BlackRock Inc. (BLK:US)’s Laurence D. Fink, whose firm is the largest shareholder in companies from Apple Inc. to JPMorgan Chase & Co. (JPM:US), is repeating his call to chief executive officers to engage with shareholders and be more transparent about balance-sheet decisions.
Following up on a January 2012 letter in which he urged 600 of BlackRock’s largest holdings to adopt shareholder-friendly practices, Fink wrote last week to the heads of all companies in the Standard & Poor’s 500 Index (SPX), asking them to focus on sustainable returns and not give in to short-term pressures.
“I write today reiterating our call for engagement with a particular focus on companies’ strategies to drive longer-term growth,” the 61-year-old CEO and co-founder of New York-based BlackRock, wrote in the March 21 letter. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies.”
BlackRock is the world’s largest money manager (BLK:US) with $4.3 trillion in assets, and stands out for its approach, as traditional fund firms aren’t usually as vocal about corporate practices at companies whose shares they hold. The firm has a 20-person corporate-governance team that seeks to protect investment assets and increase client returns. BlackRock owns stock through its active funds as well as index products via iShares, the world’s largest provider of exchange-traded funds.
Fink’s letter was motivated in part by the large amount of cash companies have on their balance sheets, Michelle Edkins, the firm’s global head of the corporate governance group, said in a telephone interview from San Francisco. BlackRock wants to make sure that executives think carefully and then communicate to shareholders what they plan to do with their cash as the economy continues to recover, she said.
“We certainly believe that returning cash to shareholders should be part of a balanced capital strategy,” Fink said in the letter. “However, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns.”
The letter followed conversations Fink, BlackRock mutual-fund managers and the corporate-governance group had with executives, according to Edkins.
Activist investing, in which shareholders take stakes and push for changes at companies they see as underperformers, affects a “tiny portion” of firms BlackRock is invested in and wasn’t the trigger for the letter, she said. The firm owns shares in almost 4,000 companies in the U.S. and only about 50 of them are in dialog with activists, said Edkins.
“Our starting point is to support management, but that’s incumbent on management saying to us and setting up very clearly what they plan on doing with the client money we entrust to them,” Edkins said. “The ‘Trust us, we know what we’re doing’ approach to management is very old-fashioned.”
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