A watershed moment for profit & purpose?

 

Why we think BlackRock’s mandate will seal the deal on shared value in corporate America

 
 
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When the world’s largest investor issued his annual letter to CEOs on January 16th, a thundering rumble coursed through the private and social sectors alike. In this year’s address, BlackRock CEO Larry Fink sent a clear and direct message to brands: contribute to society, or risk losing our support. With nearly $6 trillion in assets under management, Fink certainly has the authority to make that kind of mandate.

Some are calling the letter a game changer. A lightning rod. A watershed moment for corporate America. Others have said it upends a half-century of business thought. Fink unquestionably defied conventional corporate wisdom with bombshells like this:

 
 
Society is demanding that companies, both public and private, serve a social purpose. 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. Without a sense of purpose, no company, either public or private, can achieve its full potential.
— Larry Fink, BlackRock CEO
 
 

Powerful words from a powerful position.

When we created our model to arm underserved changemakers, we did so with a steadfast belief that brands should play an active role in the social impact journey. Between expertise, audience exposure, and – of course – financial resources, companies can be invaluable allies to nonprofits and social enterprises. And in return, brands can go beyond traditional philanthropy or corporate social responsibility to achieve true shared value. Exactly what Fink is preaching.

Whatever this moment in time turns out to be, our hearts and minds are racing with anticipation of what is yet to come. So I picked a handful of our most pressing questions and captured the thoughts of my co-founders Kathleen and Kevin about the BlackRock letter and its implications.


1. Beyond Fink's letter, we've known that consumers are rewarding socially impactful companies with their share of wallet. Considering this alongside a large increase in cash flow from the new tax code, what unique opportunities now exist for companies and brands?

KATHLEEN:

Recent news indicates that some companies plan on using some portion of the tax code changes to pay it forward to employees. Which is great. I imagine if they do, they’ll reap the rewards of happier, more engaged, and motivated people. But I hope companies also see this as an opportunity to thoughtfully invest in another key stakeholder: their community – however they define that. Not as a handout, but as an investment in their long-term business prospects with real implications on their profits. And bonus: they’ll realize the additional rewards of happier, more engaged, and motivated customers and stakeholders too.

KEVIN:

With the BlackRock letter, it’s not just encouragement for corporate leaders to lean into social purpose programs; it’s literally a threat. And with the new tax code, companies will be receiving a gift by way of a 14% increase in profits. While I hope that all business leaders will aim to spend their excess money on social good instead of pocketing the proceeds, Morgan Stanley analysts said more than four in five firms they track across industries will use their tax savings to facilitate buybacks and dividends, not pass even some of the gains on to workers. Cowen Research Group estimated that Amazon, Google, and Facebook alone will save $4.5 billion in taxes in 2018. That’s enough to fund 1.6 million reduced-price lunches for kids living in poverty or provide Medicare for more than 375,000 senior citizens. So what’s amazing about this confluence of events is that a large political motivation behind the tax code was to reduce governmental social services in favor of corporate wealth, but Fink basically steps in and shifts the social services mandate onto those receiving the windfall in corporate America. Now, with full authority to act plus the cash to do so, there’s no excuse and no better time in history for companies to jump into social impact feet first. The public is watching what executives do with these new funds.


2. What is the single best way for companies to comply with this order to contribute to society?

KATHLEEN:

That’s a good question. We’ve all seen brands fall flat when they try to “join the conversation” and do so in a way that’s inauthentic. Pepsi’s commercial with Kendall Jenner felt like a tone-deaf response to cultural clashes taking place across the country. Many brands go to market with an embedded buy one/give one model, despite some instances of this harming the very population they aim to benefit by disrupting local markets. So here’s a safer bet: find an existing changemaker in the space you’re trying to impact. They’re already devoting the entirety of their professional (and likely personal) energy to the cause and have an intimate understanding of the nuances inherent to solving the complex issues they face. Partner with them. The investment of both your finances and your brand equity will be that much more secure.

KEVIN:

There’s a business maxim: first who, then what. And this principle applies most in times of great uncertainty or uncharted waters. Just like in the news about Amazon, JPMorgan, and Berkshire creating a new health care company, Warren Buffett admits – "Our group does not come to this problem with answers". Likewise, if brands don’t have a social purpose program or might be trying to move beyond traditional philanthropy or CSR, it’s imperative to first assemble the right team. We’ve seen firsthand that social programs are either unstaffed or that efforts are scattered across multiple departments, like HR, marketing, CSR, and the C-suite. Now is the time to commit to dedicated focus both within the company and externally with consulting firms or agency partners. This dedicated team should be a mix of corporate America and the social space, because cross-sector collaboration is the key to reaching shared value. And you can’t achieve true social impact as a part-time job.


3. Do you think this will truly be a trend, that we’ll see other investors following suit? Or beyond Wall Street, will this shift at the Fortune 500 level trickle down to small cap brands and private companies?

KATHLEEN:

Something has to change with corporate philanthropy, and not just because it’s a “trend”. The Fortune 500 have entire departments dedicated to extracting value from social involvement – but so many smaller organizations still prescribe to that outdated model of one-way, top-down philanthropy. Small- to mid-sized companies need to stop seeing corporate philanthropy as only a line item in the annual budget with no expected return on investment.

KEVIN:

Unlike the “going green” trend with brands 10 years ago, I truly believe in my bones that Fink’s letter combined with growing consumer demand will be the sparks that eventually redefine the corporate playbook. Sure, the concept of shared value has been pushed since 2011, but mostly from academic quarters. And benefit corporations have been in place since 2006, though mostly with smaller companies. But when an investor like Fink speaks, corner offices on Wall Street listen. And when some big brands start to act, then yes, I think we’ll see other investors and small cap brands become fast-followers. Privately held companies are especially primed for purpose, with historically bigger appetites for innovation investment and no external shareholder value to worry about. So I’m excited to see the progress there.


4. Should the social sector celebrate this corporate mandate or be cynical of brands' motivation? On the flip side, will the mandate be welcomed by the private sector as an opportunity to finally getting around to something they know they should/want to do or will they begrudgingly comply?

KATHLEEN:

One of the first things I learned in my freshman seminar on social economics was that everyone acts with self-interest, without exception. But, it’s perfectly acceptable to care about others and care about yourself. Those two things can (and should) be intertwined. So no: the social sector shouldn’t be cynical. They should recognize that they, as nonprofits, can deliver real value to a for-profit organization and receive what they need in return. As for the private sector, I truly believe any begrudging compliance will turn into enthusiastic adoption when they realize there’s a distinct market advantage to aligning profit with purpose. Especially once brands also realize there are many competitors who have figured – or are on their way to figuring – it out.

KEVIN:

Nonprofits and social enterprises should certainly applaud this recent momentum. Despite the motivations – authentic or coerced – brands can be an active force in solving the world’s most pressing social problems. Look no further than Patagonia for an example of a company that has become almost synonymous with the cause it champions most: environmental conservation. Or Mozilla, the open source nonprofit that wouldn’t be possible without its for-profit subsidiary cash king Firefox. Even if corporate purpose wasn’t top of mind before, brands should not only comply, but celebrate the invitation. There’s no monopoly on doing good – if you genuinely care about filling a social need, it doesn’t matter the actors or sectors involved.


5. If a nonprofit or social enterprise gets interest from a corporate sponsor, how do they go about establishing a mutually beneficial partnership?

KATHLEEN:

Of course, there’s no single magic bullet. But like with any relationship, mutual satisfaction will be found when both parties find their common ground. Identify the overlap in your values, your vision, and your purpose and build from there. Of course, this assumes you’ve spent the time identifying values, vision, and purpose as an organization. If you haven’t, it’s worth taking a good hard look inward and identifying those elements for your brand before you embark on building a purpose platform. As they say: you can’t be a good partner until you truly know yourself.

KEVIN:

Make it a two-way street! The traditional model of corporate philanthropic giving is becoming a dinosaur. Sure, the changemaker should seek financial resources from the brand partner. But there’s so much more give-and-take possible. The brand has worthy goals too, including content creation, employee engagement, customer understanding, market exposure, and competitive differentiation. So flip the script and start any conversation with a potential brand ally like this – “What are you hoping to get out of this partnership?” That simple inquiry will do wonders to set the shared value tone and lay a reciprocal foundation for social impact success.

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Interested in creating shared value? Get in touch with Kathleen or Kevin to continue the conversation.