Linking Purpose And Profit In Private Equity

Marc CloostermanMay 14, 20195875 min

At the 2019 World Economic Forum in Davos, Larry Fink, Chairman and CEO of BlackRock, published his annual letter to CEOs. The letter was titled ‘Purpose & Profit’ and it reinforced the idea that BlackRock are serious about changing the type of businesses they invest in.

In this year’s letter, Mr. Fink explains that purpose and profit are interlinked, with purpose being part of the longer-term strategy and profit the shorter-term outcome. Following last year’s letter on the same topic, skeptical readers may have seen this focus on purpose as hype, however this year’s letter reinforces its importance.

As I discussed earlier here on Branding Strategy Insider, this focus on purpose is what we call a paradigm shift. Let me share my observations on this major shift – as well as its implications.

Mr. Fink’s 2018 Letter Wasn’t A One-Off

For those within BlackRock and its investments, last year’s letter from Mr Fink came as a surprise because it represented a 180-degree turn on BlackRock’s previous investment positions and strategies.

It triggered rumors as to whether Mr Fink was genuine about making changes across the organization, or whether he was using the letter simply to change external perceptions of the business. It wouldn’t have been the first time that a leader has used external pressure to speak to internal audiences and vice versa.

I was curious to see whether the intervening year has seen BlackRock adopt policies in line with the letter’s promise to change its behavior and direction at all levels. And I must say that this year’s letter backs up its promises. In fact, there is no doubt that BlackRock is leading the way in shifting the private equity paradigm from short-term profit to long-term purpose.

Larry Fink Purpose Profit BlackRock

The Challenge Of Profit With A Purpose

A company’s purpose is its reason to exist beyond the profit it generates. That purpose is challenging for stakeholders because:

  1. It needs to be relevant for all stakeholders
  2. Purpose must be built internally through company culture and leadership
  3. Technology is disrupting how companies work – you can read more on this is my book Future-Proof Your Brand
  4. A cohesive brand ecosystem must be created, managed and measured to ensure coherency and consistency
  5. Solutions to these challenges must be leveraged for growth that makes a positive impact

Interesting Times Ahead

As an entrepreneur, I often hear that we have reached the highest the economy is going to grow, with many analysts predicting economic turmoil in 2020. Mr Fink confirms these predictions in his letter – and he’s very open about it.

Turbulent economic conditions will present a huge challenge for businesses of all shapes and sizes when considering ‘profit with a purpose’. Even in ideal conditions, the pressure to deliver on short-term profit expectations can be huge. But balancing short-term profit while also planning the long-term aspect of your organization’s purpose will further complicate the process.

This will be a key challenge for private equity over the next few years: how to balance long- and short-term considerations when your dashboard for short-term KPIs has red flashing lights?

The Growing Importance Of Corporate Communications

Challenges around brand purpose, economic turbulence and disruptive technologies all make it clear that corporate communications will increase in importance, and that the role of the Chief Communication Officer will also need to evolve.

Later this year, the Arthur W. Page Society will publish findings from a new thought leadership project led by Jon Iwata, IBM’s former CCO. Page is the world’s leading professional association for senior public relations and corporate communications professionals. It comes as no surprise that their findings will focus on Corporate Character, which is at the heart of thinking around purpose, and Communications Technology. I recommend keeping an eye on the Page website to see the news when it comes out.

Mr Fink also addressed this thinking in his 2019 letter, looking at how changes in our society are impacting demography. For example, he highlighted behavior among younger generations. Millennials and post-millennials will demand to understand the ‘why’ of an organization before they are prepared to engage either as a customer or an employee. Young people will vote with their feet.

Likewise, those older generations heading toward retirement are living longer than ever before, they are more active, and they have greater financial and social influence than ever before. As the population ages and wealth shifts towards millennials, both groups will impact corporate behavior. The future success of organizations will depend on their ability to gauge and communicate their raison d’etre to all stakeholders.

Inspiration For 2019 And Beyond

In truth, I had expected Mr Fink to focus on a different topic – but he continued to build a framework for profit with a purpose, focusing on purpose-led thinking and building on his original proposal in last year’s letter.

This is an inspiring development and I’m excited to see what happens next. The importance of purpose-led thinking has been understood for many years by the World Economic Forum and corporate communications stakeholders around the world, but we haven’t always seen businesses put those ideas into action.

It’s brilliant to see the business community start to put more emphasis on the subject, and I believe they can only benefit by balancing short-term profit with long-term purpose.

Contributed to Branding Strategy Insider by: Marc Cloosterman, CEO, VIM Group.

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