In 2019, BlackRock’s management and board publically fired
two executives in the Hong Kong office for breaching company rules on dating
subordinates. The firings demonstrated to employees that the company would
enforce its employee policies and sent the message that employees would be “free
to point out problems in the workplace.”[1]
This would not be so extraordinarily significant but for the fact that
BlackRock is the “world’s largest money manager with $7.4 trillion under
management,” which enables the company, through the funds it runs, to be “one
of the five largest shareholders in nearly every corporation in the S&P
500.”[2]
So BlackRock “can cast votes and pressure boardrooms to effect change.”[3]
The company would be hypocritical in using its power as a major stockholder to
get managements to have and enforce good workplace policies if the company were
not doing so itself. From the standpoint of self-regulatory capitalism in
society, BlackRock could make a significant contribution far beyond improving
workplace policies.
In January 2020, BlackRock’s management announced that it “would
take a tougher stance against corporations that aren’t providing a full
accounting of environmental risks.”[4]
This was “part of a slew of moves by the investment giant to show it is doing
more to address investment challenges posed by climate change.”[5]
BlackRock CEO Laurence Fink wrote, “The evidence on climate risk is compelling
investors to reassess core assumptions about modern finance.”[6]
The long-term viability of companies is a salient variable in recalculations.
As much as issue-specific stockholder activism narrows the
gap between the values and priorities held by business and society, the matter
of corporate governance is also important. In particular, companies whose
managements control their respective boards of directors suffer from a deficit of
accountability in their governance system. Board members could be influenced on
issue-specific stockholder activism and yet a CEO could ignore any pressure
from members if he or she controls the board, whose functions include holding
the CEO accountable. BlackRock had the power as of 2020 to pressure boards to
break up the conflict of interest when a CEO is also the chair of the board of
directors at a company. Because of BlackRock’s reach in overseeing so many
companies, corporate governance could effectively get a remake such that
greater accountability would be part of the governance systems. Because outside
directors would theoretically have more sway over a company’s management, wider
issue-specific stockholder activism could have greater resonance with
management. The gap between corporate and societal values and norms could thus
be narrowed. Indeed, the capitalist system within a society would be more
self-regulated in terms of corporate governance.
In short, BlackRock could improve the business sector
significantly beyond responding to particular issues. Perhaps business itself
is vulnerable to missing the big picture at the scale of governance systems,
and thus opportunities to improve them. Even though the focus on quarterly
earnings and, moreover, on profit-seeking may play a role, I submit that even
CEOs do not typically cast a wide enough eye such that governance systems (not
only in business, but also government!) are entirely in view as systems.
Focusing on particular stockholder issues is closer to the focus on
profitability, and thus primary.
[1]
Dawn Lim, Steven Russolillo, and Jing Yang, “At
BlackRock, Public Firings, Overseas Probe Send Message About Office Misbehavior,”
The Wall Street Journal, February 3,
2020.
[2]
Ibid.
[3]
Ibid.
[4]
Dawn Lim and Julie Steinberg, “BlackRock
to Hold Companies and Itself to Higher Standards on Climate Risk,” The Wall Street Journal, January 14,
2020.
[5]
Ibid.
[6]
Ibid.
