This year 2022, the letter from the Chairman and CEO of BlackRock, Larry Fink emphasizes the capitalism of stakeholders (interest groups). “Stakeholder capitalism is not a matter of politics. It is not a social or ideological agenda. It is not an ‘awakening’. It’s capitalism, fueled by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company depends on to thrive. This is the power of capitalism.”
the leader of BlackRock, the largest investment fund manager in the world, mentioned that “in today’s globally interconnected world, a company must create value and be valued by all its stakeholders in order to deliver long-term value to its shareholders. It is through true stakeholder capitalism that capital is allocated efficiently, companies achieve lasting profitability, and value is created and sustained over the long term. Make no mistake, the fair pursuit of returns is still what drives the markets, and long-term profitability is the measure by which the markets will ultimately determine the success of your company.”
He considered that the basis of capitalism There is the process of constant reinvention: how companies must continually evolve as the world around them changes or risk being replaced by new competitors. “The pandemic it has driven an evolution in the operating environment of virtually all companies. It is changing the way people work and the way consumers shop. It is creating new businesses and destroying others. In particular, it is radically accelerating the way technology is reshaping life and business. Innovative companies looking to adapt to this environment have easier than ever access to capital to achieve their visions. And the relationship between a company, its employees and society is being redefined.”
Fink stated that the Covid-19 it has also deepened the erosion of trust in traditional institutions and exacerbated polarization in many Western societies. “This polarization presents multiple new challenges for CEOs. Political activists, or the media, can politicize what your company does. They can hijack your brand to promote their own agendas. In this environment, the facts themselves are often in dispute, but companies have an opportunity to lead. Employees increasingly look to their employer as the most reliable, competent and ethical source of information, more than the government, the media and NGOs”.
new world of work
Larry Fink, who chairs the financial institution that manages assets of 10 trillion dollars, mentions that no relationship has changed more by the pandemic than the relationship between employers and employees. “The quit rate in the US and UK is at record highs. And, in the United States, we are seeing some of the highest wage growth in decades. It’s a good thing when employees take advantage of new opportunities – it shows their confidence in a growing economy.
“While turnover and increased wages are not a feature of all regions or sectors, employees around the world expect more from their employer, including more flexibility and more meaningful work. As companies rebuild after the pandemic, CEOs face an entirely different paradigm than the one we’re used to. Companies expected workers to come to the office five days a week. Mental health was rarely discussed in the workplace. And the wages of those with low and middle incomes barely grew. That world has disappeared.”
“An essential characteristic of effective capitalism is that employees demand more of their employers. It drives prosperity and creates a more competitive landscape for talent by encouraging companies to create better, more innovative environments for their employees—measures that will help them achieve greater returns for their shareholders. Companies that deliver on promises are reaping the rewards.”
He stressed that Companies that do not adjust to this new reality and do not respond to their employees do so at their own risk. Turnover increases expenses, reduces productivity, and erodes corporate culture and memory. CEOs need to ask themselves if they are creating an environment that helps them compete for talent.
New sources of capital
Global financial assets currently total $400 trillion. “This exponential growth brings with it risks and opportunities for investors and companies alike, and means that banks are no longer the sole gatekeepers of funding.”
“Young, innovative companies have never had easier access to capital. There has never been more money available to make new ideas a reality. This is driving a dynamic innovation landscape. It means that virtually every industry has a host of disruptive startups trying to take down the market leaders. CEOs of established companies must understand this changing landscape and the diversity of capital available if they are to remain competitive against smaller, more agile businesses.”
He said he believes in capitalism’s ability to help people achieve a better future, drive innovation, build resilient economies and solve some of our most intractable challenges. “Capital markets have allowed companies and countries to prosper. But access to capital is not a right. It’s a privilege. And the duty to attract that capital in a responsible and sustainable way is yours.”
Fink mentioned that few things will influence capital allocation decisions — and thus the long-term value of your company — more than how effectively you navigate the global energy transition in the coming years.
“Sustainable investments have now reached $4 trillion. Decarbonisation actions and ambitions also increased. This is just the beginning – the tectonic shift towards sustainable investing continues to accelerate. Whether capital is deployed in startups focused on energy innovation, or capital is shifted from traditional indices to more tailored portfolios and products, we will see more money in motion. Every company and every industry will be transformed by the transition to a world with net zero emissions.
He considered the next 1,000 unicorns will not be search engines or social media companies, they will be sustainable and scalable innovators, startups that help decarbonize the world and make the energy transition affordable for all consumers. “We need to be honest about the reality that organic products today often come at a higher cost. Lowering this green premium will be essential for an orderly and just transition. With the unprecedented amount of capital seeking new ideas, established companies must be clear about their path to success in a net-zero economy. And it’s not just startups that can disrupt industries. Bold established companies can and should too. In fact, many established companies have an advantage in capital, market knowledge, and technical expertise on the global scale required for the coming disruption.”
He wrote that divestment of entire sectors, or simply the transfer of carbon-intensive assets from public to private markets, will not get the world to net zero emissions.