Continuity and Transformation /
The new paradigm of corporate culture
/ The impact of Larry Fink’s alert on the future of company management /
„A sense of purpose“ – is the title under which the CEO of BlackRock wrote a remarkable letter to the CEOs of S&P 500 companies. It calls on top managers not only to manage their companies on the basis of short-term financial indicators, but also to pursue an overarching social purpose and to give entrepreneurial action meaning beyond mere quarterly thinking.
From a European perspective, this warning is not surprising. Since the invention of shareholder value, there has been a critical discussion about Anglo-Saxon turbo-capitalism and purely financial short-term thinking, compared to, for example in Germany, longer-term oriented, medium-sized family businesses. What is surprising, however, is that this demand for more purpose and social responsibility comes from the Anglo-Saxon investor par excellence. After all, BlackRock is the world’s largest financial investor with an investment volume of over 6 trillion dollars. According to “Wirtschaftswoche” magazine, about 4.5 percent of the entire DAX stock market value is in the hands of BlackRock, and there are even voices that impute the company’s ambition on world domination. So there’s no question Larry Fink’s word has an enormous weight.
The wolf in sheep’s clothing?
It is worth taking a closer look at this apparent change in perspective. Why does the world’s most powerful investor feel the need to demand more social responsibility from corporate leaders just at this time? Is this a sign of altruism or a guilty conscience? Does he want to counter the fears that BlackRock might become too powerful or abuse his power? Does the wolf want to put on sheep’s clothing?
If you read Fink’s letter carefully, you won’t notice any of that. On the contrary, he is concerned about the financial performance of the respective companies. His thesis is that especially if a company focuses only on short-term growth and profitability, it runs the risk of putting this very growth at risk in the long term because it loses its social relevance and forgets to set the foundations for the future:
„Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth[…] And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education“.
In other words: Larry Fink’s demand aims at a strong, future-oriented corporate culture as a guarantor for long-term profitable growth.
“Culture eats strategy for breakfast”
This represents a paradigm shift in that the topic of culture is not only a nice “add-on”, but an essential driver of corporate success – also and especially from the point of view of investors. From the perspective of a consultant whose focus is, among other things, identity-centered corporate management and corporate culture, it is good news that Peter F. Drucker’s insight that culture eats strategy for breakfast has now also found its way into the financial community.
So it is all the more astonishing that especially in Germany tendencies are visible which almost counteract this insight. Just recently, for example, Innogy’s CEO was dismissed for – among other reasons – a lack of cost discipline. In view of the digital transformation, he had positioned the RWE subsidiary for innovative and renewable energies as a strong brand and pushed a supposedly expensive project to develop the corporate and working culture (“New Way of Working”) instead of simply selling electricity and filling the shareholders’ pockets. His ideas were denounced as “esoteric”. The result: Innogy was taken on a short leash by the owners, the company is being smashed up and divided between RWE and E.On. The workforce is frustrated and the top talents are taking off.
Corporate purpose as a driver of shareholder value
What Larry Fink is aiming for is the elimination of the classic dichotomy: either shareholder value or purpose- and culture-based corporate management. Both together are important. This means that shareholder value is created through integrity and meaningful corporate management – sustainably and strategically, and not just tactically and opportunistically.
However, this leads to the crucial question: How can something like “sense of purpose” be developed, anchored in a complex corporation and then also lived by those responsible in the staff? Just a catchy mission statement is certainly not enough. Starting from the analysis of the current state of the company reality and its future prospects, it is a transformation process that affects many areas of the company. It is also more than compliance, which means that everyone abides by certain rules so that the company does not become legally vulnerable. Rather, it is the orientation of the entire company towards an overarching goal, a common canon of values and a clear attitude. However, this is not easy, as is shown by the current management changes at Deutsche Bank and Volkswagen. Both their former CEOs, John Cryan and Matthias Müller, according to Handelsblatt, had “failed in cultural change” because they had either underestimated or even ignored the inertia and the established “mentality” in the respective companies.
A question of priorities
Many companies realize that it would not be bad to have a strong corporate culture. However, the pressure of day-to-day business is often so great that no one is constantly and consistently concerned with cultural issues, other things always have priority. In addition, one is afraid of the associated investments. It takes time and effort to involve as many employees and opinion leaders in the company as possible and, if necessary, also invest in hardware, software and infrastructure, in order to set out specific stimuli and initiate tangible changes.
It is to the credit of Larry Fink that the sense of these “soft” investments has been brought to the attention of shareholders. The seemingly excessive costs for consultants, workshops, motivation and training programs are quite reasonable in the overall Group context, considering how high the costs will be if you do nothing. Then the company threatens to become disconnected from digital and social change, becomes unattractive as an employer, comes under pressure from activists and NGOs because of a lack of social responsibility, etc. In other words, it loses relevance and ultimately its raison d’être.
The author: Dr. Alexander Schubert is an expert and impulse setter for identity-centered corporate management. He is a partner of the Hamburg-based management consultancy brandrelation consulting with a focus on corporate culture, work culture, brand management, and employer branding.