BlackRock and the limits of corporate "principles"

David_Snowball

From today's Wall Street Journal:

One of crypto's erstwhile doubters is helping to take bitcoin mainstream. Larry Fink, CEO of BlackRock, called bitcoin "in index of money laundering" back in 2017 ... today he says he is a big believer in bitcoin. His firm managers the fastest-growing bitcoin fund and has forged partnerships with some of the largest players in the digital-assets industry. (Vicky Ge Huang, "BlackRock Does U-Turn on Bitcoin," 3/11/2024)

John Stark, a former SEC enforcement chief, cuts to the chase:

The irony is transparent and glaring in that it's supposed to be decentralized, yet what is more decentralized than a Wall Street behemoth who is taking fees from every single possible angle and peddling something that nobody understands.

(N.B. he might be speaking ironically when he asks "what is more decentralized than BlackRock" or the article might contain a typo, which the intent is the bitter but non-ironic "which is more centralized than BlackRock?")

BlackRock's ETF gathered $10 billion in assets faster than any other OEF or ETF ever.

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On the flipside, remember the days of “climate-proofing portfolios is a key consideration for all asset owners” and "climate risk is investing risk" (2020)?

Yeah, about that: BlackRock is liquidating sustainability funds, withdrawing from the Climate Action coalition, banning the use of the term "ESG" ... and is "the top institutional investor in fossil fuels, holding about $133 billion in shares and bonds of the top oil and gas companies, and at least $85 billion in coal" ("BlackRock's climate actions are so milquetoast they're making no one happy," QZ.com, 12/8/2022).

Which is, at base, the argument for government action. Even the largest corporations live in deathly fear of missing out on $1.50 in potential profits. The lazy defense of which is to cite Milton Friedman's 50-year-old declaration that the only legit purpose of a corporation is to maximize profits, the so-called "shareholder theory." Rather a number of people (paywall, sorry) have since noted that Friedman's political preference isn't actually law, much less eternal law. (Google "Milton Friedman was wrong" if you want the potpourri.) Likewise, there is no legal obligations (i.e., fiduciary requirement) to maximize profits. Corporate decisions are driven by executive compensation (the average compensation package for the CEO of an S&P 500 company is about $15 million/year, up 1500% since I graduated Pitt in 1978) which is tied to corporate profits.

larryB

@ David. Thanks for sharing this.

BaluBalu

CEO compensation, which is out of control, is hardly tied to long term corporate profits. There are so many American companies that do not make a profit, progress or innovate and their CEOs get paid $30M a year. I think the CEOs get paid by their buddy Board members who are CEOs, wannabie CEOs, and retired execs at other companies. Look at the CEOs in the media and telecom industry and auto industry for example. If you are a shareholder in these companies you would be crying but not the execs and CEOs of those companies. I am a (hapless) shareholder in a few of these companies. Any CEO that prioritizes long term shareholder wealth growth will have to consider all stakeholders, including the social environment they operate in. CEO and Exec comp is a symptom of an underlying escalating cultural problem.

sma3

this and the shameful massive use of options which are not expensed, and then company claims stock buybacks benefit shareholders when all they do is retire the dilution from the options.