Credit: Shutterstock photoCorporate Responsibility: In his annual letter to corporate CEOs, BlackRock's Laurence Fink is pushing them to focus not just on profits, but on social responsibility. Given that BlackRock ( BLK ) manages more than $6 trillion in investments, his views can hold a tremendous amount of sway. Too bad this effort is so badly misguided.
[ibd-display-video id=3078928 width=50 float=left autostart=true] In his letter, Fink says that "society is demanding that companies, both public and private, serve a social purpose." As such, he says, "every company must not only deliver financial performance, but also show how it makes a positive contribution to society."
He tells CEOs that their corporate strategies should include "the societal impact of your business, as well as the ways that broad structural trends - from slow wage growth to rising automation to climate change - affect your potential for growth."
The New York Times summed up Fink's message as telling CEOs "Contribute to Society, or Risk Losing Our Support."
The Times' Andrew Ross Sorkin says it "will likely cause a firestorm in the corner offices of companies everywhere and a debate over social responsibility that stretches from Wall Street to Washington. … It may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism."
Hyperbole aside, the fact that BlackRock manages such a vast amount of investment capital means that Fink's demands can't be ignored.
The problem is that Fink is wrong, and what he's advocating could have serious adverse consequences.
Yes, of course company leaders should be aware not just of what's going on in their particular industry, but of broader trends that could affect their business' long-term prospects. That's not exactly saying anything new.
And, it stands to reason that companies have an interest in making sure there are educated, trained or otherwise qualified workers to hire, and that there are enough roads, bridges, airports and ports. They already pay vast amounts of taxes for those things.
But by calling for CEOs to have a "social purpose" beyond running their business well, Fink is buying into a false dichotomy being pushed by the left - that corporate America can only be redeemed to the extent that it "gives back" to the community.
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In reality, the best contribution a company can make to society is to run its business well and focus on providing great products and services to consumers. That will create new jobs , more opportunity, more investment income for retirement, more innovation, cheaper goods and services, and more tax revenues for public services.
Think about it. The biggest societal contribution Apple ( AAPL ) has made - or ever will make - was producing great products like the iPhone that let people do far more with less.
Exxon Mobile ( XOM ) and other Big Oil companies may be hated by the left, but they've made a bigger contribution to society simply by making energy cheap and readily available. (A gallon of gas costs less than a gallon of bottled water.) That's allowed fantastic growth of our economy and vast improvements in everyone's well-being.
Wal-Mart 's ( WMT ) contribution in terms of lower prices and new jobs is immense.
In contrast, the worst thing a company can do for a community is fail. If you don't believe that, take a trip to your nearest deserted factory town.
More broadly, our free-market economy, which lets companies focus on their business without being bullied into supporting "social causes," has produced levels of prosperity that are unrivaled anywhere in the world.
What more can business owners do that would satisfy Fink's definition of a "social purpose"?
The real risk here is that this push for companies to have a "social purpose" is just a thinly disguised effort to push corporations to be more supportive of liberal causes and groups.
After all, who gets to decide what counts as "contributing to society"?
Would a company that spends money educating workers on the benefits of free-market capitalism, or supporting school-choice efforts, or urging fewer job-destroying regulations fit the bill?
Unlikely.
Google 's ( GOOGL ) lefty campaigns, not the Koch brothers' support for free markets, is more likely to be what gets counted as "social purpose." (In this regard, it's worth noting that Fink has been a big supporter of Democrats, and was supposedly in line for a Treasury Secretary post if Hillary Clinton had won the election.)
In his book "Capitalism and Freedom," the late, great economist Milton Friedman said that "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."
If the nation's CEOs want to make a positive contribution to society, they would do well to listen to Friedman, not Fink.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
