For 50 years, companies have been told to put shareholders first. Now even their largest investors are challenging that consensus.
In 1974, Phillips-Van Heusen’s pension fund sold its shares in International Telephone and Telegraph at a heavy loss in protest at the US conglomerate’s political donations. The decision, taken by a corporate accountability panel comprised of the shirt company’s middle managers, did not much impress the FT’s New York correspondent. “Of course, the idea of a conscience committee playing David to ITT’s Goliath and forcing its will on the mammoth conglomerate is laughable,” he wrote, because the job of a money manager was simply “to make money rather than subjective personal judgments”.
That view captured a consensus that was relatively new at the time, springing from Milton Friedman’s argument that for a company to pursue anything other than (legal) profit would be “pure and unadulterated socialism”.
A decade after the financial crisis shook voters’ confidence in capitalism, the challenges to Friedman’s model have been gathering momentum.
If Friedman’s article provided the intellectual underpinning for the idea that a public company’s only social responsibility was to increase its profits, the catalytic text for the new era of purposeful capitalism was a letter sent to chief executives a year ago by BlackRock’s Larry Fink, who with $6.3tn of assets under management counts as the biggest investor of them all.
Fink is far from a lone voice in his industry. Assets in US funds that aim to produce social or environmental benefits alongside financial returns grew fourfold to $12tn over the past decade, driven in part by millennials who, surveys show, are twice as likely as older generations to want their pensions to be invested responsibly.
Institutional investors are becoming effective environmental campaigners and the concept of the activist chief executive no longer sounds like an oxymoron.
Read the full FT article here.