Black Rock- A sense of Purpose Laurence Fink, Founder, Chairman and CEO of Black Rock Inc. The Annual Letter to CEOs 2018

Black Rock The world’s leading publicly traded investment management firm Manages $5.1 trillion in assets Employees represent more than 50 nations and speak more than 100 languages

Society is demanding to serve a social purpose Every company must deliver not only financial performance It must deliver a positive contribution to society Companies must benefit all of their shareholders, employees, customers and the community

Absence of Purpose A company cannot achieve its full potential It loses the licence to operate from key stakeholders It will succumb to short-term pressures to distribute earning It will provide subpar returns to the investors

INDEX FUND a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund provides broad market exposure, low operating expenses and low portfolio turnover. These funds adhere to specific rules or standards (e.g. efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets. 

Globally- investors increase use of index funds Index investors are long-term investors, providing capital for companies to grow and prosper If companies do not follow long-term growth, BR sells companies securities BR is active, engages agents and invest time and resources to foster long-term value

New model of Shareholder engagement Focus on stronger and deeper communication between shareholders and companies

A new Model for Corporate Governance Past perspective: Companies were focusing on quarterly results Shareholder engagement has been focused on annual meetings and proxy votes Actual perspective: The role of shareholder engagement is more meaningful and productive Needs a year-around conversation and improvement of long-term value

Companies must be able to describe their strategy for long-term growth Company’s strategic framework for long-term value creation is being reviewed by BoD BoD is engaged with the strategic direction of the company Directors, review the Board process for overseeing the strategy

To sustain financial performance, CEO must : Actions and policies The preparation for potential challenges The context of its shorter-term decisions The statement of long-term strategy is essential to understand the company’s: The company’s strategy must be articulated to achieve financial performance Understand the societal impact of the business Understand how broad and structural trends affect the company’s potential for growth To sustain financial performance, CEO must :

These strategy statements should: Continue to evolve along with the business environment Explicitly recognize possible areas of investor dissatisfaction These strategy statements should:

The US example What to do with increased after-tax cash flow? It is up to CEO to explain to shareholders how major legislative or regulatory changes will impact not just the following year Balance sheet, but how it will affect long-term strategy for growth Critical moment for companies to explain their long-term plans to investors How CEO should use it to create long-term value? What to do with increased after-tax cash flow? Companies should explain to investors how the significant changes to tax law fit into their long-term strategy

Board engagement is essential in developing long-term strategy An engaged board and long-term approach- are valuable for creating long-term value for shareholders Directors- assume deeper involvement with a firm’s long-term strategy Board- meet sporadically, but have continuous responsibility

Diverse Board – diverse mix of genders, ethnicities, career experiences, ways of thinking and diverse mindset They are able to better identify opportunities and promote long-term growth They are less succumb to group thinking or miss new threats

Your strategy, Your Board and Your Purpose The ability to manage environmental, social and governance matters demonstrates the leadership and good governance essential to sustainable growth and integrating these issues with investment process

Your strategy, Your Board and Your Purpose BR in 2018 has the purpose: To participate in discussions about long-term value creation Work to build a better framework for serving all stakeholders Demonstrate to clients the leadership and clarity that drive not only the company’s Investments returns, but also the prosperity and security of their citizens

Companies must ask themselves: What role do companies play in the community? How are companies managing their impact on the environment? Are companies working to create a diverse workforce? Are companies adapting to technological change? Are companies providing the retraining and opportunities that their employees and their business will need to adjust to an increasingly automated world? Are companies using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?