Let's Get Philosophical: What's the Purpose of Companies?

Jan 21, 2018
Current Events, Article, Audio Resource, Ethics, Policy, Teaching Strategies

Make a profit OR serve other constituencies, like customers, employees and communities. The "maximize shareholder value" mantra (a.k.a. the stock price is all that matters) for public companies has been in vogue for the past several decades. However, if pronouncements from a top investor is any indication, there may be a shift afoot. Business teachers might enjoy taking this current event into the classroom and using it to spur a debate.

Larry Fink, CEO of BlackRock, an asset manager with over $6 trillion in assets, recently weighed in on this question in his Annual Letter to CEOs [key phrase in bold]:

We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

Why does this matter? As one of the largest index fund managers, BlackRock funds are shareholders (significant in some cases) in almost all US companies. While they cannot sell shares in companies in the indices they track, their large shareholdings mean their voice matters. Up to this point, BlackRock and the other large index fund management firm, Vanguard, have chosen not to wade deeply into this area of corporate governance and purpose. This letter from Mr. Fink seems to indicate that BlackRock, which is growing in influence as index funds continue to gain market share, plans to take a more aggressive public stance on these issues. 

So, split the class up with one side taking the stance that companies exist to "maximize shareholder value," while the other side will defend the stance that companies exist to serve a social purpose beyond just financial returns. 


Additional resources your students can use to prepare for their debate:

  • Article: Fink extraordinarily hypocritical to push social responsibility (CNBC)
  • Audio: Head of BlackRock just gave CEOs a talking to (Marketplace.org)
  • Article: Larry Fink talks the talk but neglects the walk (Bloomberg opinion)
  • Article: BlackRock's message: Contribute to society or risk losing our support (NY Times)


About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.