The focus of shareholder capitalism is shifting to helping employees navigate retirement.
As he has often done up to now, Larry Fink, CEO of BlackRock, presents a provocative latest variant of stakeholder capitalism in his book Annual letter to investors. This time it’s about rethinking the retirement age.
In a subtle departure from his multi-year concentrate on environmental, social and governance (ESG) issues, Fink is in search of to attract widespread attention to what he perceives as a looming retirement crisis inside the workforce.
“As a society, we focus enormous energy on helping people live longer. But not even a fraction of that effort goes toward helping people afford those extra years,” Fink writes within the 2024 edition of his letter.
More specifically, Fink sees the difficulty of retirement provision as one in every of the best economic challenges of the mid-Twenty first century (together with infrastructure). He believes the difficulty is tougher than it was 30 years ago and can grow to be tougher over the subsequent 30 years as people live longer lives and wish more cash. According to Fink, the latter could be provided by capital markets “as long as governments and companies help people invest.”
To address this challenge, Fink proposes “an organized, high-level” national dialogue to be certain that future generations can live out their final years with dignity. This conversation would examine the pension crisis from three different perspectives:
- That of a current worker trying to avoid wasting for retirement;
- Someone who’s already retired and has savings but is anxious that funds may run out;
- And the broader demographic problem.
In America, increasingly individuals are retiring, and people retirement periods are lasting longer and longer. This in turn puts the US pension system under an “immense burden”.
As a possible solution, Fink urges rethinking the concept of retirement, with a specific concentrate on reviewing the common retirement age.
“How can we encourage more people to work longer, using a carrot rather than a stick? What if the government and private sector treated those over 60 as late-careers with a lot to offer, rather than as people who should retire?”
He points to countries like Japan, the Netherlands and India which have developed creative answers to this query.
This is not the primary time Fink has seen retirement as the actual focus of corporate social responsibility efforts. In his Letter 2019, he cited the shift to defined contribution plans as a shift in the standard role by which firms helped their employees manage their retirement. This change, he argued, left too many employees unprepared for retirement. This, in turn, has led to greater anxiety within the workforce, reduced productivity and – surprisingly – the rise of populism within the political environment.
In that 2019 letter, Fink called on firms to take a bigger role in helping employees navigate retirement. He believes that providing business expertise and the flexibility to innovate could lead on to a more stable workforce and an economically secure population within the communities where these firms operate. His 2024 letter sharpens this attitude according to the broader theme of corporate social responsibility; This signifies that firms that fulfill their goals and obligations to their stakeholders generate greater returns in the long run.
However, lots of Fink’s proposals over the past five to seven years haven’t met with general acceptance. There is increasing backlash against ESG investing, particularly from some state governments and parts of the investment community. In fact, Fink himself has abandoned public reference to the concept and focused more on problems with climate change and sustainability.
Still, the reference to a “retirement crisis” may discover a more receptive place within the boardroom, as many corporate leaders may associate themselves with Fink’s story about his parents’ retirement needs. Topics like “affording retirement” and “building retirement savings” for workers may (fairly or unfairly) resonate more with business leaders than topics like sustainability and social engineering.
The kinds of changes Fink advocates for the present worker pension system are each daring and far-reaching. They would likely require a radical change in the corporate’s relationship with its workforce. And its implementation would need to navigate a posh system of federal laws and regulations designed to guard employees’ retirement security.
But igniting a national conversation on this issue will not be an expensive task for business leaders. In fact, it is a conversation best began within the boardroom, where strategic pondering is commonly best generated. It can be a conversation that ought to involve executives, internal and external pension plans, and strategic and financial advisors.
This wouldn’t be a repeat of drained ESG conversations. Rather, in the present environment of growing workplace culture challenges and unrest in addition to political populism, it might be a foretaste of a pretty coming attraction – a more sustainable approach to securing employees’ retirement. And which may actually be a “four-star” approach that the board should take.
