
BlackRock’s Message: Contribute to Society, or Risk Losing Our Support - lnguyen
https://www.nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html
======
OliverJones
The idea that businesses' sole loyalty must be to shareholders is not ancient,
and it is not a long-standing central tenet of capitalism.

On September 13 1970, the University of Chicago economist Milton Friedman
published an article in the New York Times Magazine under the headline "The
Social Responsibility of Business is to Increase its Profits". You can find it
here.
[https://www.colorado.edu/studentgroups/libertarians/issues/f...](https://www.colorado.edu/studentgroups/libertarians/issues/friedman-
soc-resp-business.html) Much of the shareholder-only ethic of US business is
based on that article.

Mr. Fink and his investment firm seem (to me) to be part of a movement to
relax that single-minded approach to corporate ethics. Obviously a company
that extracts every bit of value from its customers, workers, and host
communities leaves them less resilient and certainly less loyal to the
company. Uber's the egregious example, but there are plenty of others. Mr.
Fink is betting that companies who don't extract everything will have a longer
future.

It's worth a try. The Friedman approach has now been tried, and it's not
working as well as some might have hoped.

~~~
didgeoridoo
The Friedman approach is merely to recognize that the executive’s
responsibility is to execute the desires of the shareholders. The “profit at
all costs” mantra comes from the (sometimes false) idea that shareholders care
only about profits, and not about using the corporation as a vehicle for
social impact.

In this case, BlackRock (the shareholder) is making its desires clear —
profits are not the only standard by which its companies will be evaluated.
This is fully in accordance with Friedman’s principles. In fact, this kind of
shareholder activism is only possible if executives are held to Friedman’s
standards. Otherwise, they could just tell the shareholders to piss off.

~~~
croon
> The Friedman approach is merely to recognize that the executive’s
> responsibility is to execute the desires of the shareholders. The “profit at
> all costs” mantra comes from the (sometimes false) idea that shareholders
> care only about profits, and not about using the corporation as a vehicle
> for social impact.

How do you reach this interpretation? Friedman himself explicitly used the
word "profits".

This is Friedman's own words, in the 1970 article he wrote in the NYT [1]:

> That is why, in my book Capitalism and Freedom, I have called it a
> "fundamentally subversive doctrine" in a free society, and have said that in
> such a society, "there is one and only one social responsibility of
> business–to use it resources and engage in activities designed to increase
> its profits so long as it stays within the rules of the game, which is to
> say, engages in open and free competition without deception or fraud."

Either we charitably interpret his writings as broadly as possible, and we get
into a religious debate over which denomination under Friedmanomics is the
"One Truth", or we can just recognize that maybe it's time to reconsider some
things in supply side capitalism, and try another implementation of
capitalism.

I'm also very tempted to point out that the last point in his doctrine in
practice likely is an unavoidable effect of supply side economics, thus
incompatible with the idea behind the principle.

[1]
[https://www.colorado.edu/studentgroups/libertarians/issues/f...](https://www.colorado.edu/studentgroups/libertarians/issues/friedman-
soc-resp-business.html)

~~~
cirgue
> so long as it stays within the rules of the game, which is to say, engages
> in open and free competition without deception or fraud."

This is also an enormous caveat. The type of fiduciary responsibility espoused
by Friedman seems to be completely at odds with the type currently practiced.

~~~
croon
Indeed, that was what my last line was hinting at, although I could've phrased
it less cryptically.

Friedman also supported tax cuts and deregulation.

Combining those two is like saying that the human body works fine as long as
no organ malfunctions. While technically true, it's completely irrelevant to
whether or not it's a scenario worth debating, and whether or not we in
reality need doctors and medicine.

We wouldn't need law enforcement if everyone followed the rules either. It's
still not the case.

------
afriend4lyfe
"Despite Mr. Fink’s insistence that companies benefit society, it’s worth
noting he’s not playing down the importance of profits and, while it’s a
subtle point, he believes that having social purpose is inextricably linked to
a company’s ability to maintain its profits."

Perhaps capitalism is realizing what thinking long term actually means then?
The future for humanity is bleak if we continue down the path of unsustainable
business practices. At this point we really do know better. We can't allow our
only natural habitat to be exhausted for the sake a few luxurious generations.

At the current rate our businesses are exploiting the environment and people,
it's honestly hard to say what's bound to happen first, the planet reaching
its limit or the poor eating the rich. Either way, change gon' come. Hopefully
we avoid all of that and start thinking about more than just our own immediate
futures.

In this way, I think the real long term strategy is to inject some compassion
and empathy into business.

~~~
betageek
That's an optimistic view, but think (late) capitalism is realising that it's
putting it's own short term profits in jeopardy, and it's just good business
to recognise that.

It's pretty obvious there's a growing wave of consumers that are realising
that capitalism may be out of control in regards to social issues like the
environment and workforce exploitation, and this can have a real and immediate
impact on the companies profits and stock price if uncovered - Volkswagen lost
64% of it's value in a few months after the emissions scandal and profits were
down 20%. The likelihood that corporate misdeeds are uncovered is only
increasing as whistleblowing and hacking become more common.

People seem to think protecting shareholder value only involves growing the
company by any means necessary - this was always a ridiculous idea, some
growth choices put the whole company at risk, this seems like a nudge to
remind companies of that.

------
WillReplyfFood
If only i had this message on paper- i could make a hat from that. A hat can
keep you warm on rainy days, you can even fold them from shares if they go
down in value.

Why am i expected to wast time on letters of good intention. From a person who
would fight every government attempt to forcing it to actually implement this
mentality in actions. All that energy, that went into serverfarms to
distribute this drizzle- its gone, for nothing. Maybee they burned some tree
for that- and we cant even make a hat from this.

------
peoplewindow
_Side note: It isn’t clear why Jana went after Apple, considering that it has
better tools to manage the use of its products by children than anyone else in
the industry; but the general idea of technology companies paying more
attention to children’s health is a good one_

That is rather the key point, I think. Why Apple indeed?

The phrase "virtue signalling" is rather widely used and abused, but if it has
any definition at all it would have to mean something like this: the very
public and noisy display of moral purity through mounting public attacks on
those claimed to be less morally pure, specifically for the purpose of
boosting your own credentials.

If this firm Jana Partners and Calstrs actually cared about the topic of
children and electronics, and was pursuing some well thought out logical
agenda to increase child safety in industry, it would make more sense to
publicly request down-tier phone vendors whose child-related feature set was
not as good as Apple's to rise to their level. They would use Apple as an
example for everyone else, not attack Apple and imply that they don't care
enough. Objectively they seem to care more than most manufacturers do, even if
it's only a small amount (I guess Android has some similar features too these
days).

But if this firm is merely posturing and engaged in "virtue signalling", and
doesn't actually care much about numerically significant outcomes on children,
then it makes perfect sense to attack Apple because the goal is to be as noisy
and attention grabbing as possible and Apple has more brand recognition than
most firms do.

If major investment funds are being taken over by social activism, this
doesn't seem like good news for anyone. What makes us think that Fink in
particular has such great wisdom or insight into how society should be
remodelled. What if his idea of "contributing to society" looks rather
different to most other people's? And what will the people who put money in
his funds think, when they discover that he's using their money to advance his
own pet political causes?

When I was younger I used to think that faceless financial types like Fink
were bad, a part of The System and activism was wonderful. Now I'm older I
think the world could use a bit less naive activism and a bit more
understanding of how it got the way it is before people go and throw wrenches
into it. Fink should get back to delivering returns and let society itself
decide what "contributing to society" means.

~~~
ec109685
I am not sure how you don’t see that asking the most influential phone maker
in the world to focus on the effect of its devices on children won’t
numerically improve outcomes? Of course it makes sense to focus on the market
leader that influences the industry rather than marginal down market devices.

Also, I don’t think apple’s controls are all that good. MacOS X has quiet time
for kids, etc. I don’t think iOS has that. Android also allows more invasive
apps to take over more of the OS if parents so desire to exert more control
over the device. You can see some of the rigmarole that this parent control
app has to deal with on iOS: [https://screentimelabs.com/help/ios-
differences/](https://screentimelabs.com/help/ios-differences/)

~~~
peoplewindow
iOS is not the market leader in any market? Android dominates everywhere, as
far as I know, although moreso in some markets than others. And Android is
open source, so Jana could easily fund child-safety features themselves if
they disagree with Google or Samsung or Huawei on prioritisation.

Regardless, the fund in question hasn't made specific suggestions for what
Apple - apparently the market leader in this particular feature - could do
better. Perhaps Jana has no such ideas and merely feel that publicly attacking
Apple will be sufficient to get the creative juices flowing. In that case they
are wrong. If they don't feel like actually contributing features in question
then they should, at most, be telling others to look at the design work Apple
has done and copy it. They should not be making generic exhortations to Apple
to "work harder", because that looks strongly like virtue signalling and is
thus ignorable.

~~~
ec109685
Apple is the leading device manufacturer. And Apple doesn't have a mechanism
to limit screen time on their devices. There are solutions in the Android
ecosystem that do that.

------
patrickg_zill
[https://www.zerohedge.com/contributed/2013-06-05/real-
reason...](https://www.zerohedge.com/contributed/2013-06-05/real-reason-
housing-prices-have-skyrocketed)

Blackrock got easy terms under NDA for buying up rental housing, getting
sweetheart deals not available to individual home buyers. Now they have the
arrogance to engage in moral posturing?

How about they disclose the terms under which they bought those rentals?
Something tells me the current administration won't mind...

~~~
fwdpropaganda
Hey, I'm going to say this as well itentioned as possible. Please keep an open
mind and as always do your own research:

Zero Hedge is a pile of propaganda and you shouldn't believe anything you read
in it.

> Mike Whitney explained last September:

(QUOTE)

At the end of the first paragraph of (QUOTE) they have (businessweek). If you
search for that text, it doesn't appear in businessweek, it appears in all
sorts of nutter right-wing websites.

What does that show about the content of the article? Nothing. But it does
show you one example of the tricks that Zero Hedge uses to make itself appear
more legitimate.

Also, do a bit of research about Mike Whitney. His living seems to be trashing
Obama. Does that mean the things he says are factually wrong? Again, no. But
from my experience the kind of people who first reach a conclusion and then
come up with the argument to support the conclusion, are typically dumb or
dishonest.

~~~
SyneRyder
I'm afraid your Businessweek example is incorrect. There is a link provided,
linking to Telegram.com with the complete article from Bloomberg Businessweek.
The link is broken, but it's cached at archive.org just after the date it was
published in 2012:

[http://web.archive.org/web/20120713014102/http://www.telegra...](http://web.archive.org/web/20120713014102/http://www.telegram.com/article/20120712/NEWS/107129806/1237)

So why link to the Worcester County Telegram's syndication of Businessweek
articles, and not directly to Bloomberg Businessweek? Because old Bloomberg
articles are behind a paywall and only accessible to Bloomberg Professional
Service Subscribers. Here's an example Bloomberg link from that year, note
that it only contains one sentence:

[https://www.bloomberg.com/news/articles/2012-10-29/bonds-
bet...](https://www.bloomberg.com/news/articles/2012-10-29/bonds-better-off-
with-6-5-under-obama-from-bush-s-4-6-)

As for being a right-wing nutter site, the Worcester County Telegram was owned
by The New York Times at the time they published/syndicated that article in
2012.

[https://www.bostonglobe.com/business/2013/11/26/john-
henry-s...](https://www.bostonglobe.com/business/2013/11/26/john-henry-sell-
worcester-telegram-gazette/NQI9Lu6jVz7NdTfqRSIdRP/story.html)
[https://en.wikipedia.org/wiki/Telegram_%26_Gazette](https://en.wikipedia.org/wiki/Telegram_%26_Gazette)

I generally agree with your sentiment on Zero Hedge (and all media),
definitely keep an open mind and do your own research. But in this case, it
does appear to be from Businessweek.

~~~
fwdpropaganda
There's two tiers of quotes there. What you pointed out is the referrence for
the inner quote (starting with "About 6 million U.S. borrowers..."). I was
referring to the outer quote, the one by "Mike Whitney". Am I missing
something?

~~~
SyneRyder
It applies to both quotes. Zero Hedge quotes Mike Whitney's article, and
within that Mike Whitney quotes Businessweek. The quotation from Businessweek
is the portion in quotation marks:

 _“synthetic financing to reduce the up-front capital required if they agree
to form a joint venture with Fannie Mae and share proceeds from the rental or
sale of properties "_

It's from the same Businessweek article, "Colony Capital wins foreclosed homes
in Fannie Mae auction". Mike Whitney attributes it only by title on his site,
but Zero Hedge added a Telegram.com link to the syndicated article. It looks
like Zero Hedge actually took an extra step to verify the Businessweek quotes
in this case.

------
oblib
If you look into the history of Sears you'll find the CEO, Theodore Houser,
addressed this issue in in the late 1950s with a book he wrote called "Big
Business and Human Values".

Mr. Houser retired from Sears in the 1960s when it was doing very well. When
we read his book now we find an interesting contrast with his successors as
time evolves and especially with his current one.

It's not a leap to say ignoring human values is exactly what led to Sears
current position, which was akin to Amazon.com when Mr. Houser was running it,
and for decades before him.

------
davidgrenier
Just so I understand this thoroughly, did BlackRock just gain BlackRock's
support or did it loose it? Perhaps there's no change in policy?

------
apple4ever
Sounds like I'll be divesting myself from any BlackRock investments. I invest
to make money, not for some "social justice" platform which usually is justice
only for the chosen. Plus the focus on the "climate", a non-science based
position is dumb.

------
debt
Muhammad Yunus whom won the Nobel Prize for micro financing, said in his book
that corporations need to also be financially hurt or helped by how much
social capital they contribute to society.

~~~
fogzen
Yes! Minor correction to spelling: Muhammad Yunus

Muhammad Yunus’ concept of Social Business is essentially using for-profit
enterprises that are self-sustaining to solve problems typically addressed by
charity: Poverty, unemployment, education, equal opportunity, clean water,
reduced carbon emissions, etc.

------
kchoudhu
I'm interested in why Blackrock thinks it has the right to use my retirement
funds to do anything other than maximize my gains.

You want to drive social responsibility from corporations, fine -- but do it
on your own dime. As every honest banker is taught fairly early on in his or
her career, OPM is sacred.

~~~
notacoward
They have a right and an obligation to serve their clients' _collective_ long
term interest. That may include acceptance of the fact that letting the world
burn (both literally and figuratively) for the sake of short-term externality-
denying profit might not serve that interest. They even have a right to forego
investments that their clients would find morally repugnant. As long as
they're clear and honest about which strategies and ideals they're pursuing,
your say is limited to investing with them or investing elsewhere. Your
pittance of a retirement fund doesn't give you the right to dictate every
detail of their activity. That would be denying that certain interests can be
represented in the market, and that's not how free markets work.

~~~
golergka
> They have a right and an obligation to serve their clients' collective long
> term interest.

Two points: (1) they have a right and obligation to serve their client's
_financial_ interest, as regarded to the money invested in them. They don't
have any obligation to serve any other form of their client's financial
interest - if you talked to them on the phone in a sad and depressed manner
and then they used your money to hire a psychologist to get you out of it, for
example, it might be in your interest, but it certainly wouldn't be what you
hired them for.

(2) It's their obligation to serve their _client 's_ interest, not the
society's. If the client would want to help the society as a whole is his
decision to make, not this institution's.

But sadly, any institution large enough inevitably forgets these two points
and gets too big for it's constituents to enforce them, governments being
first and foremost example.

~~~
Xylakant
> It's their obligation to serve their client's interest, not the society's.
> If the client would want to help the society as a whole is his decision to
> make, not this institution's.

Not in Germany, for example. The german constitution specifically states this:

    
    
      Art 14, (2) Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der Allgemeinheit dienen.
    

It's absolutely fine if a company decides to use its market power to shift
things towards community good. There are many investment funds and banks that
among their goals have benefits to society (GLS Bank, as another german
example). Companies are also not required to put clients short term interest
before the companies long-term survival. You're not forced to be a client,
you're welcome to move to a investment fund that doesn't have such a policy if
you think they perform better.

~~~
golergka
> Art 14, (2) Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der
> Allgemeinheit dienen.

Can you please provide an accurate translation? I doubt that Google Translate
is enough for such an important and meaning-dense thing. I'd like to argue
about it, but first I want to understand it.

> Companies are also not required to put clients short term interest before
> the companies long-term survival. You're not forced to be a client, you're
> welcome to move to a investment fund that doesn't have such a policy if you
> think they perform better.

Well, this is a good point that they _can_ do it - my point is that they
_shouldn 't_. Just like a single-purpose command line tools are more efficient
than a full-blown combine, financial organizations should be dedicated to one
single goal instead of trying to balance different points in their complicated
mission statements - it just breeds internal politics and actions that serve
public image first and real effect second.

If you want to spend your resources on public good, find a good charity.

~~~
chopin
It's roughly:

"Property is an obligation. It's use must also serve the general good."

~~~
sgift
(2) Property entails obligations. Its use shall also serve the public good.

(From here: [https://www.gesetze-im-
internet.de/englisch_gg/englisch_gg.h...](https://www.gesetze-im-
internet.de/englisch_gg/englisch_gg.html))

------
jamiethompson
The same BlackRock that's just made a killing short selling shares in the
failed UK public sector contractor Carillion?

~~~
joefarish
What is unethical about short selling?

~~~
jamiethompson
There is a suggestion that HSBC and others may have been working with inside
knowledge. Blackrock also hired the outgoing chancellor of the UK George
Osborne who was responsible for awarding vast numbers of contract to
Carillion.

~~~
mseebach
I read an article in FT this morning about how the Carillion problems were
hinted in annual reports going back to 2011 (and also how shorting them was
popular throughout 2016 and 2017). Hindsight is 20/20, but there's a real
chance that Blackrock are just pretty good at what they do.

------
eptcyka
You can tell a sociopath to not only do thing A but also B, but that won't
necessarily mean that both thing A and B will receive the same effort.

To benefit society, one has to be capable of empathy. Whilst human individuals
often are capable, the plural of human is cattle.

