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Largest asset manager endorses corporate policies that support use of capital for long term production of goods and services

 

For the letter described in the article below, and for a previously distributed report of private meetings among large investors to coordinate their policies concerning the long term focus reflected in the BlackRock letter, see

 

Source: Bloomberg, February 2, 2016 article

 

BlackRock Chief Urges Companies to End Quarterly Profit Guidance

by Sabrina Willmer

February 2, 2016 — 9:56 AM EST

►  Fink encourages executives to provide strategic framework

►  Fink, Dimon, Buffett held meetings about long-term investing

Laurence D. Fink, who runs the world’s largest asset manager, urged the chief executive officers of leading companies to stop offering quarterly earnings guidance and increase their focus on long-term goals.

"Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need," Fink, the CEO of BlackRock Inc., wrote in a letter to more than 500 companies, a copy of which was obtained by Bloomberg News. Instead of focusing on small deviations from analysts’ earnings estimates, management should use quarterly reports to demonstrate progress against strategic plans, he wrote.

Fink asked the CEOs to provide each year a strategic framework, reviewed by the board of directors, for long-term value creation, which would include financial metrics. The framework could address how a company, for example, is adapting to technological disruption and geopolitical events, according to the letter, which was reported earlier by the New York Times.

Fink has been critical for years of the short-term approach taken by companies as stock buybacks and dividends reach record levels. He and other top investors, including Berkshire Hathaway Inc.’s Warren Buffett and JPMorgan Chase & Co.’s Jamie Dimon, have held meetings since August to discuss longer-term investment by public companies, with topics ranging from executive pay to board tenure to the role of board directors, according to a person familiar with the matter.

The most recent gathering was in December, said the person, who asked not to be identified because the discussions were private. The Financial Times first reported on those meetings Tuesday.

Buffett didn’t immediately respond to a request for comment sent to an assistant. Andrew Gray, a JPMorgan Chase spokesman, declined to comment.

BlackRock, which oversees $4.6 trillion for clients, is the biggest shareholder in many of the largest U.S. companies, including JPMorgan Chase and Citigroup, according to data compiled by Bloomberg.

Dividends paid by companies in the Standard & Poor’s 500 Index of U.S. stocks last year hit the highest proportion of their earnings since 2009, Fink wrote. Buybacks were up 27 percent over 12 months at the end of the third quarter.

Fink has also been critical of activist investors in some instances. He said in the letter that companies usually do better when ideas for value creation aren’t forced upon them in a proxy fight.

In some cases, however, activists do offer better strategies than management, he wrote. BlackRock last year voted with activists 39 percent of the time in the 18 largest proxy contests.

 

©2016 Bloomberg L.P.
 

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