This month Larry Fink, the chief executive at BlackRock the world’s biggest investor with $4.6 trillion, sent a letter to the chief executives at S&P 500 companies and large European corporations to bring an end to a culture of short-termism and to focus on long term value creation. The appeal is not new, as other leading figures (e.g. Hillary Clinton, Mindy Lubber, Mark Carney) have made this claim before. However Larry Flink gives in his letter not only his view but he defines also his actions towards companies and why he his backing activist stakeholders when they have a more sustainable propostion.
Personally I find the most interesting part of his appeal to companies where he proposes “to educate stakeholders about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses”. Only in such an environment they can resist the pressure of investors for short term behaviour. Most managers do not resist this pressure as 78% of the managers would reject an NPV (net present value)-positive project if it would lower quarterly earnings, and 80 percent would focus on this short-term metric at the expense of building long-term shareholder value.
In the next edition of March 2016 of the Journal of Cleaner Production, there is an interesting article about the dimensions of project success that can be helpful to communicate to stakeholders. These dimensions of success are:
- Efficiency: meeting time and budget targets;
- Impact on clients: meeting customer requirements;
- Impact on team: meeting personal satisfaction and growth;
- Impact on business results: meeting return on investment and growth;
- Preparation for the future: meeting requirements for new business and innovation;
- Sustainability: meeting the the long term requirements of the Triple Bottom Line (TBL). Explaining the economic added value (Prosperity), environmental benefits (Planet) and social benefits (People).
The way these dimensions of success are ordered above, do increase in uncertainty for management. Being successful on the dimension of efficiency can be forecasted with more certainty than predicting business results or by estimating the impact on sustainability. It is therefore my belief that managers and companies not only have to educate their stakeholders but also have also have to permanently educate themselves about how they deal with risks and opportunities to adapt and succeed in a world of growing environmental and other sustainability risks.
Martens, M. L., & Carvalho, M. M. (2016). The Challenge of Introducing Sustainability into Project Management Function: Multiple-Case Studies.Journal of Cleaner Production.
Turner, M. (2016). Here is the letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider UK.