Making capitalism work

The Wealth Report Editor Andrew Shirley talks to Lynn Forester de Rothschild


 

It’s not often I get nervous before an interview. I’ve quizzed the likes of legendary investor Jim Rogers, environmentalist and film producer Trudie Styler and iconic fashion-house scion Massimo Ferragamo over the past 10 editions of The Wealth Report.

But I do have to admit to a few butterflies on the way to meeting the glamorous and rather well connected American businesswoman Lynn Forester de Rothschild or, to be more formal, Lady de Rothschild – a title that came with her marriage to British banker Sir Evelyn de Rothschild.

Perhaps it is because, unusually for an interviewee, Lady de Rothschild has generously invited me to her own home in London, fittingly for a noted art collector, the former Chelsea studio of John Singer Sargeant, one of America’s most influential artists.

Or maybe it is because it has been slightly daunting thinking of questions clever enough to ask a person who, having created her own hugely successful US telecommunications business, is now leading an ambitious campaign to redefine capitalism. And, for good measure, is part of a dynasty synonymous with 400 years or so of wealth creation.

The reason we are meeting is to talk about the emerging Inclusive Capitalism movement and the Coalition for Inclusive Capitalism – a not-for-profit organisation that was founded by Lady de Rothschild and is dedicated to promoting the concept.

“It’s a belief that capitalism should be a system for the creation of broad-based prosperity, and should instil trust in our institutions, and optimism for the future – that’s the way I think about it,” she explains succinctly. A single sentence, but one that opens a Pandora’s box of questions. The first on my list: how badly does capitalism really need fixing? But Lady de Rothschild beats me to it and is already recounting some survey findings released just that morning suggesting the answer is “very”.

Apologetic for not having longer to chat while ensuring a coffee is on its way, and then immediately teasing me about my “old-fashioned” Dictaphone, it is easy to see why so many influential figures, Christine Lagarde, Mark Carney, Bill Clinton, Prince Charles and even the Pope to name but a few, have been persuaded to lend their support to her campaign.

Despite this high-profile backing, the concept of Inclusive Capitalism is still not a part of mainstream vocabulary, so I begin by asking Lady de Rothschild to capture its essence for readers of The Wealth Report.

Only 19% of Americans believe that their government, in most cases, will do the right thing. Trust in business is not that much higher

“Only 19% of Americans,” she laments, “believe that their government, in most cases, will do the right thing. Trust in business is not that much higher. So, to the extent that business is not trusted by society, often with good reason, it is not good for capitalism.

There is no excuse for that.” If we do not correct the problem, Lady de Rothschild believes the consequences could be dire. “A divided society against itself will not stand and it doesn’t matter if you’re in the top 1% or 0.001%. If the society around you is crumbling, you’re in a bad place,” she says.

“Now we can sit in London and New York and say society isn’t crumbling, the restaurants are beautiful, I can live my life, but that doesn’t mean it’s smart, or safe or moral or ethical to ignore where our middle classes are going, let alone the poor of our society.” So what can we do about it, I ask. “One result is Occupy Wall Street, another result is the Tunisian vegetable vendor who set himself on fire, but I believe the best result is for business and investors to be part of the solution,” she explains.

“We have a lot of work to do and I don’t think we can put the burden on government alone. The point of Inclusive Capitalism is to talk with the large asset owners, asset managers and corporate leaders of the world and give them ideas that will be part of the solution.”

And that is where the Coalition for Inclusive Capitalism comes in. The Coalition was created after the City of London asked Lady de Rothschild if she would help pull together the Conference on Inclusive Capitalism in 2014.

“I didn’t know what that would be like, but it was more successful than we could have imagined (the delegates represented a staggering $30 trillion of assets – one third of the world’s institutional assets under management), so then we had a second one in 2015 and are planning 2016 in New York City. To create change, however, we need more than a conference a year, so we created the Coalition.

“I believe our entrée is to the large asset owners, the sovereign wealth funds, the pension funds, the insurance companies and the people who manage their money – to simply convince them that an investment for the long term means attention to product, planet, people and profit.” Lady de Rothschild is firm in her belief that practising Inclusive Capitalism need not come at the expense of profits. “I’m not asking people to have a lower return.”

It doesn’t matter if you’re in the top 1% or 0.001%. If the society around you is crumbling, you’re in a bad place

It’s a compelling message, and it’s one that’s backed up by the many research papers on the coalition’s website – one of the latest questions the assumed wisdom that hedgefund activism offers long-term benefits to target firms. She also points to the returns of the businesses that EL Rothschild – an investment vehicle she set up with Sir Evelyn – invests in.

Some of the firms, such as a renewable energy operation in Africa and an Indian agri-business, do have an element of impact investing, but Lady de Rothschild insists that the couple are rigorous investors looking for very good returns.

“We’ve more than doubled our money in India and in Africa we see internal rates of return north of 20%. The returns from our EL Rothschild portfolio are over 30% so we are very clear that having impact does not mean we have to sacrifice returns.”

Lady de Rothschild, however, does admit it will be difficult to break the short-termism endemic among politics, business and consumer behaviour. What motivated her to take on such a Herculean task, I wonder. “I personally care about the issue because I want to leave a world, or at least a country – America – that has a level playing field where people can achieve their dreams based on their Godgiven talent, not based on the families they are born into. I just believe in that.”

Inclusive Capitalism is not without its detractors. Some commentators claim it is simply a PR exercise by the world’s business elite to protect itself from the wrath of the disgruntled masses. Others say the concept of capitalism itself is the problem. But Lady de Rothschild is quick to point out that while capitalism is not perfect, it has, by and large, been a power for good in the world.

“I believe it’s like what Churchill said about democracy: ‘It’s the worst system apart from all the others.’ And remember that since 1980, while inequality has grown and way too much of the wealth has gone to the 1% in the developed world, for the rest of the world 700 million people have been lifted out of poverty.

“I don’t think capitalism properly practised needs to make any apologies. Crony capitalism is completely wrong, subsidies to the wealthy while we are gutting out the middle class – that’s just wrong and governments shouldn’t be there to protect the rich.

“Capitalism should be about competition, ethics, innovation and a level playing field. If all that is in place, I don’t see how anybody could have an argument with Inclusive Capitalism.” However, Lady de Rothschild does concede that Ian Davis, Chairman of Rolls Royce and a contributor to the 2015 conference on Inclusive Capitalism, makes a valid point when he says the concept “needs to be democratised if it is to become real and effective”. So how can the concept be spread beyond the business leaders who attend her conferences, I wonder.

“It’s a very good question, and of course it’s the hardest question,” says Lady de Rothschild. “My simple response is that a journey of a thousand miles starts with the first step and I have said from the very beginning that Inclusive Capitalism is not about a destination, it’s about a journey and opening our eyes to how we invest.” Inclusive Capitalism should not be confused with corporate responsibility or philanthropy, she stresses, although she and Sir Evelyn support a wide variety of causes.

Some are traditional, such as funding a children’s hospital in London; some are based around the arts world – they are noted supporters of modern art and helped the Tate acquire a work by acclaimed video artist Bill Viola. But many are about micro finance, education and economic empowerment – elements that fit very closely with the concept of Inclusive Capitalism.

As we say goodbye, Lady de Rothschild worries that I haven’t brought a coat to guard against the inclement English weather. It’s actually quite mild for the time of year, but I appreciate her concern. It remains to be seen whether the critics of Inclusive Capitalism will recognise her sincerity, though I leave thinking that Lady de Rothschild’s call for action is something that businesses, wealth creators, politicians and even consumers the world over can ill afford to ignore.

The returns from our EL Rothschild portfolio are over 30% so we are very clear that having impact does not mean we have to sacrifice returns