“A company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders.”
-Larry Fink, BlackRock
He did it again. This time head-on. In his 2020 letter to CEOs, Larry Fink projected the voices of a broad range of stakeholders and not just those who own stock. His letter reflected a situation that exists across the full spectrum of stakeholders, including the workforce, local communities, and the larger global society. The call to action is strong and direct. Fink’s message? We are on the edge of a fundamental reshaping of finance – a system more focused on all stakeholders. In the letter, Fink claims that BlackRock will take fiduciary responsibility for helping clients navigate this transition.
Climate change is at the center of Fink’s message. Climate has become a defining factor in long-term prospects for economic growth and prosperity, and we are past the inflection point. Specifically, he challenges leaders to address the broad implications that corporate decisions about climate and the environment have on stakeholders. He identifies this resilience risk as one that many companies have yet to recognize. And, as has been the thrust of his past years’ letters, Fink vows to act against environmental risks by letting BlackRock’s investment strategies do the talking.
“As an asset manager, BlackRock invests on behalf of others, and I am writing to you as an advisor and fiduciary to these clients. The money we manage is not our own. It belongs to people in dozens of countries trying to finance long-term goals like retirement. And we have a deep responsibility to these institutions and individuals – who are shareholders in your company and thousands of others – to promote long-term value.”
-Larry Fink, BlackRock
As the world’s largest asset management company with almost $7 trillion worth of investments under management, BlackRock has the power to stand in a ‘glass room’ and make these bold commitments, knowing others are watching and will follow. The company has established a powerful platform for making change happen.
For the past couple of years, I have written about Fink’s annual messages to the leadership of BlackRock’s portfolio companies. It has been exciting to watch his position become an increasingly clear and courageous rallying cry to stand aggressively on Environmental, Social and Corporate Governance (ESG) issues.
Since 2012, his messages have become clear and powerful. His challenge is to execute strategies for delivering long-term value for our shared future. To do so will require new operational models for security and protection initiatives within organizations. These new models will put primacy on shareholders — not just stakeholders. And that shift will require building mental models for resilience.
Finding inspiration in the Galapagos Islands
Immediately after the publication of Fink’s 2020 letter I had the opportunity to travel aboard the National Geographic Endeavor II to explore the Enchanted Islands (better known as Galapagos).
The Galapagos is one of the many places where Charles Darwin collected specimens of plants, animals, rocks, and fossils. In the 1830s, a 22-year-old Darwin found himself working as a naturalist on the HMS Beagle. While his travels took him to many different locations across South America, Africa, and Australia, it was the Galapagos that produced the source of Darwin’s most important observations. It was here Darwin’s effort germinated the seeds of what would decades later become the theory of evolution he published in the 1859 book The Origins of Species by Means of Natural Selection.
The Galapagos is composed of 127 islands. Only four of them are inhabited by people. The uninhabited areas were declared a National Park in 1959. In 1986, the 70,000 km2 of ocean surrounding the islands was declared the Galapagos Marine Reserve. And in 1998, the reserve was extended to 133,000 km2, making it one of the largest marine reserves in the world. Three ocean currents come together here, making it one of the richest marine ecosystems in the world. Ongoing seismic and volcanic activity continue to form and shape the Galapagos Islands. These factors, together with the extreme isolation of the islands, have led to the development of some very unusual plants and wildlife including giant tortoises, marine iguanas, blue- and red-footed booby birds, and sea lions. With such a mostly untouched and pristine area available, it is no wonder researchers and naturalists from all over the world come to the Galapagos to understand the evolution of environments, the influence of humans on environments, and the effects of climate change.
It is also here where new models for resilience for the future can be investigated.
Voyaging through the Galapagos was incredible. It was an opportunity to consider the gravity of the environmental imperatives that have been at the forefront of our news cycles and are so central to Fink’s 2020 call to action. I spent time thinking about mental models, how we process the way things work in the world — and more specifically, organizations.
During my travels, I arrived at a central question.
How can business leaders create new mental models for their organizations that position them to address Fink’s challenge, ensure a robust security and resilience stance, and still gain (or maintain) an edge on the competition?
Why new mental models?
Whether they identify them as such, all organizations have mental models that shape their beliefs about how things work. They construct mental models through interactions with the market around them. Once in place, the models influence internal decision-making and operational priorities. Many of the contemporary mental models say that the sole purpose of a business is to maximize shareholder value.
But wait, isn’t this the very notion of Fink’s challenge to industry leadership?
Let’s go back to the Galapagos for just a moment. How, as business leaders, can we (should we) make decisions that will do the least harm to or — better yet — secure corners of our planet like this magical island area? What is our responsibility to see the planet, for example, as a stakeholder? Fink would say it is high.
Going forward, business leaders need to build and maintain a broader understanding of the world around their business. Leaders can no longer process knowledge through a belief system focused solely on stakeholder primacy. Maintaining resilience means including considerations that may seem ancillary to their core operations (such as climate change and its impact on civilization). Leaders must remember that those considerations have implications for business.
It’s likely that it will take new voices from unexpected places to jolt leaders to look up, ask fresh questions, and think differently. Where will they find these new voices? More importantly, will they be willing to listen and learn from these different perspectives?
The answers are deceptively easy. New voices and perspectives can be found outside the boundaries of the organization and its industry. They can be found by inviting in people with different educations, experiences, functions, and perspectives. In the case of considering the planet and its inhabitants as stakeholders, these necessary perspectives can be found by inviting researchers and naturalists from the Galapagos to be a part of strategic direction and operational decision-making. Including a diversity of voices, scientific truths, and social perspectives is necessary for a new mental model for organizational resilience to emerge. True future-focused leaders seek out these different perspectives to look into the future to see what could happen next and to make better decisions today, not just for their insular organization, but for the collective global society.
The world needs more future-focused leaders like Fink, who understand how the outcomes of organizations’ decisions are connected and may have unintended consequences for all of us. In the case of addressing climate change and the health of our biosphere, that will happen by factoring new voices and facts through existing mental models. Thanks to Larry Fink and BlackRock for challenging those who are responsible for understanding complexities, including all stakeholders, and adapting mental models to address the interconnected and extremely urgent issues facing humanity.
As Chairman of the Board for Toffler Associates, Deborah brings skills and insights honed over 30 years working with some of the top minds and leaders of governments and Fortune 100 companies. Deborah has an MBA from Webster University and a BS in Electrical Engineering from the University of New Mexico, and has completed extensive continuing education with Harvard Business School and Wharton Business School. She is also a member of the National Academies of Science, Engineering and Medicine.
Toffler Associates is a future-focused strategic advisory firm. Our Future Proof® business consulting approach helps global leaders understand how future shifts impact current decisions so they can take advantage of opportunity, manage risk, and create future value.
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