Wagging the Dog

Back in the late 80s, a First Boston alumnus named Larry Fink co-founded a hedge fund called BlackRock. By December of 2021, his fund had reached over $10 trillion under management making them the largest money management firm in the world.

They attract money from individual investors to state pension funds and everything in between. (It probably has some of yours.) Investing this amount of money means BlackRock owns enormous stakes in thousands of publicly traded companies. 

It currently owns over 6% of Apple, nearly 7% of Google, more than 8% of Cisco… You get the idea.

As an individual investor, you rarely think about it, but as a shareholder you get voting rights in the company. And the more shares you own…  the more votes you get. 

And BlackRock, owning the huge positions that it does, holds considerable sway over the companies they own.

This is where the story of BlackRock gets interesting…

Wagging the Dog

In this year’s annual letter to CEOs (you get to do that when you’re the big dog) Fink made some pretty direct statements (emphasis mine):

“Each year I make it a priority to write to you on behalf of BlackRock’s clients, who are shareholders in your company. The majority of our clients are investing to finance retirement.”

He continued:

“Time and again, what they (CEOs) all share is that they have a clear sense of purpose; consistent values; and, crucially, they recognize the importance of engaging with and delivering for their key stakeholders. This is the foundation of stakeholder capitalism.”

And finally:

“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.”

On its face, his opening sounds like “do what you do best for the benefit of your stakeholders.” But the letter went on to insist that these CEOs would do well to point their companies on the track to becoming a net zero emissions world. 

Those paying attention knew it would be wise to listen.

Bending Billion Dollar Industries to Your Will

In December of 2020, a newly launched green-energy-focused hedge fund called “Engine No.1” decided they wanted to make a play for seats on the oil giant ExxonMobil’s board. Rather than focus on the mission of the business, they wanted Exxon to “reduce its carbon emissions and become a global leader in profitable clean-energy production.”

Despite Exxon’s plea to voters that none of the candidates had any experience running an oil company, three members were elected to Exxon’s board. 

They were all backed by BlackRock. It didn’t hurt that the fund’s CEO, Jennifer Grancio, had been a managing director at BlackRock for 19 years.

BlackRock single-handedly worked to change the direction of a $330 billion publicly traded company. Now that’s some sway. 

Much like getting the Treasury’s program and policy pivot to focus on climate change can’t be a good thing, you don’t need to be a financial wizard to understand that this kind of activist investing isn’t good for business.

It forces companies away from doing what they do best — earn money for their shareholders. It’s not capitalism.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily