Global Banking and Finance Review - Business & Financial Magazines

Page 128


Purpose and Profit in Private Equity are Inextricably Linked 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.

adopt policies in line with the letter’s promise to change its behaviour 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 shortterm profit to long-term purpose.

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

The challenge of profit with a purpose

It needs to be relevant for all stakeholders

As I discussed in an earlier article, 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.

Purpose must be built internally through company culture and leadership

Technology is disrupting how companies work – you can read more on this is my book FutureProof Your Brand

A cohesive brand ecosystem must be created, managed and measured to ensure coherency and consistency

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

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 rumours as to whether Mr Fink was genuine about making changes across the organisation, 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

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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 organisation’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.