MIT Sloan Senior Lecturer, Tara Swart
From the Daily Mail
As a successful doctor of psychiatry and neuroscience, it looked as if I had it all: I was married to a fellow psychiatrist and had a job working for the NHS. We were a carefree young couple, with a great social life and lots of opportunity to travel the world. Everyone assumed I was in complete control of my life.
But I was running on autopilot, and when I reached my mid-30s everything fell apart. I had become increasingly unhappy in my work, worn down by the long hours and workload and the sense of not being able to make a real difference to my patients.
MIT Sloan Senior Lecturer Robert Pozen
Should public companies focus on earning profits for their shareholders, or should they serve broader societal needs? Larry Fink, the head of BlackRock, the largest fund manager in the world, recently issued a letter to company CEOs stating: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Yet the same letter tells public companies that they should adopt a strategic plan with “a path to achieve financial performance.” The letter reconciles these potentially conflicting objectives by pushing companies to pursue “long-term value creation” rather than short-term profits. In other words, they can enhance their long-term financial returns to shareholders by serving the needs of other stakeholders—even if this lowers short-term profits.
While BlackRock was trying to sensitize companies to their social responsibilities, the letter could undermine the accountability of corporate directors to their shareholders. CEOs could hypothetically justify any decline in annual earnings by claiming they were serving all stakeholders in hopes of increasing long-term financial results. How will shareholders later assess whether these stakeholder-focused policies actually resulted in higher financial returns? And does the long term mean five, 10, or even 20 years? Read More