ARI SHAPIRO, HOST:
A lot of CEOs at big corporations received a letter today. It was from Larry Fink, the chairman and CEO of BlackRock, the world's largest investment management firm, which means those CEOs probably paid attention. The letter calls on CEOs to curb their appetite for short-term profits and focus more on long-term growth and making a positive contribution to society. NPR's John Ydstie joins us now in the studio to talk about Fink's letter. Hey, John.
JOHN YDSTIE, BYLINE: Hi, Ari.
SHAPIRO: This is not the first time corporations have heard this kind of social responsibility message. Why is this particular letter getting so much attention?
YDSTIE: Well, I think the main reason is that BlackRock is big - very big. It has close to $6 trillion under management. That's a sum equal to the annual output of the British and German economies combined. So if BlackRock begins to focus its investments on more socially responsible companies, it could have a big impact.
SHAPIRO: Did Fink explain in this letter what he means by social responsibility or making a positive contribution to society?
YDSTIE: Well, what he said was that many governments are failing to prepare for the future on issues ranging from retirement and automation and worker training, so society is now turning to the private sector, to companies to respond to these challenges. And he notes that a big part of the polarization we see in the U.S. and around the world today comes from a lack of job and retirement security, especially for workers who don't have much education.
SHAPIRO: Is this the job of corporations? I've long heard people say that the primary job of private companies should be to make money for shareholders.
YDSTIE: You're right. Nobel Prize-winning economist Milton Friedman, one of the great champions of free markets, promoted that view. He said companies don't have social responsibilities; only people do. But I talked to Professor Tim Hubbard at Notre Dame's Mendoza College of Business about that today, and he says ignoring social responsibility can actually hurt a company's profits.
TIM HUBBARD: Common sense says, you know, if you have fewer workplace accidents, it's cheaper to prevent accidents than it is to have them happen. You know, so oil spills and product recalls and all of these things become quite expensive.
SHAPIRO: He seems to be saying that social responsibility can actually improve the bottom line.
YDSTIE: Right. But Hubbard says it requires companies and boards of directors to take a long-run approach, and that's the point of Fink's letter, too. He says firms have to understand that not responding to long-term trends like slow wage growth and climate change can negatively affect a company's potential growth.
SHAPIRO: Do you think we are actually going to see BlackRock stop investing in companies that are not socially responsible or companies change their policies because of this letter?
YDSTIE: Well, I think the response will be mixed, but Hubbard believes it will move the needle in the direction of more corporate social initiatives. But he does have one cautionary warning from a study he did for CEOs who decide to push social responsibility.
HUBBARD: The study showed that if firms and CEOs choose to invest in corporate social responsibility and then perform poorly, they are much more likely to be dismissed.
YDSTIE: And in fact, Ari, CEOs who invest in social responsibility programs are 84 percent more likely to be fired if the corporation performs poorly even if it wasn't that strategy that caused the poor performance.
SHAPIRO: Does that mean a company doing badly with a CEO that is not pushing social responsibility will keep the underperforming CEO?
YDSTIE: (Laughter) Yes. So with that in mind, both Fink and Hubbard say it's important for boards of directors and CEOs to make sure they agree on these initiatives as a long-term strategy for their companies.
SHAPIRO: That's NPR's John Ydstie. Thanks a lot, John.
YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.