The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Wednesday, September 23, 2015

Strategic CSR - BlackRock

The article in the url reports on an open letter sent by the CEO of BlackRock to "the chief executives of 500 of the nation's largest companies." BlackRock is the world's largest asset management company (managing more than $4 trillion), which makes it a very important shareholder:
 
"The sender of the letter is Laurence D. Fink, chief executive of BlackRock. … He is planning to tell the leaders that too many of them have been trying to return money to investors through so-called shareholder-friendly steps like paying dividends and buying back stock."
 
While it would seem to be in Mr. Fink's interest to have firms paying dividends and buying-back shares; due to its investment strategy, BlackRock is more concerned with the long-term health of the overall market:
 
"'The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy,' Mr. Fink writes in the letter. He says that such moves were being done at the expense of investing in 'innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth.'"
 
Rather than a sign that companies are acting in their shareholders' best interests, BlackRock sees excessive funds spent on dividends and buybacks as evidence that senior executives have run out of ideas:
 
"United States companies spent nearly $1 trillion last year on stock repurchases and dividends. … Rather than consider the return of all this money to shareholders positively, Mr. Fink says the move 'sends a discouraging message about a company's ability to use its resources wisely and develop a coherent plan to create value over the long term.'"
 
Mr. Fink does not blame CEOs for the lack of creativity, however. Instead, he blames investors for the short-term constraints they place on management, which prevents them from doing their jobs:
 
"'Investors need to focus on long-term strategies and long-term outcomes,' Mr. Fink said, suggesting we're currently living in a 'gambling society.'"
 
Moreover, he has a good suggestion of how to improve the situation:
 
"He recommends that gains on investments held for less than three years be taxed as ordinary income, not at the usually lower long-term capital gains rate, which now applies after one year. … 'Since when was one year considered a long-term investment? A more effective structure would be to grant long-term treatment only after three years, and then to decrease the tax rate for each year of ownership beyond that, potentially dropping to zero after 10 years.'"
 
While such a change would undoubtedly suit BlackRock's investment strategy, Fink seems genuine in his critique of the damage done by an overly short-term perspective – an affliction that affects much more than investment decisions:
 
"To Mr. Fink, the shortsightedness that pervades corporate America is just a symptom of a larger issue. 'This is not just a corporate problem,' he said. 'It's a societal problem, whether it's health care or politics or business.'"
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
A CEO Urges Others to Stop Being So Nice to Investors
By Andrew Ross Sorkin
April 14, 2015
The New York Times
Late Edition – Final
B1