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... 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.
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.
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 :
> 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.
Now however it's becoming more fashionable to not simply have the cheapest price, but to have things like socially responsible sourcing of products (coffee especially does this), low friction purchasing processes and easy returns (Amazon), companies that make note of being produced in the same country, companies that make efforts to take care of their own staff making it more palatable to pay more to ensure the people making what you consume are paid living wages, or subscription convenience allow products that are technically higher priced to compete in the market much more effectively than previous years.
I.e. the drumbeat of the last few decades, where employees are paid the bare minimum possible, where corners are cut at every aspect, where service and quality take a backseat to just the lowest possible price, are going out of fashion. The rules of the game are changing, and so the players must also change.
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.
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.
Shareholders are detached from negative externalities of their investments unless they pay a financial price. We certainly can't count on shareholders to rein in a company like Equifax, no matter how much harm their investments might cause. There will always be plenty of investors who care only about profit.
Imagine a farmer who farms to exhaust the soil. He earns money but in 30 years, the farmland is rendered useless. He becomes poor in the end.
Another farmer farms slower, leaving fallow years, sustainably. He earns less money but 30 years later the farm is productive. He remains wealthy in the end.
Going from farmer 1 to farmer 2's strategy is not a change in ethics. The second farmer didn't care about the land as an end in itself. He just thought longer into the future, and knew how to measure assets that weren't obvious (in his case, land quality; in real life, loyalty, image, healthy communities to embed in).
A capital investor now needs a lot of profitable years to recoup their investment. One single scandal like VW emissions may jeopardize a lot of years profits.
Curious what was hoped that didn't work?
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.
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.
> Perhaps capitalism is realizing...
Sorry, but capitalism won't "realize" anything by itself. We should not leave any aspect of our social safety net up to the whims of hedge-fund a-holes, financiers and large corporations who have demonstrated over and over and over what they _really_ care about.
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.
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.
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/
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.
Fink isn't part of society? Blackrock isn't part of society? Who counts as "society"? If Fink and Blackrock are excluded, do you have a guideline for who is allowed to decide these things on behalf of society?
Society can make collective decisions using collective mechanisms. Mostly: voting and markets. But it can also be things like organised religions, other voluntary communities and so on.
When one guy has accumulated large sums of money by promising to invest it only on the basis of yield and then turns around and starts throwing that weight around, he's effectively overriding the collective judgement of many other people who can't cause as immediate an impact on any specific firm as he can.
By investing with an organization, individuals and institutions are authorizing that organization to make investment decisions on their behalf within the stated objectives and requirements of a given fund. In this case, Fink's thesis is that social responsibility will lead companies and consequently funds investing in those companies to outperform in the long run, which is in line with the firm's obligations as a fiduciary. If investors feel like this perspective isn't representative of their individual judgement, they can take their money elsewhere. If investors continue to invest with BlackRock, they're deferring to Fink's judgement on this issue and nothing is being "overridden".
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...
Zero Hedge is a pile of propaganda and you shouldn't believe anything you read in it.
> Mike Whitney explained last September:
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.
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:
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.
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.
“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.
Hypocrisy is a thing that impacts arguments because arguments are usually, by their nature, somewhat subjective and based on many barely articulated judgements, the text of an argument being something of a gloss over the thinking that we hope has gone into it.
So if someone argues strongly that path A is the right path, then walks path B, that suggests their argument was dishonest and that they may know things or believe things that they didn't let on, and that if they had, maybe we'd want to walk path B as well.
In this case BlackRock is telling others to "contribute to society", which is vague enough to be meaningless to begin with, but then muddies their position even further by doing things that don't appear to be implementing their own advice. So if even they don't believe in it, why should anyone else?
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.
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.
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.
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.
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.
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.
"Property is an obligation. It's use must also serve the general good."
(From here: https://www.gesetze-im-internet.de/englisch_gg/englisch_gg.h...)
> Property obliges. Its use should also serve the public good.
which is more or less accurate.
> If you want to spend your resources on public good, find a good charity.
That's kinda like saying cars should only go fast, if you also want to not die when taking a breath outside, you have to wear a gas mask or deploy nanobots that remove pollutants from the atmosphere.
Public transport is fastest when everybody just uses kung fu to move others out of the way, and when the doors are razor sharp and close on a timer -- if you also want people to not be injured, go to a hospital.
Honestly, when I got this translation it was so absurd that I was completely sure that I miss something here. What does "property" oblige you to? How can state's constitution dictate to what end property can be used?
If I would be living in a country with such a constitution, I would either try to change it, move somewhere else or just consider myself not morally bound by the country's laws as completely immoral.
> That's kinda like saying cars should only go fast, if you also want to not die when taking a breath outside, you have to wear a gas mask or deploy nanobots that remove pollutants from the atmosphere.
I think that for a productive discussion, we need to separate two things: main goal and side conditions. You have a good point that any paperclip optimizer should have necessary side conditions, like "not destroy the world while you're at it". However, in it's decision making process these conditions should be very different from the main goal: they should be simple boolean categories, just something that you have to maintain at all times, not a numeric parameter that you can increase indefinetly - this should be goal.
Thankfully, companies already have boolean conditions like that, they're called laws.
Immediately preceding is the order to always preserve and protect private property.
Those financial interests aren't served by depressions or die-offs. It's a pedant's point, not one that affects any of the points I made.
Shifting the job of promoting social good to FMs also makes it impossible to compare them. They will all be able to excuse their shitty performance by saying that they earned their clients 22 Bonus Society Points this quarter.
Finally: corporate responsibility of this variety is ephemeral. The correct avenue to obtain lasting change in corporate behavior is via government regulation. All private sector brouhaha about social responsibility does is give regulators a dodge: it allows them to say "look, they're self regulating!" and then sit on their hands.
Short-sold stocks are 'borrowed' from an investor who has less market information than the trader.
The trader deliberately hides that information so as to leave the owner holding the bag when the price drops, whilst pocketing the difference as profit.
Doesn't seem ethical to me. Legal, yes.
To benefit society, one has to be capable of empathy. Whilst human individuals often are capable, the plural of human is cattle.