“To a lot of people, inclusive capitalism is an oxymoron,” said Lady de Rothschild. “That’s because capitalism has failed so many people. And we should remember that, to Adam Smith [the 18th-century author who laid the foundations of free market economic theory], it would have been a redundancy. Clearly, we have a problem where so many people across the western world and beyond feel that the benefits of capitalism exclude them.”
Lady de Rothschild’s leadership of the Coalition has seen it become one of the principal drivers behind the recently announced Embankment Project for Inclusive Capitalism, which aims to bring together investors and others to “transform the way businesses measure and report on the value they create for stakeholders.”
She argued that, unless the economic system creates opportunities for prosperity for more people in the future, the widespread distrust of institutions and frustration at growing inequality will continue. She also counseled against presenting investors with a choice between “inclusive” or “profitable” companies.
“Shareholders do better with companies that take a long-term, sustainable approach,” she said. “An Oxford study showed that 80% of companies that pursued a longer-term approach had a lower cost of capital, better operating performance and better earnings per share than their competitors.”
Lady de Rothschild was joined by Hywel Ball, Assurance Managing Partner for EY UK and Ireland and Head of UK Audit at EY, who is the organization’s representative on the Embankment Project.
He said: “When it comes to long-term value, I think companies are struggling to get a clear definition of what they’re trying to do and how they should do it. We want to help companies better understand and frame their long-term purpose and strategies. Ultimately, we are trying to help business restore the social contract that has come under so much pressure since the financial crisis.”
Lady de Rothschild insisted that creating long-term value shouldn’t be viewed as an optional extra. “This isn’t about corporate social responsibility or impact investing, or environmental, social and governance funds,” she said. “It’s about investing and spending our money in that part of the ecosystem that is helping workers and shareholders and the environment.
“This is a virtuous circle,” she continued. “If the companies that are doing the right thing by their employees, their suppliers and so on become the most valuable companies, they won’t need to worry about being targeted by hostile takeovers, or by investors or regulators.
“So we’re on a mission to change the way capitalism works. Because capitalism is not too big to fail.”