The Essence of Inclusive Capitalism with Lynn Forester de Rothschild
Ms. Rothschild is the founder of the Coalition for Inclusive Capitalism, which seeks to address growing wealth inequality
As part of our upcoming film, The Purpose of Capitalism: Lessons from Japan, we spoke to Ms. Rothschild about what inclusive capitalism is, why it matters, and whether it could really be the answer to the problems we face on our planet today.
This interview was condensed and edited for clarity.
TBT: What is inclusive capitalism?
Lynn Rothschild: Given what capitalism has done to workers, society, and the planet in the last 30 or 40 years, inclusive capitalism might sound like an oxymoron.
But inclusive capitalism is an aspiration; an aspiration to reform the capital markets so that our economic system becomes inclusive, sustainable, dynamic, and trusted. It’s about creating what I call the virtuous cycle, where companies that are doing the best with respect to their people, society, and planet are rewarded.
“It’s about creating what I call the virtuous cycle, where companies that are doing the best with respect to their people, society, and planet are rewarded.”
As Colin Meyer—the academic lead for the Future of the Corporation puts it—the purpose of business is to profitably solve the problems of people and the planet. We, as investors, need to stand behind the companies that are doing that work. This is the essence of inclusive capitalism.
TBT: When did you first start thinking about inclusive capitalism?
Lynn Rothschild: It was around 2007 and 2008, when the underpinnings of the financial system started collapsing. On a day that I will never forget, the market froze altogether.
There was a lot of despair and anger at the time—the feeling of not being included, that the system was rigged against the ordinary person—only good for those who have capital. The government stepped in, but their programs left many feeling desperate. People were losing their homes because they had been given a mortgage beyond their means, putting debt on people who never should have had it.
Around this time, I was asked to co-chair a task force with Dominic Barton [then Chairman of McKinsey in Asia], to look at capitalism under siege. We produced a report, ‘The Journey Toward Inclusive Capitalism’, and after holding several conferences, we set up the Coalition for Inclusive Capitalism.
TBT: What is the coalition? What does it do?
Lynn Rothschild: The coalition is a group of asset owners, asset managers, alongside leaders in philanthropy, academia, policy, and business that is dedicated to making capitalism work for everyone.
One initiative was the Embankment Project for Inclusive Capitalism. We had the CEOs of $32 trillion of assets put together metrics that companies could use on a standardised basis to tell investors, employees, and customers what they were doing to create more inclusive and sustainable capitalism.
“We all have to play a part—as consumers, as employees, as advocates, as human beings—to be more inclusive and to be more sustainable.”
An important aspect of the coalition is the site, a space where large and small businesses or individuals can use to get their heads around the principles for inclusive capitalism, and then make their own commitments. Because this is really what inclusive capitalism is about: creating a framework where anyone in the world can make their own commitments. It’s not only the elite that can do this.
We all have to play a part—as consumers, as employees, as advocates, as human beings—to be more inclusive and to be more sustainable; whether that is to be more environmentally careful, or to reach out to a person of a different skin colour or a different gender or a different background and help create an opportunity for them. Everybody has to have their ore in the water.
TBT: Western capitalism has been criticized for being slow to recognize the importance of multiple stakeholders. But do you think this is changing?
Lynn Rothschild: Yes. Western capitalism took a turn for the worst in the 1980s. Milton Friedman said that the sole role of the company is to create value for shareholders. Concerns about employees or the planet were sidelined. Shareholder return became the metric that chief executives and boards looked at in order to keep their jobs. But with inclusive capitalism, shareholder returns are driven by companies that are best for the planet, and best for the people who work there.
We are seeing that change now, with $30 trillion invested in sustainable conscious inclusive companies. There was a very important moment in August 2019, when the Business Roundtable disavowed shareholder privacy as practiced by Milton Friedman, and said that actually, companies need to take care of all stakeholders.
“We need to see that we have patient long-term shareholders who will stand behind companies and elevate them, with higher valuations that take care of their people and their planet.”
We need to see that we have patient long-term shareholders who will stand behind companies and elevate them, with higher valuations that take care of their people and their planet.
TBT: Can business be the solution?
Lynn Rothschild: It is not optional for business to be the solution. It has to be part of the solution. We are going to lose our society and our planet if it does not step up.
That’s not to say that we don’t also need wise government and generous philanthropy, but there are many problems that business can and must solve. Capitalism should not be creating problems that government and philanthropy need to fix.
TBT: What are your hopes for the future of inclusive capitalism?
Lynn Rothschild: What keeps me awake at night is that my generation—the baby boomers—will be known as the greediest generation. We should not go down in history this way, which is why we must correct the harm that we have caused.
By pursuing shareholder value and not paying attention to its repercussions, we have twisted the system. We need to be part of reforming and re-imagining it. We need to go back to the days when a hard-working person working 40 hours a week, could support a family and have a decent livelihood.
We only live once and we need to dig deep into ourselves to ask ourselves what matters. My greatest optimism is that the younger generation will understand that those aspirations can be met by being in business – by guiding business toward being inclusive, sustainable, and cutting edge.
The Purpose of Capitalism: Lessons from Japan premieres on CNBC in October.
This interview took place as part of The Purpose of Capitalism: Insights from Japan . The documentary takes an inside look at some of the largest and oldest Japanese companies to find the answer. It premieres on CNBC in October.
To read more about the film and be the first to receive insights and updates, click here.