An Open Letter to Larry Fink: One Stakeholder’s Reflections on The Power of Capitalism

For the last ten years, Larry Fink, chairman and CEO of BlackRock, the largest money-management firm in the world, has written an annual open letter to CEOs sharing his insight on some of the most pressing issues in the world of business. This year, he announced that environmental sustainability will be a core goal of BlackRock’s future investments.

Dear Mr. Fink, 

Thank you for writing your 10th annual letter to CEOs. As the leader of one of the world’s largest asset management companies, your words have incredible power and sway, not just over the business leaders you write to, but also the management consultants, entrepreneurs, investors, and others who influence the way business is done. Your words have the power to turn heads, open eyes, change minds, and shift global markets. The flurry of media coverage of this event alone demonstrates your reach, influence, and impact. I personally believe it is your ability to see the big picture, to understand global trends, future probabilities, and generally take a long-term perspective that has helped you achieve the remarkable, unparalleled success you’ve had with BlackRock over the past 34 years.

In this year’s letter, you wrote that a clear sense of purpose, consistent values, and engagement with key stakeholders are the building blocks of exceptional companies. I agree! Capitalism should be driven by mutually beneficial relationships between a company and its employees, customers, suppliers, and the communities in which it operates. Further, I agree that “in today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders.” It’s imperative that we shift, as rapidly as possible, toward a new paradigm of business and capitalism - one in which success is measured not by the value created for shareholders alone, but by the shared value created for all stakeholders. The notion of companies continuing to focus on profit alone is woefully inadequate given the systemic crises we face as a society. Thank you for sharing this important message.

While you herald these ideals, you also profess that the reason a company must do this is “in order to deliver long term value for shareholders”. If this is the sole (or even the primary) reason behind your suggestions, then this is where our thinking diverges. I believe this focus on long-term value for shareholders will keep capitalism trapped in a shareholder-centric paradigm that has and will continue to contribute to the problems we face today. If we don’t move away from treating shareholders as the ultimate beneficiaries of our free market system, the role of business in society will not truly evolve - and it certainly won’t work for all. Even in stakeholder-centric approaches, we regularly see a business’ profit continue to come first, while negative or unintended consequences are justified by the good that company does elsewhere. Being the “least bad” will not get us where we need to go… at least not with the urgency required.

You elucidated your view when you said, “Make no mistake, the fair pursuit of profit is still what animates markets”. But what is the “fair pursuit of profit”? I am curious how you would define this. Who is the arbiter of fairness? Is it fair that some are born into more privilege than others? Is it fair that society treats people differently depending on their gender, the color of their skin, their age, religion, or nationality? Is it fair that there is a racial wage gap in America which, in 2020, saw the median income of black families come in at just over $41,000, while white families had a median income of more than $70,000? No, I think not.

In my time on this earth, I have neither observed nor experienced fairness as a concept that applies to humans or human action. Moreover, I do not believe that a truly fair and level playing field is what leads to a world in which a few thousand billionaires control 3.5% of the global wealth, while the poorest 50% of our global population controls merely 2%. Let’s stop to consider that: a few thousand people possess nearly twice the wealth of the poorest 3.5 billion people. The overall income gap is only widening in most countries, and the pandemic has accelerated it. Indeed, as you point out, access to capital is not a right — it is quite clearly a privilege. I would argue that the same is true with access to opportunity.

For the past 200 years, the dominant, largely unbridled approach to capitalism has created a “thriving global economy”, but it has failed the environment, and arguably society. While global poverty rates have declined in the last 50 years, we are far from operating in a stakeholder-centric approach to business that truly creates sustainable, system-wide value. In your letter you say that genuine stakeholder capitalism must include the earth, its ecosystems, and its incredible resources - I agree with this point and I applaud you for making it! There should be no conversation about the present-day global economy or our future that doesn’t include the powerful impact of climate change and our global climate emergency. 

We are all stakeholders when it comes to climate change. Carbon emissions impact far more than the local communities where they originate; just as rising sea levels will not impact the worst polluters first. How should business account for that? How do we evolve toward a new paradigm in which business can thrive while being environmentally restorative, socially just, and economically inclusive? How can we take the long-term view that has been part of BlackRock’s strategy and success while also rewarding bold, innovative moves? We have the knowledge, tools, and ability to change… It is behavior change that remains a challenge. 

Reflections On a New World of Work

The changes and challenges that employers and employees have experienced during the pandemic have been seismic. In truth, this pandemic has given all of us the opportunity to look in the mirror and check in with ourselves about how we are living and what we are here to do. Many are ready for change. I want to challenge your idea that the quits rates we’ve seen in the US and UK during the Great Resignation are just about workers “seizing new opportunities” and that this “demonstrates confidence in a growing economy”. I believe this rose-colored perspective doesn’t account for the extreme frustration, exhaustion, burn-out, stress, and lack of appreciation that is driving many to quit. It doesn’t account for the fact that toxic workplace culture is 10.4 times more likely to motivate a resignation than compensation, regardless of industry. 

You wisely point out that “workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees.” Here too, I agree with you wholeheartedly. I also appreciate that you go on to challenge the CEOs you write to by asking how they’re deepening the bond with their employees. We know that a sense of safety and belonging are prerequisites for maximizing creativity, innovation, and productivity. Company cultures must adjust and adapt. LinkedIn’s 2022 Global Talent Trends Report focuses almost exclusively on the importance of reinventing company culture to meet the needs of the modern workforce. Retention rates will be just one sign of how well leaders are doing this. 

Defining “Stakeholders”

You share that “most stakeholders - from shareholders, to employees, to customers, to communities, and regulators - now expect companies to play a role in decarbonizing the global economy.” Given the climate emergency, this stance is reasonable, and the impact of this pressure will only continue to grow. This is how social movements drive behavior change. Leaders should take this opportunity to embrace stakeholder engagement; to lean in and hear the concerns, take action, and build trust! However, earlier in your letter when you spoke of activists and the media politicizing a company’s actions or hijacking a brand to advance their own agenda, your tone was more adversarial than inclusive or curious. Are these people not stakeholders also? I want to challenge you to expand your definition of who is to be considered a stakeholder. In my opinion, companies and leaders who openly engage with activists and the media as stakeholders rather than adversaries build trust and longer-term success. By engaging with activists, companies can learn faster and push themselves further toward more humane operational and governance models.

Lastly, you share that BlackRock’s focus on sustainability is not because you are environmentalists, but because you are capitalists and fiduciaries to your clients. Why should this be binary? If we are truly to move toward a sustainable, stakeholder-centered approach to capitalism that creates value for all, how can these things be at odds? This stance reinforces the idea I challenged above - that business and profit should continue to come first, and companies can do some good elsewhere to justify whatever harm was caused in their pursuit of profit. 

I am a capitalist. I believe in free market competition. But I also care deeply about our planet and society, and I do not feel that the exploitation, degradation, and harm that has been caused in the last 300 years alone is justifiable. I firmly believe and agree that “capitalism has the power to shape society and act as a powerful catalyst for change.” It is critical for anyone who has the privilege to be invested in the market to be thoughtful about the choices they make. What we choose to do with our dollars is a vote for the kind of world we want to live in. Personally, I believe in aligning my investments with my values, but I am not so naive to think this is a universal approach, and I will not tell you to divest. I say this because I do not believe that divesting is the answer. However, if you are going to be a shareholder in some of the world’s most egregious carbon emitting oil and gas companies, it is your fiduciary responsibility to push them to change for the better - even if it temporarily results in smaller profit margins. And you, Mr. Fink, are powerfully positioned to pressure firms to change.

While divesting is not the answer, remaining invested and continuing to profit while offering your firm’s clients the chance to participate in votes is also not progressive enough. The time for incremental, slow steps toward being “less bad” is gone. Shareholder activism can yield much needed improvements in corporate governance, employee policies, environmental impact, and social outcomes. Consider how you can advocate for a more sustainable future and an economy that works for all, pushing firms to radically transform their policies and operations. Empowering clients with choice on ESG votes is a great advancement, and I applaud this change. But I also urge you to leverage your position of power to pressure the oil and gas companies in BlackRock’s portfolio to pursue aggressive and innovative changes that reduce emissions, including capturing carbon at all extraction points. Purchasing offsets while continuing to practice business as usual will not get us to a new, prosperous global economy that works for all. 

"We can’t save the world by playing by the rules, because the rules have to be changed. Everything needs to change – and it has to start today."

~ Greta Thunberg

It is true that business cannot drive these changes alone, but we do not have the luxury of making changes slowly, and we cannot wait for government regulation to pave the way.

I’ll close by thanking you for another thought-provoking letter. Your letters have done so much to advance the focus on good governance, social-purpose, and stakeholder centricity. Thank you also for launching a Center for Stakeholder Capitalism. I look forward to seeing how this can help us explore, research, and debate the relationships between companies and their stakeholders, and between stakeholder engagement and shareholder value.

May we all remember that this is not the 11th hour. This is the hour. It is the time for bold action, and swift change - not platitudes and empty talk. And it is the responsibility of those with the most power and privilege to be loud, vocal advocates for true stakeholder-centricity and social purpose.

With gratitude & sincerity, 

One concerned & curious stakeholder