The news item “BlackRock’s Chief, Laurence Fink, Urges Other C.E.O.s to Stop Being So Nice to Investors” appeared in the recent NYT Dealbook segment.
In a letter sent recently by Mr. Fink to the top 500 CEOs in the country, he suggests, “Too many of CEOs have been trying to return money to investors through so-called shareholder-friendly steps like paying dividends and buying back stock. 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. The effects 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 …… such moves are being done at the expense of investing in innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth. This 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 ……. 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”.
In our opinion we need such bold leadership also among professionals to stop bowing to the pressures of the boss or organization that demands “fire fighing” on short term problems at the expense of time and resources necessary to dedicate to the long term needs and success of the company and the organization.
You can stop bowing to investors if you know who they are! The problem is that the “Investors” today are those who make money off of money. They pay everyone else for doing their work to get that result. This stratification of work between the investors and the rest is the insidious problem that has been evolving for the past three decades. You and I who invest in mutual funds – which can be local or global – are also the investors! The issue may be: Can the CEOs sell the value of their long term vision and goals to the “investors”? Once convinced can they deliver the long term value as promised? These are the questions that need to be addressed by every one – from the CEO to the lowest level employee in every company. We call these as the Transformational Skills.
Today the hedge fund managers, day traders, arbitragers, financial analysts and the fund managers are increasingly isolated from the main stream business. In this new model Finance, Professional work, Information work and Physical work are in stratified impermeable silos. In this scenario, the CEOs are just like any other professional (who gets paid for their work) as opposed to Finance (where money is made off of money!). Hence the CEOs have to learn new skills – Transformational Skills – to get the “investor driven finance” do what the CEO needs (long term business focus). The question is “Should the CEO quit bowing to investors? or “Should the CEO learn skills necessary to get the investor driven Finance bow to him/her?”
The question is also identical for many professionals where they say that their boss and organization is forcing them to focus on short term projects and quick results. Do these professionals have the necessary “Transformational Skills” – which is beyond academic education and industry/sector know-how that will make their boss and organization sit up and listen to them?