Larry Fink is in an odd spot. He runs BlackRock Inc., the world’s biggest money manager. His New York-based company oversees assets greater than 20 times those of the mammoth Canada Pension Plan Investment Board. He should have more influence than just about anybody over how companies behave.
Yet he lacks the big stick that other fund managers have when they talk to chief executive officers. He can’t threaten to sell shares of a company when he doesn’t like its strategy.
Most of the more than $4-trillion (U.S.) that BlackRock oversees on behalf of clients is in index funds that passively track market benchmarks. Because it can’t sell individual stocks in index funds, BlackRock is, by necessity, in it for the long haul.
So instead of threatening, Mr. Fink cajoles. He writes letters. Very, very well-read letters. His latest went to the heads of all the biggest companies in the United States and Europe, hundreds of them, urging CEOs to think long term.
“As the largest index player in the world, we have to own companies, even if we hate ‘em,” Mr. Fink said in an interview on a recent visit to Toronto. “The most powerful component of our ownership is our vote, and we have to vote for what we think is in the best interests for the long term. Whether we like you or not, we are going to be an investor for the long term. We want leadership to focus on long-term strategies.”
In many ways, BlackRock’s fortunes are tied to long-run economic growth. That’s what drives stock indexes higher. It’s a rising-tide-lifts-all-boats game.
At the moment, stocks are doing just fine, with U.S. indexes such as the Standard & Poor’s 500 rising to records. Yet Mr. Fink sees problems. To his way of thinking, executives are overly preoccupied with producing near-term returns to keep impatient investors happy. Longer-term projects – from researching a new molecule that could one day be a wonder drug to building factories with payoffs that might be measured in decades – are not getting their due.
Mr. Fink is worried that the great tide of economic growth is not rising as quickly as it could be because of persistent and pernicious short-term thinking. Everyone from Main Street to Wall Street to Pennsylvania Avenue is too focused on near-term waves to pay attention to what the overall water level is doing.
Blogs, polls, the story of the moment – that is what drives peoples’ thinking, he says. That means investment decisions and political moves are based on what’s happening now, and not long-term goals. The economy will bear the cost of this short-term obsession, and so will investors, Mr. Fink warns. He would like to see big changes in everything from accounting to corporate governance to government spending priorities, to reset the focus on more distant horizons.
Notwithstanding the index-investing bind, Mr. Fink has clout. Find a list of the world’s most powerful people, and he is likely to be on it.
He knows it, and uses his position. His latest missive urges bosses to think much further ahead. His message is that businesses should build more factories, spend more on research, worry less about buying back stock or paying dividends to placate short-term investors and activist shareholders. That will create jobs, and exciting new products, and drive long-term returns and economic growth.
“We need executives in business to start focusing on what is right in the long run,” he said.
It’s not just chief executive officers. Mr. Fink is exasperated by investors who are too easily spooked by transitory events and sell their shares, forgetting that they were purchased to fund some far-off goal like retirement. And he’s not pleased with the news media for its second-by-second obsession with what each tiny event means for investments.
“Societies are having a hard time, politically and economically, adjusting to the immediacy of information: The 24/7 news cycle, blogs, the instantaneous information. It’s very hard. This is one of the things where we are developing a crisis.”
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