In his annual letter to CEOs around the globe, Larry Fink, Chairman and CEO of BlockRock, the world’s largest investment company, boldly states that investments in people are critical to maximizing long-term value creation. His letter mirrors initiatives by other leading investment companies with combined assets of over $10.6 trillion, meaning that with BlackRock’s $5 trillion in investments, there are now investors controlling over $15 trillion in assets focused on investments in people. See: Momentum Grows for Human Capital and Employee Engagement Disclosures by Public Companies.
New Circumstances Require a New Focus
Fink believes that the anticipated rise in inflation, backlashes against globalization, the disproportionate impact on Rust Belt region workers exacerbated by automation and other factors will force large organizations to shift the focus of their strategic plans toward people and sustainability. Public companies may be facing less regulation from government in the U.S. in the current administration, but investors are only increasing their own pressure on public companies to invest in people and sustainability. It is now estimated that one in every 6 investor dollars is influenced by environmental, social and governance factors (ESG), a point Fink underlines in his letter.
“ESG factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects,” he writes. “We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates. A global company needs to be local in every single one of its markets. BlackRock also engages to understand a company’s priorities for investing for long-term growth, such as research, technology and, critically, employee development and long-term financial well-being. The events of the past year have only reinforced how critical the well-being of a company’s employees is to its long-term success.”
Fink to CEOs: Invest in People or Else
While Fink asserts the BlackRock doesn’t micromanage, he says investors will hold companies accountable if they to fail address corporate governance and management issues critical to providing long-term value. Investments in people, he writes, are critical. “America’s largest companies, many of whom are struggling with a skills gap in filling technical positions, must improve their capacity for internal training and education to compete for talent in today’s economy and fulfill their responsibilities to their employees. In order to fully reap the benefits of a changing economy – and sustain growth over the long-term – businesses will need to increase the earnings potential of the workers who drive returns, helping the employee who once operated a machine learn to program it.”
Fink means business. “When BlackRock does not see progress despite ongoing engagement, or companies are insufficiently responsive to our efforts to protect our clients’ long-term economic interests, we do not hesitate to exercise our right to vote against incumbent directors or misaligned executive compensation.”