Updated: May 31
Author: Rob Kaplan
With the short pronouncement in his most recent annual letter that “stakeholder capitalism is capitalism,” Larry Fink may have single-handedly moved the conversation about stakeholder capitalism to the fore in the investment arena. There’s a lot that has already been written on what Mr. Fink didn’t say in his letter and critics can be forgiven for calling out a lot of his letter’s shortcomings (aka, talk is cheap and he’s pretty much leaving the real, hard work up to the rest of us). Yes to all of that.
But love him or hate him, it is undeniable that by uttering these few words, the CEO of the world’s largest asset manager has effectively given permission for the bread-and-butter capitalists – the gatekeepers of institutional capital – to understand and incorporate the drivers of shareholder value over the longer-term in a more holistic way. There’s more air cover now than ever before for folks to leave the dogmatic interpretations of Milton Friedman behind. And that’s extremely important.
This is not to say that we can all now go home.
What Mr. Fink did not do is provide a roadmap for how we will get there. After all, there is a big difference between action and words. What’s more, long-term value is a great goal, but the rubber meets the road with short-term issues, decisions and trade-offs. Also, making these decisions with an eye on the long game requires bucking the decades old tradition of focusing solely on near-term profits; in short it requires bravery.
As we seek out the engines that will rebuild our global economy, stakeholder capitalism may be a key to unlocking heretofore untapped sources of alpha that can hasten our transition to thriving, green economies. From where I sit as an asset manager who spends my days advancing solutions that can turn back the tide on ocean plastic pollution, there is a great deal to be done to provide the onramps for institutional capital to become part of the solution to society’s biggest environmental and social challenges.