WHEN: Today, Wednesday, January 24, 2018
WHERE: CNBC’s “Squawk Box” – Live from the World Economic Forum in Davos, Switzerland
Following is the unofficial transcript of a CNBC interview with Blackrock Chairman & CEO Larry Fink on CNBC’s “Squawk Box” (M-F 6AM-9AM) live from the World Economic Forum in Davos, Switzerland today, Wednesday, January 24th.
ANDREW ROSS SORKIN: LARRY FINK IS HERE. WE’RE GOING TO TALK ABOUT THAT IN A SECOND. THE WORLD’S BIGGEST INSTITUTIONAL INVESTOR LARRY FINK PUSHING COMPANIES TO LOOK BEYOND THE BOTTOM LINE. IN HIS ANNUAL LETTER, WHICH IS MAKING A LOT OF NOISE BY THE WAY, HERE IN DAVOS, HE URGED COMPANIES TO FIND A SENSE OF SOCIAL PURPOSE AND ORIENT THEMSELVES TOWARDS LONG-TERM GROWTH. LARRY FINK, BLACKROCK CHAIRMAN AND CEO JOINS US RIGHT NOW NOW. GOOD MORNING.
LARRY FINK: WELCOME TO DAVOS GUYS.
SORKIN: THANK YOU. WELCOME TO DAVOS YOURSELF. I’VE NOW BEEN TO A NUMBER OF DINNERS WHERE YOUR LETTER HAS ALREADY BEEN THE TOPIC OF CONVERSATION.
FINK: DID YOU CREATE THAT TOPIC OR DID SOMEONE ELSE?
SORKIN: OTHER PEOPLE DID. IN ONE INSTANCE I DID. I WILL – I’M HAPPY TO ADMIT. BUT THERE’S BEEN A BIG DEBATE SINCE YOU PUT THIS LETTER OUT. A LOT OF PEOPLE APPLAUDING IT BUT OTHER PEOPLE CRITICAL AS WELL. WHERE YOU EFFECTIVELY SUGGESTED THAT IT’S NOT JUST PROFIT THAT YOU’RE AFTER AS AN INVESTOR, BUT THAT TO GET TO THAT PROFIT YOU THINK THAT THESE COMPANIES NEED TO HAVE A SOCIAL PURPOSE. WHICH, IS A LITTLE BIT STEPPING OUT, IN A WAY. MAYBE PEOPLE – MAYBE YOU DON’T THINK IT’S STEPPING OUT?
FINK: WELL, NO. I DON’T THINK IT’S STEPPING OUT. I THINK I’M ACTUALLY RECONFIRMING WHAT MILTON FRIEDMAN SAID. IF YOU READ HIS WHOLE ESSAY THAT EVERYONE TALKS ABOUT, HE TALKS ABOUT THAT YOU NEED TO BE CONNECTED IN YOUR COMMUNITY, ESPECIALLY FOR A SMALL COMPANY BACK THEN, THE 1970s. AS GLOBAL COMPANIES WHO ARE HERE IN DAVOS, WE HAVE COMMUNITIES EVERYWHERE AND WE HAVE TO BE CONNECTED WITH EVERY COMMUNITY. BUT THE MOST IMPORTANT THING I SAID, AND I REPEATED MAYBE THREE TIMES, PROFITS ARE PARAMOUNT TO EVERYTHING A COMPANY DOES. AND THEIR CONNECTIVITY WITH SHAREHOLDERS IS ABOUT PROFIT. WHAT I DID SAY THOUGH, TO REMAIN IN FRONT OF CHANGE, TO BE A PART OF A GROWTH ENVIRONMENT, I BELIEVE THE INVOLVEMENT IN A COMMUNITY TO HAVE A PURPOSE IS VITAL FOR LONG-TERM SURVIVABILITY, BUT LONG-TERM PROFITABILITY. AND I THINK MOST PEOPLE -- FOR MOST PEOPLE IT RESONATES, YES, YOU NEED TO BE CONNECTED TO EMPLOYEES, YOU NEED TO BE CONNECTED TO CLIENTS, YOUR COMMUNITIES THAT YOU OPERATE. AND THAT’S REALLY WHAT THE ESSENCE OF WHAT I’M SAYING MOST – BUT IMPORTANTLY I BELIEVE THE COMPANIES THAT HAVE PURPOSE ARE THE BEST COMPANIES IN THE WORLD BECAUSE IT UNITES EMPLOYEES, IF CONNECTS THE CLIENTS, BUT MOST IMPORTANTLY IT BRINGS THE ORGANIZATION ON TO A COMMON PLAIN. AND I THINK THAT’S VERY VITAL. AND YOU KNOW, THE BEST COMPANIES THAT I KNOW OF ARE THE ONES THAT WORK TOWARDS A PURPOSE.
SORKIN: SO THE SECOND PART, THOUGH, OF THE CRITIQUE OF THIS, IS THAT YOU ARE GOING TO BE TAKING A MORE ACTIVE APPROACH AND TRYING TO HOLD COMPANIES MORE RESPONSIBLE, NOT JUST FOR THE PROFITS, BUT FOR THEIR PURPOSE. AND AS I THINK YOU KNOW BECAUSE I THINK YOU WERE WATCHING, WE HAD SAM ZELL ON THE DAY THAT THE LETTER WAS RELEASED.
FINK: YOU ARE SURE I WAS WATCHING?
SORKIN: I HOPE YOU WERE. HE SAID, “I DIDN’T KNOW LARRY FINK HAS BEEN MADE GOD.” WHY SHOULD A PASSIVE FUND, EFFECTIVELY YOU HAVE 6 TRILLION DOLLARS, BUT WHY SHOULD YOU DO ANYTHING MORE THAN BE COMPLETELY A PASSIVE FUND AND JUST LET THE MARKET DO WHAT IT DOES?
FINK: GREAT QUESTION. AS I SAID IN MY LETTER, AN ACTIVE MANAGER, IF THEY REALLY DISLIKE LIKE THE COMPANY, THEY CAN SELL. THEY DON’T HAVE TO OWN IT. AS A PASSIVE INVESTOR WE HAVE TO OWN THE EVERY COMPANY THAT’S IN AN INDEX. AND DEFINITIONALLY THAT MEANS, HALF THE COMPANIES ARE REALLY GOOD AND HALF OF THEM ARE UNDERPERFORMING. AND SO WE HAVE TO HAVE A VOICE IF WE’RE GOING TO TRY TO BE THE HIGHEST LEVEL OF FIDUCIARY ON BEHALF OF OUR CLIENTS. AND I WILL TELL YOU OUR INVESTORS ARE ASKING FOR THIS. A BIG COMPONENT HOW WE WIN NOW ARE MANY OF THE PASSIVE MANGEMENT TALK TO US, YOU KNOW, ABOUT YOUR CORPORATE STEWARDSHIP TEAM. SO WE HAVE 35 PEOPLE. WE HAVE THE LARGEST TEAM IN THE INVESTMENT UNIVERSE. AND OUR TEAM IS JUST INADEQUATE RIGHT NOW. SO I’VE COMMITTED TO RAISE THE TEAM TO 70, 75 PEOPLE. WE PUT IN ONE OF THE FOUNDING PARTNERS TO LEAD IT, BARBARA NOVAK, WHO HAS A GREAT REPUTATION IN MANY CIRCLES ALREADY. AND IT IS ABOUT FOR US TO BE ENGAGED. SO WHAT I SAID VERY LOUDLY IS, BEING ENGAGED DURING A PROXY SEASON IS NOT BEING ENGAGED. BECAUSE IT’S A BINARY OUTCOME. YES OR NO, DO I AGREE WITH IT? WE WERE CRITICIZED BECAUSE WE VOTE 91% WITH MANAGEMENTMENT. NOW THE REALITY IS WE’RE ENGAGED WITH SO MANY OF THESE CLIENTS AND THEY’RE CHANGING THEIR INPUT TOWARDS OUR PROXY WITH OUR ENGAGEMENT. SO I’M VERT HAPPY THAT WE AGREED WITH 91% OF THE COMPANIES. I THINK THAT’S A GOOD TESTIMONY THAT WE’RE WORKING WITH MORE AND MORE COMPANIES. THAT WE’RE ENGAGED. AND OUR HOPE IS THAT WE ARE LEADING THAT EFFORT TOWARDS HAVING MORE ENGAGEMENT THROUGHOUT THE YEAR WITH MORE COMPANIES TO TRY TO PRODUCE BETTER LONG-TERM OUTCOMES ON BEHALF OF OUR INVESTORS.
BECKY QUICK: LARRY, I COMPLETELY UNDERSTAND WHAT YOU’RE SAYING. I HAVE AGREED WITH A LOT OF WHAT YOU SAID OVER YEARS WITH PUSHING COMPANIES TO TAKE A LONGER-TERM FOCUS ON THINGS INSTEAD OF SHORTER-TERM. I HAVE AGREED WITH ISSUES LIKE TELLING PEOPLE THEY NEED TO BE SAVING MORE FOR RETIREMENT. BUTI, INVEST IN INDEX FUNDS—FIRST, BECAUSE WE CAN’T OWN OTHER STOCKS HERE AND SECOND, BECAUSE I WANT TO JUST OWN THE BROAD MARKET. AND THAT IS A PASSIVE OWNERSHIP. IF YOU SUDDENLY BECOME THE MARKET AND TELL THE MARKET WHAT TO DO AS AN ACTIVE MANAGER, THAT’S NO LONGER ME OWNING AN INDEX FUND AND OWNING THESE THINGS. THAT’S – YOU KNOW.
FINK: I HEAR WHAT YOU’RE SAYING. I DON’T AGREE. I THINK IT’S OUR RESPONSIBILITY TO BE ENGAGED. WE WERE CRITICIZED—
QUICK: BY THE WAY, DO YOU CHARGE MORE IN FEES AS RESULT OR NO?
FINK: NO. NO. IT’S ALL EXPENSE THAT WE’RE -- JUST ANOTHER SERVICE THAT WE’RE LEADING. BUT WE WERE CRITICIZED, AND PROBABLY CRITICIZED ON THIS SHOW AND MANY OTHER SHOWS, PEOPLE CALLED --
QUICK: I’VE HARASSED YOU BEFORE.
FINK: YEAH, BUT PEOPLE CALLED IT PASSIVE DUMB MONEY.
QUICK: RIGHT.
SORKIN: WELL LET ME ASK YOU A SEPARATE QUESTION THEN IN TERMS OF HOW ACTIVE YOU CAN BE. BECAUSE THE OTHER PIECE OF THIS IS THAT THERE IS INHERENT CONFLICT AT PLAY, RIGHT? YOU HAVE CLIENTS IN I-SHARES AND THAT BUSINESS, WHICH YOU’RE TRYING TO HOLD THESE COMPANIES ACCOUNTABLE FOR, BUT AT THE SAME TIME A LOT OF COMPANIES USE YOU FOR ALL SORTS OF OTHER PROGRAMS. WHETHER IT’S 401(k) PROGRAMS, WHETHER ITS BOND PROGRAMS THERES A WHOLE ASSORTMENT, THERES A HUGE CORPORATE CLIENT BASE. AND SO THE QUESTION IS CAN YOU EFFECTIVELY DECIDE I’M GOING ATTACK TWO, THREE BOARD MEMBERS WHEN WE ALSO HAVE BUSINESS WITH THEM ON THE OTHER SIDE?
FINK: GREAT QUESTION, BUT WE’VE HAD THAT CONFLICT FROM DAY ONE. SO THAT CONFLICT HAS NOT CHANGED. THAT CONFLICT IS AS REAL. THIS IS WHY WE HAVE THIS INDEPENDENT ORGANIZATION THAT’S DOING THIS. I PERSONALLY AM NOT INVOLVED. WHEN I GET A PHONE CALL FROM A CEO ABOUT, “WHAT ARE YOU DOING TO ONE OF MY BOARD MEMBERS,” OR WHATEVER THAT QUESTION MAY BE USING YOUR FRAMING, I SEND THAT INQUIRY TO THAT TEAM. WE HAVE TO BE INDEPENDENT. WE, THE LEADERSHIP OF THE FIRM, ON THESE INDIVIDUAL VOTES IN COMPANIES. WE DO MEET WITH OUR CORPORATE STEWARDSHIP TEAM AND TALK ABOUT POLICIES. SO THERE’S SOME POLICIES THAT YOU KNOW, I’LL HAVE AN INPUT ON. WHEN IT COMES TO ANY SINGLE COMPANY, WE’RE NOT INVOLVED AT ALL.
JOE KERNEN: LARRY, LET ME APPROACH IT FROM A DIFFERENT ANGLE. CORPORATION X, Y, Z MAKES A FANTASTIC PRODUCT. THEY SATISFY THEIR CUSTOMERS NEEDS BETTER THAN THEIR COMPETITION. THEIR EMPLOYEES ARE HAPPY. THEY ARE MAKING GREAT STRIDES IN PLANNING FOR THEIR RETIREMENT. THEY PAY TAXES TO THE UNITED STATES GOVERNMENT. EVERYTHING IS GREAT, BUT THE CEO DOESN’T FEEL LIKE EMBRACING WHATEVER SOCIETAL CHANGES THAT ARE EN VOGUE AT THE MOMENT, THAT LARRY FINK HAPPENS TO THINK ARE EN VOGUE AT THAT MOMENT. SO, HE DOESN’T WANT TO – HE ACTUALLY IS NOT GOING TO PLAY BALL WITH YOU ON WHAT YOU THINK -- YOU SAID CHANGE. YOU ARE EMBRACING CHANGE – HE THINKS SOME OF THESE CHANGES MAY NOT BE LASTING. THEY MAY BE WHATEVER SIDE OF THE POLITICAL SPECTRUM DECIDES IS IMPORTANT AT THAT MOMENT. ARE YOU GOING TO YOU TRY TO GET HIM – OUST THAT BOARD AND VOTE YOUR SHARES AGAINST HIM?
FINK: NO, OF COURSE NOT. FIRST OF ALL, YOU’RE PERSONALIZING IT WITH ME.
KERNEN: FINE. BLACKROCK.
FINK: THANK YOU. TWO—
KERNEN: THIS IS YOUR IDEA, ISN’T IT? WHOSE IDEA IS IT?
FINK: WELL IT’S THE FIRM—
KERNEN: OKAY. BLACKROCK. ALRIGHT, I THINK OF YOU AS BLACKROCK, WHICH IS A COMPLIMENT.
FINK: THANK YOU, BUT IT’S NOT. HOPEFULLY IT’S NOT, NOT A COMPLIMENT, BUT THAT IT’S MORE THAN ME.
KERNEN: I GET YOU.
FINK: THANKS, JOE.
KERNEN: BIGGEST MONEY MAN IN THE WORLD.
FINK: IF A COMPANY IS PERFORMING REALLY, REALLY WELL, AS YOU JUST SUGGESTED AND IT IS A BEACON FOR EMPLOYEES, I AM VERY CONFIDENT THAT THAT ENGAGEMENT IS GOING TO BE POSITIVE. YOU FRAMED IT IN A WAY THAT I DON’T SEE THAT BEING A REALITY. I WILL TELL YOU, I HAVE HAD CONVERSATIONS PRETTY CLOSE TO HALF THE CEOs WHO HAVE RECEIVED THE LETTER, AND I DON’T BELIEVE THEY’RE SUCKING UP TO ME OR ANYTHING LIKE THAT. THEY WERE FAVORABLE –
KERNEN: WHAT IF YOU TELL EXON THAT THEY HAVE TO STOP DRILLING FOR HYDROCARBONS BECAUSE THEY DON’T—
FINK: BUT YOU’RE FRAMING THINGS—
KERNEN: WELL LET’S SAY YOU DO THAT.
FINK: BUT THAT’S NOT GOING TO HAPPEN. WE HAVE NOT DONE THAT.
KERNEN: OKAY.
FINK: YOU’RE FRAMING HYPOTHETICALS THAT ARE NOT EVEN THE REALM OF REALITY.
KERNEN: LET ME ASK YOU THIS --
FINK: I MEAN IT’S NICE TO TALK ABOUT AND FRAMING QUESTIONS THAT ARE 2% PROBABILITY.
KERNEN: HOW ABOUT COCA-COLA? YOU TELL THEM NO MORE SUGARY DRINKS.
FINK: THAT’S THEIR BUSINESS. THEIR BUSINESS IS PROVIDING –
KERNEN: HOW ABOUT PHILIP MORRIS? NO MORE TOBACCO PRODUCTS.
FINK: WE WILL NOT DO THAT EITHER. IF WE’RE—
KERNEN: WHAT WILL YOU DO?
FINK: THOSE ARE NOT ISSUES. BUT THOSE ARE NOT THE ISSUES. IF THEY’RE -- WE HAVE ISSUES MANY TIMES. IF AN INDIVIDUAL IS INVESTING IN AN INDEX THAT HAS PHILIP MORRIS, THAT HAS COCA-COLA, WE AREN’T GOING TO BE CHANGING THEIR BUSINESS MODELS TO THAT WAY. THAT’S THEIR BUSINESS MODEL. SO, WE’RE NOT GOING TO BE SAYING GET OUT OF YOUR BUSINESS.
SORKIN: UNDERSTOOD. WHAT DO YOU MAKE OF THESE COMPANIES WHO HAVE ANNOUNCED RECENTLY PLANS TO INCREASE SALARIES OR BONUSES? WE WERE TALKING ABOUT STARBUCKS, TALKING ABOUT JPMORGAN. I DON’T KNOW IF YOU’RE DOING ANYTHING SIMILAR AT BLACKROCK.
FINK: WELL, YOU KNOW, WE PAID PEOPLE UP 11% LAST YEAR. SO PEOPLE DID VERY, VERY WELL AT BLACKROCK LAST YEAR. I ACTUALLY BELIEVE PEOPLE ARE RAISING COMPENSATION NOW BECAUSE IT’S HARDER AND HARDER TO FIND TALENTED PEOPLE. AND AT A 4% UNEMPLOYMENT RATE, I BELIEVE IT’S HARDER AND HARDER TO DO IT.
SORKIN: SO YOU THINK IT’S PURELY ECONOMIC DECISION?
FINK: I THINK 90% OF IT IS ECONOMIC AND THE LAST 10% IS PR. WE WOULD HAVE DONE IT ANY WAY. WE CONSTANTLY RAISE WAGES. WE TRY TO REMAIN COMPETITIVE. WE DON’T ANNOUNCE IT. THERE’S AREAS WHERE WE RAISE WAGES MUCH MORE THAN OTHER AREAS, WHERE THERE’S A COMPETITIVE ISSUE. I BELIEVE IF THE CEOs ARE RAISING COMPENSATION AND PROVIDING MORE EQUITY OWNER OWNERSHIP TO THEIR EMPLOYEES, THAT’S A FANTASTIC OUTCOME. AND I DO BELIEVE THE BIG ISSUE THAT WILL CONFRONT MORE AND MORE COMPANIES IS RETENTION OF EMPLOYEES. AND I BELIEVE THAT’S GOING TO BECOME A BIG CRY OUT, ESPECIALLY WITH OUR IMMIGRATION POLICIES IN OUR COUNTRY.
SORKIN: LARRY FINK, THANK YOU. APPRECIATE IT. GOOD TO SEE YOU.
KERNEN: LOVE YOU LARRY.
FINK: I’M SURE.
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