Corporations have a major social role in modern societies

Until not too long ago, the widely accepted conventional wisdom regarding corporations and their activities was that “the business of business is business”. In other words, stick to what you know, focus on delivering innovative products at competitive prices and let others worry about externalities.

Well, it is no longer so. Laurence Fink, CEO of Blackrock a giant money management firm, tells companies that beyond taking care of their core business they also have important social responsibilities. If they do not understand them they may not be successful in the future.  Here are some excerpts from his Annual Letter to CEOs.

“We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. 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. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

“Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.”

–Annual Letter to CEOs by Laurence D. Fink, Founder, Chairman and Chief Executive Officer of BlackRock, Inc.