violent protests in Charlottesville, VA. Several other prominent CEOs followed suit, causing Trump to pull the plug on the advisory boards to stem the negative headlines.
“This is a widespread movement, this is not just a passing fad or a one-day story,” he says.
BlackRock will also not be able to hide behind the narrative that it has little control over which companies are listed in its index funds. Indeed, BlackRock has already announced that it is exploring ways to remove gun companies from the portfolios of clients who don’t want to invest in them.
“These are hand-selected companies, and they aren’t there just for asset size,” Sonnenfeld says. “At a place like BlackRock, there’s nobody on the planet that has more influence over who should or should not be on an index fund. They have tremendous leverage.”