Companies that are looking to receive support from investment giant BlackRock are going to have to put a priority on social responsibility, board diversity and long-term strategy moving forward—a move that highlights the importance of how successful businesses are giving back to society.
In a letter to CEOs this week, BlackRock chairman and CEO Larry Fink wrote that financial success is only one piece of the puzzle for prosperous companies, and that businesses must make a positive contribution to society while benefiting shareholders, employees, customers and their communities.
“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,” Fink said. “Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate.”
“ I wouldn’t ignore what’s being said about ESG and diversity. I think that institutional investors are willing to back that up, when their investments allow.” – TK KERSTETTER
The statement from such a big player in the investment space shows that these matters will play an important role in how companies operate moving forward.
“We’ve seen [environmental, social and governance issues] start to be emphasized by more than just BlackRock, and that’s why boards need to pay attention,” TK Kerstetter, CEO of Board Resources LLC, and editor at large for Chief Executive’s sister publication Corporate Board Member says. “While there might be the thought that [boards] don’t need to focus on everything being thrown their way by institutional investors today, I wouldn’t ignore what’s being said about ESG and diversity. I think that institutional investors are willing to back that up, when their investments allow.”
Yale School of Management senior associate dean for leadership studies Jeffrey Sonnenfeld says the statement is a bold move that should be applauded.
“Larry Fink and BlackRock are to be congratulated on this call to recognize a wide slice of constituents which includes but is not limited to immediate investor returns,” Sonnenfeld told Chief Executive. “Only some state pension funds such as Calpers or targeted social responsibility funds such as Calvert or Domini have had such investment criteria. No large institutional investor has applied such criteria across their portfolios despite such sensitivity at Vanguard and TIAA over the years.”
Sonnenfeld cited PepsiCo’s successful “Performance with Purpose” sustainability initiative launched by CEO Indra Nooyi in 2006 as an example of a company handling corporate social responsibility the right way.
“[Nooyi] believes that doing good is not antithetical to doing well,” Sonnenfeld says. “Thus with unsurpassed investor returns in the food business, PepsiCo has exceeded its published soaring goals for 2025 to cut sugar, salt and saturated fats in most of its foods while reducing water use and waste production and promoting safe work conditions and global human rights.”
There is a bit of a challenge for CEOs and boards when it comes to articulating their long-term strategy, as they need to be clear and detailed enough to satisfy investors without tipping their hand to competitors.
“It’s a fine line, but BlackRock is making it clear that it’s something board members had better be able to talk about, because if not, it goes into the column that this board isn’t staying on top of strategy at the level that this investor wants,” Kerstetter says. “BlackRock has made it painfully clear that, right now, they’re not walking that line well enough as far as disclosure or engagement goes.”
The matter of board diversity also is important to BlackRock and will have an impact on which companies the investment firm chooses to support.
“Boards with a diverse mix of genders, ethnicities, career experiences and ways of thinking have, as a result, a more diverse and aware mindset,” Fink wrote. “They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.”