Laurence Fink, Urges Other C.E.O.s to Stop Being So Nice to Investors
Laurence D. Fink, who oversees
more than $4 trillion of investments as chief of BlackRock, the
world’s largest asset manager, says shareholder-friendly steps
hurt long-term creation of value.
morning, the chief executives of 500 of the nation’s largest companies will
receive a letter in the mail that will most likely surprise them.
of the letter is Laurence D. Fink, chief executive of
BlackRock, the largest asset manager in
the world. Mr. Fink oversees more than $4 trillion — that’s trillion with a
“t” — of investments, making him perhaps the world’s most important
planning to tell the leaders that too many of them have been trying to
return money to investors through so-called shareholder-friendly steps like
paying dividends and buying back stock.
To Mr. Fink,
these maneuvers, often done under pressure from activist investors, are
harming the long-term creation of value and may be doing companies and their
investors a disservice, despite the increases in stock prices that have
often been the result.
of the short-termist phenomenon are troubling both to those seeking to save
for long-term goals such as retirement and for our broader economy,” Mr.
Fink writes in the letter. He says that such moves were being done at the
expense of investing in “innovation, skilled work forces or essential
capital expenditures necessary to sustain long-term growth.”
At a time
when most investors are clamoring — and applauding — high dividends and
bigger buybacks, Mr. Fink is bucking the trend.
States companies spent nearly $1 trillion last year on stock repurchases and
dividends, and virtually every big American company is engaged in these
General Electric announced last week
that it would buy back $50 billion of its stock after
selling most of GE Capital. Apple
authorized a $90 billion buyback of its own stock last year.
Exxon Mobil spent $13 billion last year
on its own stock. IBM, which I’ve questioned for its aggressive use of
buybacks and dividends, has spent
$108 billion buying back its own shares
consider the return of all this money to shareholders positively, Mr. Fink
says the move “sends a discouraging message about a company’s ability to use
its resources wisely and develop a coherent plan to create value over the
long term.” Moreover, he argues that “with interest rates approaching zero,
returning excessive amounts of capital to investors” isn’t helpful because
they “will enjoy comparatively meager benefits from it in this environment.”
Mr. Fink and
I have been discussing — and debating — this topic for more than a year.
Last week, before mailing his letter, which he writes annually, he shared it
“I feel the
same pressures as other C.E.O.s,” he told me. But he suggested that it’s not
just the fault of managements for being so shortsighted — the investors
themselves may be the problem. “Investors need to focus on long-term
strategies and long-term outcomes,” Mr. Fink said, suggesting we’re
currently living in a “gambling society.”
Mr. Fink has
a novel suggestion for encouraging shareholders to take a broader
perspective, but it may very well upset his peers on Wall Street. He
recommends that gains on investments held for less than three years be taxed
as ordinary income, not at the usually lower long-term capital gains rate,
which now applies after one year.
that U.S. tax policy, as it stands, incentivizes short-term behavior,” he
writes in his letter. “Since when was one year considered a long-term
investment? A more effective structure would be to grant long-term treatment
only after three years, and then to decrease the tax rate for each year of
ownership beyond that, potentially dropping to zero after 10 years.”
contends that such a shift in tax policy “would create a profound incentive
for more long-term holdings and could be designed to be revenue neutral. In
short, tax reform that promotes long-term investment will benefit both the
companies who rely on capital markets and the hundreds of millions of people
saving for retirement.”
whether such a change in tax policy would reduce liquidity in the market,
Mr. Fink scoffed: “I don’t think Warren Buffett cares about liquidity that
refreshing to see a finance executive talk some sense on these issues.
Fink is not simply being altruistic. To some degree, he is talking his own
book: BlackRock’s business model, unlike those of so many finance companies
that rely on trading fees, does not require it to turn over its portfolio.
Given its size and scale, BlackRock often holds its investments for decades.
So from a
financial perspective, Mr. Fink has little to lose. In fact, the firm may
have much to gain if tax rules were adjusted to be more favorable to the way
Mr. Fink invests. (And what’s the harm in suggesting tax policy change, as
smart as it may be, that has a low probability of ever happening?)
to suggest Mr. Fink doesn’t believe what he’s saying; he does. He is a
relatively progressive finance executive who has been a longtime Democrat
and has taken positions that many of his peers in finance abhor.
To Mr. Fink,
the shortsightedness that pervades corporate America is just a symptom of a
larger issue. “This is not just a corporate problem,” he said. “It’s a
societal problem, whether it’s health care or politics or business.”
He also said
he recognized that his letter might not be popular in certain quarters but
he qualified his approach by saying, “I’m not trying to make friends or
protestations, Mr. Fink said, “There is nothing inherently wrong with
returning capital to shareholders in a measured fashion.” He added, “Nor are
the demands of activists necessarily at odds with the interests of other
shareholders.” But it’s when it is taken to extremes — such as it seems to
be in the current marketplace — that has Mr. Fink concerned.
Fink is taking a direct shot at the rise of activist investors, like Carl C.
Icahn, who have made careers out of pressing companies to return cash to
said he met with two activists last week. One of them, he said, told him,
“You hate me, don’t you?”
“No, I don’t
hate you,” Mr. Fink said he replied. “I’m just trying to get some balance.”
A version of this article appears in print on April 14, 2015, on page B1 of
the New York edition with the headline: Quit Bowing to Investors, Fellow
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