Larry Fink has built a name for himself by urging other companies to be best. Fink is not exactly a household name, but as the CEO of BlackRock, he wields enormous power. BlackRock manages $6.28 trillion in assets around the world, and it tracks the investments of pension funds and governments totaling $18 trillion.
Earlier this year, he also laid out what might be called the Gospel of Corporations in a letter to CEOs of companies whose shares BlackRock might buy. There has been near Talmudic analysis of his letter, but, essentially, Fink wants to elevate the concepts of corporate governance and corporate social responsibility to new levels and force some soul searching in C suites and board rooms. Fink has put CEOs on notice that BlackRock aims to do business with companies that are doing well and doing good.
Lamenting wage inequality, a fraying safety net, and other ills, he wrote, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Fink’s BlackRock, however, is failing to live up to the standards it has set for other companies. For instance, Fink has decried excessive executive compensation, but the $27.7 million he took home last year was nearly as much as Jamie Dimon pulled in at JP Morgan. Fink’s pay was 195 times the median $142,000 total compensation for BlackRock’s 13,900 employees globally.
That kind of pay did not come from investing in organic juices and socially-conscious start-ups, even if BlackRock seeks to brand itself as such an investor. Recently, it was reported Black Rock is the biggest institutional investor in 22nd Century Group Inc. (XXII), which supposedly specializes in cannabis, but in fact makes only tobacco products.
BlackRock owns billions in shares in major U.S. defense and aerospace companies, which is troubling to watchdogs of environmental, social, and governance (ESG)-minded investing. Citing BlackRock’s holdings in firms that make weapons of war, the human rights organization CodePinkdeclared Fink is “profiting from the worst humanitarian crisis in the world.” The organization has collected over 3,000 signatures opposing the International Rescue Committee’s decision to give Fink a humanitarian award.
What’s more, a year after a top BlackRock executive declared“coal is dead” a phalanx of environmental and human rights non-governmental organizations challenged Fink to put his money where his mouth is. In May, Friends of the Earth and others called attention to the fact that BlackRock holds shares and bonds of 52 coal plant developers with a total investment value of $11.5 billion. That level of investment put Black Rock at the very top of Coal Exit’s “Dirty Thirty” list.
Beyond its investments, BlackRock’s corporate behavior also raises ethics questions. Over the last 15 years, the firm has hired at least 84 former U.S. and foreign government policymakers and central bankers. The U.S. government’s decision to use BlackRock’s Aladdin platform to unload assets after the 2008-9 financial crisis has been the gift that keeps on giving. What could have been once described as a revolving door between BlackRock’s operations and the government is more like a passageway with no door at all. It has hired numerous officials from the White House, U.S. Treasury, and SEC and openly touts it connections as key to meeting its fiduciary duty to clients.
In some cases, ethics have been subordinate to profits. For example, while serving as the U.K.’s Chancellor of the Exchequer George Osborne met at least five times with BlackRock and then landed a lucrative consulting contract after leaving office. In addition, the BlackRock executive in charge of the company’s highly sensitive work for central banks and governments was forced to resign as the head of the Swiss National Bank in 2012 over an insider trading scandal.
This spring, Fink offered insights on the state of the market and considerations about long-term investment strategies in a conversation with Mike Machin, CEO of the Canadian Public Pension Investment Board. One of his insights was that access to financial data has become widely available through online resources. Indeed, that is a positive development for flinty-eyed investors. The availability of facts and data should also open new opportunities to plumb the vast networks and investments of firms such as BlackRock.
As Fink, 65, cultivates his status as an enlightened billionaire, journalists, investors and activists should be ready to mine that information to assess whether Fink’s benevolence is for real or if he is a wealthy hypocrite calling on other companies to do as he says but not as BlackRock does.