By Sally C. Pipes
February 15, 2018

A Wall Street titan has an unusual message for corporate America.

Larry Fink, founder and CEO of BlackRock, recently sent a letter to over a thousand CEOs of large publicly traded companies. With over $6 trillion in assets, BlackRock is the largest money management firm in the world.

Fink pressed CEOs to incorporate “a social purpose” into their business practices. “We are increasingly integrating … a company’s ability to manage environmental, social, and governance matters … into our investment process,” he wrote. In order to attract BlackRock’s money, a company must now “show how it makes a positive contribution to society.”

This “corporate social responsibility” mantra has become fashionable. But the CEOs Fink has targeted should ignore him. The most “positive contribution” companies can make to society—that is, to the millions of ordinary people who have invested their savings in them—is to maximize profits.

Fink’s letter falsely implies that there is some inherent tension between social benefit and profit. Properly pursued in a free and open market, profits are the result of social benefit. They indicate that value is being created.

A cross-country flight, a smartphone, a manicure—all three generate profit for their purveyors only if they provide real value to consumers.

Of course, profits from illegal activity don’t indicate value. That isn’t capitalism; it’s corruption. But as long as companies freely compete for consumers’ dollars, they are in the value-creation business.

It’s unclear whether Fink has had a change of heart about investing or is just looking for public adulation. Only a few years ago he was publicly denouncing activist investors in The New York Times: “If you asked me if activism harms job creation, the answer is yes.”

It’s also unclear how Fink would enforce his new dictate. BlackRock primarily runs “passive funds,” which invest in the companies that make up a broad, standard index. Actively picking socially responsible companies to invest in would run counter to those funds’ mission.

Billionaire investor Sam Zell has pointed out precisely this problem, lambasting Fink’s letter as “extraordinarily hypocritical.” He correctly noted that “either they’re a passive fund that follows the market or they’re a leader that’s setting the tone.”

BlackRock currently has billions of dollars invested in companies that might be deemed problematic by the typical “social impact “standard, like opioid manufacturers, social media giants, and cigarette companies.

When he was asked on CNBC if he would actually disinvest from companies performing well but refusing to comply with his conception of corporate responsibility, Fink gave a classic non-answer: “I am very confident that engagement [with those companies] is going to be very positive.”


Frankly, it’s worse if Fink actually follows through on his plans. America is facing a retirement savings crisis. The median working-age couple has just $5,000 in a retirement savings account, according to the Economic Policy Institute. Millions of workers are heading toward a fiscal cliff.

BlackRock manages some $1 trillion in pension and retirement funds. If Fink’s new social impact standard directs capital into less profitable business, or even businesses that lose money, the beneficiaries of those funds will have to make do with lower returns. They’ll bear the costs and have even less money for retirement.

BlackRock’s investment team has already witnessed such folly up close. One of its biggest institutional investors is CalPERs, California’s state pension system. CalPERs managers have poured plenty of money into “responsible” energy companies—and lost billions in the process. Most infamously, the pension fund lost half its investment in two Chinese solar panel companies earlier this decade.

California’s public employees are surely not enthused by the prospect of losing their retirement savings so that their pension fund can make political statements.

It’s easy enough for Fink to wax poetic about corporate responsibility. He doesn’t pay the price if this new strategy goes south. His “activism” is with other people’s money.

In Capitalism and Freedom, economist Milton Friedman wrote, “There is one and only one social responsibility of business—to use its 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.”

That’s as true today as it was over 50 years ago.

Sally C. Pipes is the president, CEO, and Thomas W. Smith fellow in health care policy at the Pacific Research Institute. Her next book, The False Promise of Single-Payer Health Care, will be published this spring. Follow her on Twitter.


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