Yahoo Finance Presents: Roger Ferguson and Lynn Forester de Rothschild

Video Transcript

[MUSIC PLAYING]

ANDY SERWER: Hello, everyone. And welcome to "Yahoo Finance Presents." I'm Andy Serwer, and welcome to our guests, TIAA CEO Roger Ferguson and Lady Lynn Forester de Rothschild, managing partner at Inclusive Capital Partners. Welcome.

ROGER FERGUSON: Thank you very much.

LYNN FORESTER DE ROTHSCHILD: Thank you. It's nice to be here.

ANDY SERWER: Lynn, let me start with you. And maybe you could tell us a little bit about what the Council for Inclusive Capitalism with the Vatican is all about, and why you're launching this partnership right now.

LYNN FORESTER DE ROTHSCHILD: The Council for Inclusive Capitalism with the Vatican is a group of global business and investment leaders who are committed to real true system change, where the capital markets become a force for inclusivity and for sustainability. And the partnership with his holiness Pope Francis is really about bringing to this movement the moral imperative. That we know that there is interest in the marketplace among companies, among consumers, in making capitalism better.

But in many ways, we really need a discussion, not only for our heads, but for our hearts, about how capitalism has got to be moral in order for it to be sustainable. And that's why the council was formed, and the council will be a body of 40 global leaders. But on this day, we are opening our website and inviting businesses, large and small, to come on to the website to become stewards for inclusive capitalism by supporting our principles, and then making their own commitments.

ANDY SERWER: Roger, let me turn to you. So you're joining, my understanding is, as the guardian CEO at the Council for Inclusive Capitalism.

ROGER FERGUSON: Mm hmm.

ANDY SERWER: What's the number one priority you hope that the council can help achieve?

ROGER FERGUSON: Well, I think the number one priority is in its name, which is reminding people that capitalism has been, for many, many-- literally billions of people-- the path out of abject poverty. So there's something positive about it. But yet, we also know there's a lot of skepticism, so we've got to bring to life the inclusively part of this, and to create a narrative around capitalism that frankly says it can actually solve some of today's problems using the tools and mechanisms of capitalism.

And the kinds of problems I'm thinking about, obviously, are the phenomenal income and wealth inequality here in the United States, for example, where the top 1% of earners have 25% of income. And indeed, the top 1% of households with wealth have something close to 39% to 40% of wealth. And so there obviously are some inequities that everyone sees, and I'd like to-- I think the number one priority is to help the society understand, down the moral path that Lynn was talking about, that capitalism actually has the tools to solve and resolve some of the challenges and inequities that we see in front of us.

ANDY SERWER: Lynn, what concrete steps can the organization take to help achieve those goals?

LYNN FORESTER DE ROTHSCHILD: Well, one of the things that I believe is different about the council, in addition to the fact that we receive moral guidance from his holiness Pope Francis, is that each of us is making a series of commitments for how we see what our organizations can do to become more inclusive and more sustainable.

So as of today, we have 120 measurable, specific commitments for what we will do to achieve inclusivity, but also map it back to the sustainable development goals. Because we don't have to ask what society expects of companies. Society has spoken in the form of the sustainable development goals. And I would encourage everyone to look at our website, InclusiveCapitalism.com, to find out the specifics, but in general, almost every one of our guardians has made commitments to diversity and commitments to the planet.

So we have commitments to net zero by certain years, we have commitments to diversity. Our firm, Inclusive Capital Partners, is 50% women-owned and managed. We have got a target to increase our racial diversity. And I always say to Roger that he's the platinum. He's the platinum member of the Council. Because TIAA has made really fantastic commitments to inclusivity and sustainability. And Roger, I think you should be the one to give a few of them, because you've made so many.

ROGER FERGUSON: Oh, well Lynn, you're awfully kind. So let me talk just a little bit about how we think about some of the inclusively, first within our company, and then more broadly in society. So in our own company, we have a long history of being very diverse and inclusive, going back to the '40s when we had the first woman on the board of a Fortune 100 company. In the '50s, the first African-American on our board. And then my iconic predecessor, Cliff Wharton, as the first African-American CEO of a Fortune 100 company.

But we look outside of our walls to think about how we can drive inclusively in areas that we are really aware of, which is, let's say, financial inclusivity. We've done a study and we've seen that our research shows that African-Americans have a much lower degree of financial literacy than whites, and so we've developed a training program called FinSights, and as of December of last year, about 7,000 college students across about a dozen universities have gone through our FinSights program.

So we've got a commitment to say by 2022, we want to double that number in more than 15,000 students who have been trained in financial literacy matters through our FinSights program. Our bank, for example, has a multi-year engagement to reach out to K to 12 students, and we want to commit by the end of 2021 to have 20,000 dedicated hours of learning in 100 schools. So that's the kind of commitment that we're making there.

We also are making a commitment to use our voice as a shareholder, as an owner, of equities and publicly traded companies to drive for more diversity in the boardroom. And we will actually start to vote against nom and gov committees if their boards, in these public companies, do not have diversity represented on those boards.

So those are the kinds of commitments that we're talking about from a diversity standpoint. And from a planet standpoint, we are going to align 100% of our assets with the UN principles for responsible investing, for example. And we target to deliver net zero carbon real estate portfolios in buildings by 2050. So those are some of the commitments that we're looking at, and obviously, we'll try to exceed those goals and do even better. So those are some examples.

LYNN FORESTER DE ROTHSCHILD: And Andy, just so you know why we're doing this, because the world has seen too many vague promises, and it's not a brag sheet of we are doing this, it's setting goals which we hope we can achieve, and we're going to honestly try to achieve, but also to bring others in, to create a race to the top. For other companies, large and small, to try to be part of the movement. And maybe everyone can't do what TIAA is doing, or what Inclusive Capital Partners is doing, or State Street is doing, but everybody can do something, even if it's one commitment. That can still mushroom over time. So that's-- mushroom's probably not the right word. That can grow over time, that can snowball over time.

ANDY SERWER: Let me ask you, Lynn, about the partnership with the Vatican, specifically. This seems pretty unusual to me. How did that come about? Why the Vatican? Is there a back story there you can share with us?

LYNN FORESTER DE ROTHSCHILD: Well, in 2016, Time Fortune had a conference of global business leaders with Pope Francis. It wasn't called Inclusive Capitalism, but it was about reforming capitalism. And the Pope made a very direct challenge to basically make clear that neoliberal economics had not brought about the kind of world he believed we should have, and that we were not listening to the cry of the earth or the cry of the poor.

And that put an idea in my head because I have been working for 5, 10 years with leaders like Roger, who I know are sincere about making capitalism right. So I wrote a letter to the Holy Father-- I call it my audacious letter-- and I asked him if he would be to our movement what Martin Luther King was to the Civil Rights Movement. Because every movement needs a moral base.

And a year later, I received a letter that the Holy Father would work with us. And a year later, we put the council together. And a year later, we're now organized on our website where we can make concrete actions. And I should say that in the letter from the Vatican, what they asked for was something concrete. They want concrete actions to change the system. And we're only at the beginning. We know we have a long way to go.

ANDY SERWER: That's an amazing story. Write a letter to the Pope, and lo and behold, you're able to get this thing going. Amazing. Roger, let me ask you about this global nature of the council, though. That it seems that the new administration might be engaging more on a global scale-- Paris Climate Accords, WHO. Do we need to further emphasize international business groups and cooperation to address economic concerns?

ROGER FERGUSON: I think we absolutely do. One of the things that we've learned in this world is it is a totally interconnected world. We think about the pandemic that we're confronting now. It knows no borders. We think about the challenge of climate change. It affects the poorest and the richest nations without regard. And so I think the concept of making this global is very important.

And finally, I think there's the concept of capitalism as a tool for development globally is quite important. I think it's really essential that those of us in the west have a point of view about the way to organize society and help everyone else understand why it is that we are believers in capitalism that has become, or should become over time, much more inclusive. And so I think the concept of global is important.

And the final point, let's be very honest, is we shouldn't be in a position where we seem to be exporting from the US to the rest of the world. We should be importing ideas and exporting ideas, and that means global. This should be global so it doesn't feel to be a US driven activity, or even a European driven activity. And so having companies from around the world represented, I think, creates more credibility.

ANDY SERWER: Roger, since I have you here, I can't help but ask you if you've been in touch with the Biden administration about a possible role, and if you could do that serving in this capacity as well?

ROGER FERGUSON: So there have been a number of rumors about my being considered for one thing or another. I'm focused and dedicated completely to finishing out my term here at TIAA and helping to bring this Inclusive Capitalism council to life. And so I'm very, very pleased with what I'm doing, and I look forward to working on behalf our TI participants through March 31 of next year.

ANDY SERWER: Fair enough. Lynn, back to you. I want to ask you about Pope Francis, because he's harshly criticized the adultery of money, and said once greed for money presides over the entire socioeconomic system, it ruins society. So can wealthy companies partner with him in a meaningful way and serve shareholders?

LYNN FORESTER DE ROTHSCHILD: I've spent a lot of time in the last year reading the Laudato si' and the Fratelli tutti, two of the encyclicals from Pope Francis. And there's not a condemnation of wealth, per se. There's a condemnation of becoming wealth by abusing others. There's a condemnation of degrading the planet while becoming wealthy. And then there's an aspiration for what it is to be human, and what it is to be human is to care about each other.

So I think it's very significant that Inclusive Capitalism is what the Pope has called our council, a noble endeavor. But it's only noble if we have our priorities right. And if we understand that a capitalism that does not create prosperity for all.

So our guiding principles are for equality of opportunity, regardless of your socioeconomic background, your gender, your race, even your age. And also equitable outcomes for people who exert the same effort, and given the same opportunities. And then fairness across generations. We can't become rich by giving all of our problems to future generations. And then care for those who, because of circumstances beyond their control, they cannot aspire to be what all of us are lucky enough to be.

That kind of capitalism is not a capitalism that the Holy Father condemns. He is asking us, because we understand the system. He understands the goal. So it's an honor to be pursuing that goal under his moral guidance.

ANDY SERWER: Roger, I want to ask you kind of a similar question, because there's long been this narrative that you can't achieve these types of goals at the same time as producing a sustainable business, even, or certainly a business that outperforms. And so I'm wondering how these two goals can be compatible, and not mutually exclusive?

ROGER FERGUSON: So I'm going to answer that question by going back in the history of TIAA, and I'm going to read a quote from Bill Greeno, again, one of my illustrious predecessors. So let me read this directly. What he said in 1971 is, quote, "A corporation can only continue to be a profitable investment for its stockholders if it discharges its obligations to society."

And that was 1971. So we have long believed in our company, in TIAA, that this is a false dichotomy. To use another phrase, we believe we can both do good and do well at the same time, we believe and have long believed in what's now called multistakeholder capitalism. And so we are quite comfortable as a company. It's in our DNA to think about balancing these various stakeholder interests, all for the sake of creating a sustainable and safe retirement for those millions of Americans who have entrusted their life savings to us.

LYNN FORESTER DE ROTHSCHILD: Your question is a false choice, and I point to another member of our council, it is Alex Gorsky. J&J. In 1954, the credo was written. Our first obligation is to the doctors and nurses who need our products. Our second obligation is to our employees who make those products. Our third to the communities who allow us to operate. And our fourth is to give a reasonable return to shareholders.

J&J has been a pretty good investment. And there's a book called "Fixing the Game" by Roger Martin, from Canada, where he compares GE, under Jack Welch and shareholder value, to J&J. And during Jack's period of the '80s to 2000, J&J and GE basically rose about the same percent, if you were a shareholder.

Of course, what happened during that time, J&J had the credo, Jack Welch had shareholder value. And of course, we know that after 2000, GE has lost its value, and J&J continues to thrive. So what Roger is saying, and the way that TIAA invests, it's to the wise companies, the ones who are going to be here for generations, it's not a choice between shareholder and doing the right thing for your stakeholders.

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ANDY SERWER: Let me ask you the last question, and that is, where do you see the Council for Inclusive Capitalism five years from now?

LYNN FORESTER DE ROTHSCHILD: Well, I'm hoping that we have thousands of stewards, that we are aware of companies all around the world who are making specific commitments to doing something to be inclusive. Maybe it's my next hire in 2021 will be a person of color. Maybe it's that I am going to stop using plastic bottles in the office. Whatever it is, large or small.

As you heard from Roger, TIAA has made really significant commitments. But everybody can make some kind of commitment. So within five years, we have an ecosystem where-- we probably haven't fixed it, but people trust that businesses are trying to do the right thing, large and small. That would be a success to me in five years.

But the more interesting question is 50 years. Remember, this is the Vatican. They think in terms of centuries.

ANDY SERWER: Well, we'll all have to reconvene in five years, and then talk about the next 45 years after that, OK?

LYNN FORESTER DE ROTHSCHILD: I'll let you and Roger do that.

ANDY SERWER: OK. Fair enough.

ROGER FERGUSON: I'm looking forward to it.

ANDY SERWER: Roger Ferguson and Lady Lynn Forester de Rothschild, thank you so much for your time.