Dreamtalk: Inclusive Capitalism | Salesforce

Ladies and gentlemen, please welcome Lady Lynn Forrester de Rothschild Chair, EL Rothschild llc, Founder and Chief Executive, Coalition for Inclusive Capitalism. Hello. Good afternoon, everyone. This is a very exciting week and I thank you for coming. I was actually afraid that when they said I would talk on capitalism, that if I didn't call this unsexy topic the 50 Shades of Capitalism, nobody would show up. So thank you. Thank you for being here. I'm here to talk about inclusive capitalism. And if you think that's an oxymoron, you, you are not alone. But to the founder of capitalism, Adam smith, in the 18th century, inclusive capitalism would have been a redundancy. So the fact that isn't an oxymoron today means that something has really gone wrong. So, in a word, inclusive capitalism is the idea that our economic system has got to work for everyone. Everyone must have an opportunity for prosperity. And in order to make that happen, it will require nothing less than an utter and fundamental reform of the capital markets. Now, that might sound like a crazy idea, like Sisyphus Ref rolling a stone up a hill and never getting there, but if you give me just a few minutes, I'm going to explain why I think we have to do it and also how you could consider helping. So what inclusive capitalism is not. And even though these are good things, if you think about, and you know this space, I want to be clear that we're not talking about impact investing, we're not talking about corporate social responsibility, we're not talking about ESG funds, we're not talking about philanthropy. And for sure, we're not talking about public relations and kind of check the box, do goodism. No, we're talking about fundamentally and utterly making the financial economy act in service of the real economy, where the jobs are. Now, I suppose you're not completely surprised that a person named Rothschild would care about capitalism. Our family's been connected to that system for over 200 years. And although I am Rothschild by name, and I'm lucky enough to have a very special life in a very special place, and I get to meet very special people by blood. I am Lynn Forester from Oradel, New Jersey. This is the house I grew up in. My parents built that house with some of their friends after the war, and they died there 65 years later. In that house, they told me that I was the most privileged person in the world because I lived in America and I could succeed however I wanted as long as I worked hard and played by the rules. I believed that and I lived that. I was a capitalist Forever. In fact, when I was about 16, my mom took me on a Bible study tour to Israel. And I had heard that in Israel, Levi's blue jeans were really valuable. So I scraped together $100. And when I sold those jeans for almost $1,000, I thought I was the richest person in the world. I thought that I had made it. But for me, I thought capitalism was a good thing. I thought that a rising tide would lift all boats. I believed all I needed to do was pursue my career and that automatically the world would get better and better. Well, it turns out I was pretty naive, because right there under my nose, there were two really insidious concepts that were taking hold. They were pernicious, and they are what led us down this road, this pernicious road to crony capitalism. The first concept was developed by Milton Friedman when he wrote in the New York Times that the sole purpose of the economy of corporation was to make money for its shareholders. This idea was called shareholder primacy. And it has taken hold in every business school, every boardroom, in laws and courts. It is conventional wisdom that the sole purpose of the company is to make money for its shareholders. Milton Friedman won the Nobel Prize and he put us on the road to crony capitalism. The second concept that happened at the same time, and all of this was in the 1980s, when greed is good was sort of accepted. But the concept was that the shareholder is the principal. And that principle cares about making profit on its share holdings. So the management is the agent of that principle. So the concept emerged, that agent needed to be aligned with the principal so that they would be given shares in the company. Now that sounds perfectly reasonable, and in fact, President Clinton included the concept in the tax reform of 1990s. But the horrible unintended consequence was that as CEO tenures became shorter and shorter, their interest in long term activities like employee training, like R and D, like supply chain, like conservation, became less and less valuable to them. So there was less and less of that. Those two concepts were really pernicious and they have led us to the capitalism that we have today. Professor Larry Sacks at Harvard has I think a really good metaphor for our American economy. He says in the 50s, 60s, 70s, our economy was like the perfect apartment block. Everyone in the world wanted our apartment block. And now if you flash forward and you look at the apartment block of 2017, people see beautiful marbled, high tech apartments on the top. The middle is getting kind of crappy, the lower floors are underwater. But what makes people really mad is that the elevator is broken. Inclusive capitalism is about fixing the elevator. And if we don't start fixing that elevator pretty soon, there are going to, I believe, be terrible consequences. One of the facts out there today has to do with inequality. If you look at the income gains of the top 0.01% of our population since 1980, they have had increases of 542%. During that same period, the lower 90% has actually seen their income fall by 1%. Wealth is just as bad. Right now, the top 1% of Americans control 42% of our national wealth. The 80% below control 4.7%. Maybe to make it a little realer, 63.3% of Americans could not come up with $500 in an emergency. We have got to do better. This is affecting our social fabric. If you look at our public trust in government, in 1964, 77% of Americans trusted government. Now it's 20%. And I don't really know where that 20% comes from, but there are 20% who trust government. And the trust in business numbers is better. But there's a really perverse side to that as well. So if you look at these numbers of the elite, of the privileged people like us, 70% trust business to do the right thing. The general population, only 51% of our Americans, trust government to do the right thing. That means 49% of Americans believe business sucks. So I can't see too well out there, but I just would like to see a little show of hands. How many of you believe we could do better? Okay, you're sort of the 70%. But this 51, 49% split kind of makes sense, because there are two completely true and opposite facts at play when we think about our capitalism. One absolutely true fact is that capitalism has created more wealth, more jobs, more dynamism, more innovation, more creativity than any other system invented by mankind. That's the best capitalism. That's inclusive capitalism. But the equal and opposite truth is that crony capitalism has created the kind of inequality numbers we've already seen. It's created horrible levels of despair and hopelessness among way too many Americans. And this is getting worse and worse. It is tearing our social and political fabric apart. So there are grace notes out there. And those grace notes are the great companies in this country who do care about their customers, their employees, their communities, their environment. There are many of them. The one I want to highlight is Johnson and Johnson. I choose them because in 1943, the founder of the company wrote down a credo for the company. And if you go to their Headquarters today it is there in granite. And that credo goes like this. He says, our first duty is to our patients, to the nurses and doctors and mothers and fathers and all others who need our products and services. Our second duty is to our employees who research and develop and produce those products. Our third obligation is to the communities where we operate and where we live. Our fourth duty is to provide, and he used this term, a reasonable return to shareholders. That is the right role for a company in society. Because you see, God did not create the corporation. The corporation is a legal entity that society created mainly so that the owners, the shareholders of that entity would not have personal liability. It's called limited liability, and that is huge. So that means when Wells Fargo or HSBC or Volkswagen or any company does something evil, the shareholder cannot be held personally liable. Now, in return for that gift, there is something called a social contract. And that social contract is between the corporation and society. And basically what it says is that a corporation can operate really only as long as society thinks the corporate behavior is acceptable. If companies, if business, if capitalism loses its legitimacy and it loses its license to operate, then kind of all bets are off. And if you just take a step back, look at what happened in the Arab Spring. The Arab Spring was not a Islamic revolution. It was started by a fruit vendor in desperate economic situation in Tunisia. He screamed out, how do you expect me to make a living? He lit himself on fire and the Arab Spring started. Hitler only was able to come to power because the economic and conditions in Germany were so horrendous. Now, I don't think we're there yet, but we're not in a really, really good place. And the point is, never underestimate the possibility of truly horrific results if a society begins to accept broadly based bad behavior. Because you see, our affair and an inclusive economy is the lifeblood of our democracy. And so the question then is, what can we do about it? Ideally, the capital markets would automatically reward the companies that are doing the best things for society. And there are academic studies from Oxford, Cambridge, Stanford. In fact, Oxford studied 200 studies and they found that 80% of those studies said that there's a direct correlation between companies that pursue inclusive behavior, taking care of its employees, its communities, its long term research, and a lower cost of capital for those companies, higher operating performance and higher stock performance. The problem is that this has not become accepted by the capital markets. And very sadly, the opposite is true. I don't know if you remember last April when American Airlines announced that it was going to give an already agreed upon raise to its employees. A few months earlier, the capital markets went batshit. The stock price got smashed, and the Wall Street Journal lead headline was, American Airlines gives Raise to Workers. Wall street freaks Out. So if that's the case, we can't expect companies to do those things that would create inclusive capitalism. That's why I believe that we have to really work on changing the behavior of the capital markets toward investing in long term sustainable companies. And that's why I helped form the Coalition for Inclusive Capitalism. Essentially, we've got CEOs from companies, institutions with about $32 trillion under management, and that's one third of the global institutional assets under management. And 30 of us are working over the next 18 months on developing a framework that portfolio managers can use to measure these inclusive behaviors and activities, these intangibles, with the same certainty that they measure profit and revenue. If we can do that and it's accepted by the capital markets, it will be enormous and it will. Imagine on an earnings call, if ever any of you have been on an earnings call, where CEOs who are doing these things know their facts. But what questions did they get? They get, what are your margins on hamburgers in San Francisco? All of these financial questions. Imagine if those questions were and what is your level of, of employee satisfaction? What's the average tenure of your employee? What are you doing to train? If those questions were asked by portfolio managers, we would see a huge change in the capital markets. So that's what I'm working on. It's called the Embankment Project for Inclusive Capitalism. And I invite you to go to our website and learn more about it. But what I really care about and the reason I wanted to come today is because it doesn't matter what we do with our 32 trillion, it doesn't matter how many CEOs I get in the room. What matters is what you do. What matters is what activity you undertake within the capitalist system to make it work for everyone. Now you might say, what can I do? I'm just one person. But the truth is, every time you buy something, you're part of the capitalist system. When you choose where to work, you're part of the capitalist system. So if we take that as a given, I have three small ideas which are actually big ideas. The first is you need to buy inclusive. And by that I mean, you know, if you're buying a T shirt that was made in Miramar, you might want to think again. If you're banking with a bank that we know has been unethical, or illegal. Try to find another bank. If American Airlines does pay its workers more and you can fly American, fly American. Juno pays more to its drivers than Uber. So why not ride with Juno? Every one of these activities helps make capitalism more inclusive. It's like a virtuous circle where you, the buyer, by buying products from these good companies, you automatically make those companies more valuable. So that's number one, buy inclusive. Number two is invest inclusive. Maybe you have a 401k plan, maybe you're a member of a pension plan in your company. Maybe someone invests your money. Have you ever asked them, how do my investments stack up with respect to people and planet? I once attended a town hall that one of our participants in the Coalition for Inclusive Capitalism invited me to. They're a big pension manager. And a woman stood up, she's probably in her 30s, and she said to basically her bosses, she said, I expect you to invest my money in companies that are creating the kind of world that I want to retire into. Every one of you can do that. The third idea is to vote inclusive. And I must say, I thought yesterday was pretty cool. We have a Sudanese woman, a Vietnamese woman, transgender people. I mean, we are an inclusive nation. But before that, you know, in the midterm elections in 2014, only 13% of college age Americans went to the polls. We're not going to change the world if we don't vote. And we have to vote for politicians who are going to end crony capitalism. We have to vote for politicians who are not all words, but actually are willing to act, to act against the lobbyists that are there only for their private good and not for the public good. We have the potential to change the world through our votes, and that's what we need to do. So in a word, I think crony capitalism has taken this country to a very bad place. But I am absolutely convinced that we can reimagine and reform the capital markets and the market in general so that we can have inclusive capitalism. Now, if the business about buy, invest and vote inclusive doesn't really resonate with you, I ask you then just to think about inclusion. So in closing, I want to recite four lines from the American poet Edwin Markham. And he wrote, he drew a circle that shut me out. Heretic rebel, A thing to clout but love and I had the wit to win. We drew a circle that kept him in. So whatever you can do to include anyone else in your life, whatever you can do to reward companies and people that are thinking about more than their own money, you're really helping the world, so I thank you for your time. And we're in this together, so thank you.