NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, January 17, 2018

In 2014, BlackRock Inc. CEO Larry Fink, in his first missive to top CEOs, implored business leaders to think long term. Specifically, he called on them to stop using so much cash on stock-boosting buybacks and invest in growth instead. Four years later, stock buybacks are expected to have neared $520 billion in 2017. Yes, that’s down about 6 percent from 2014, but it’s still four times what they were two decades ago. At the same time, spending on capital expenditures has barely budged. What’s more, pretty much everyone expects buybacks to soar this year, fueled by a massive tax cut.

It’s not clear Fink has done much to back up that 2014 letter. The biggest buyer of its own stock is Apple Inc., which is on track to spend about $235 billion since 2012. The second-biggest investor in Apple, behind Vanguard, is BlackRock, which through its funds holds just more than 6 percent of the iPhone maker’s stock. Fink seems to be in a good position, better than pretty much anyone else, to tell Apple to quit, or at least limit the buybacks. And yet there is no record he has. And Apple certainly hasn’t curbed its stock buybacks.

Of course, his failure on buybacks has not stopped Fink from continuing to write full-throated annual letters telling CEOs what they must do or risk losing BlackRock’s support. Fink’s letters are timed each year to come out around Davos, the ultimate CEO lip service confab. It’s likely not a coincidence. In this year’s version of long-term thinking, Fink tells companies that it’s time to put social purpose on par with producing profits. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” Fink writes.

It’s a nice sentiment that seems logical if difficult to measure; I guess you know it when you see it. It’s also not completely new. In last year’s letter, Fink told CEOs to be mindful of changes in the environment. But it’s not clear why BlackRock would do any better at pushing companies to act socially responsible than it was at curtailing buybacks. If anything, buybacks and financial engineering in general should be in Fink and BlackRock’s wheelhouse.

Photo courtesy of Ken Teegardin.