Larry Fink’s Warning to CEOs Rings Hollow

There is a theory, once popular in certain circles, that the way you build a big profitable company is by providing some valuable good or service to the rest of society. If you build a billion iPhones and sell them for $500, and a billion people get more pleasure out of an iPhone than they do out of $500, then those billion people will be better off for your efforts, and you will have $500 billion. This straightforward theory -- it is sometimes called "capitalism" -- runs into some complications with rents (if you build a lifesaving pill for $1, patent it, and sell it for $100,000, the person who buys it will be better off in a sense, but you might still be a jerk) and externalities (if you build a delightful social network, sell lots of ads for it, and it happens to undermine democracy and civil society, then you might be subtracting value even as people are happy to buy your ads), but like I said it used to have a certain popularity.

In particular, people in the financial-services sector tended, as a matter of professional pride, to believe in it. For one thing, people in the financial-services sector themselves provide a nebulous and hard-to-explain value to the rest of society. "Wait, you allocate capital? What does that mean?" their aunts ask them at family gatherings, creating a certain touchiness that can only be assuaged by their paychecks. For another thing, people in the financial-services sector usually allocate that capital based on profitability metrics -- they'd rather allocate capital to a stock that goes up than one that doesn't -- and so they have a natural tendency to think that profitability is a good measure of social value. You'd hate to buy a tobacco stock and have it go up and think that that was bad.