Laurence D. Fink, the founder and chief executive of investment firm BlackRock, informed business leaders at the world’s largest corporations last week that they need to contribute to society if they want to receive the company’s support.
Fink is one of the most influential investors in the world and his firm manages more than $6 trillion in investments, making it the world’s largest investor.
“Society is demanding that companies, both public and private, serve a social purpose,” he wrote.
Analysts reported that the letter would likely cause a “firestorm” on Wall Street. However, this emphasis on corporate social responsibility has gradually been occurring over the last twenty years, and has intensified in recent years as companies and CEOs implement and publicize large-scale philanthropic initiatives.
“It’s becoming less of an exception to the rule to have a company that focuses on understanding its role in society,” Jeffrey Walker, founder of The Generosity Network and member of the Harvard Kennedy School’s Center for Public Leadership, tells CNBC Make It. “It’s changing.”
In the past, companies gave money to specific causes depending on the interests of senior executives, Walker explains. Now, the process has become more collaborative as businesses work with one another, connect with non-profit organizations, governmental officials and include their employees.
“They’re going there and thinking, ‘What can we do to contribute to the change that we all agree needs to be in place?'” he says. “‘How can I get my employees involved? How can I get my community involved?'”
Here are some companies that have stepped up their philanthropic efforts in recent years:
Microsoft, for example, has a department devoted to philanthropy. Last fiscal year, the company donated over $1.2 billion in software and services to nonprofits, according to the company’s vice president Laura Clayton McDonnell.
Google’s CEO Sundar Pichai recently announced that the company will be awarding $1 billion in grants over a five year period. The money will go toward tackling global issues like education, economic opportunities and inclusion. The company has also started an initiative, called Grow with Google, to help American workers with the skills they need to secure a job or launch their own business.
Multinational tech company IBM has implemented a yearly travel program in which top performing employees are sent to developing nations on pro-bono assignments. The value of the team’s work while members are away is nearly $400,000 per deployment and has exceeded $70 million to date, a company spokesman tells CNBC Make It.
Walker lauds IBM’s travel program. “There is a solid return on investment to that. The high performers want to stay,” he says. “They feel more united, they are teaming with people around the organization they wouldn’t normally have worked with before and they are feeling like they can contribute and give back.”
This increased focus on giving back is particularly important as millennial and Generation Z employees enter and advance in the workforce. Both age groups have a penchant for job-hopping and want to work for companies that mirror their personal values and that can provide them with a sense of purpose.
“Many [millennials] really believe in this idea that it is important for companies to give back and to be involved in local community efforts,” says Neal Hartman, a senior lecturer at MIT Sloan School of Management. “For millennials, if you have the option of working for a company that is well-known for giving back and creating opportunities for employees to contribute in some way versus a company that doesn’t do that at all, the millennial might well choose the company where there is some of that charitable giving and that philanthropic support.”
Morale amongst current employees also increases when companies drive philanthropic efforts, thereby increasing employee retention and saving businesses thousands of dollars in hiring costs.
Numerous studies confirm that employees who have a sense of purpose at work are higher performers, more productive and are much more willing to stay with a company.
“When somebody feels like they contribute, they feel good about that,” says Walker. “It’s that social contribution to the world as well. And millennials and the next-gen communities are demanding that.”
Companies that are deemed philanthropic by the public, whether it’s giving back to their local communities or donating to larger more global societal issues, also have a competitive edge among consumers.
“Over the past few years, there has been an increasing level of activism on the part of consumers, in terms of either supporting a particular company for something that they’re doing,” says Hartman, “or boycotting a particular company because of either a lack of action or the perception that they may be supporting something that a large number of consumers don’t really support.”
In December, the research firm Just Capital released a rating of how the largest U.S. companies perform, based on eight different characteristics that appeal to most Americans. The firm found that the most highly-ranked companies that “do good things,” like Microsoft and IBM, had a higher return on equity than their counterparts.
“So there’s something happening with companies that are starting to realize that they need to be contributors to the larger set of stakeholders,” says Walker.
Companies are taking note, not only by pledging funds to different kinds of programs and philanthropic efforts but also by providing time and opportunities for their employees to partake in charitable work.
Salesforce employees, for example, receive seven days of volunteer time off. Additionally, the company matches employee donations of up to $5,000 per fiscal year to eligible, charitable organizations, a company spokesperson tells CNBC Make It. Google employees are allowed to volunteer one million hours to non-profit organizations.
“We see lots and lots of companies very involved in this sort of corporate social responsibility and the idea of giving back,” says Hartman.
As corporate philanthropy becomes the norm, this will have an impact on businesses of all sizes.
“It may come to a point where companies that are not engaged in that right now are going to start feeling a little more pressure to do that a little more actively,” says the MIT management lecturer.
Blackrock’s latest announcement suggests that his predictions may be correct.
In the letter Fink sent, he wrote: “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”