State Street Corporation (STT) Earnings Call Transcript & Summary

I'm Zanny Minton Beddoes. I'm delighted to be moderating this panel, which is on the very small subject of the future of capitalism. It's obviously a platitude that at the beginning of the 21st century, we have a lot of questions being raised about modern capitalism, whether it is the rise in inequality, whether it's the growing concentration in some parts of business, whether it's the sense that the spoils of -- the fruits of capitalism are being inequitably divided. And to discuss all of those things, we've got a fantastic panel, but I thought we would sort of slightly focus the conversation on a topic that go in many, many different directions by really thinking about what -- what is the right relationship between governments, firms and civil society in the early 21st century. And I think that's a very important one. It's a very important question. It's one that's probably been reshaped -- being reshaped by the pandemic. And it's one that I think we are sort of collectively reaching different answers to now than we did for many decades. And I'll take you back half a century. When, as you know, Milton Friedman famously wrote an essay in the New York Times, called the Social Responsibility of Business is to Increase its Profits. That was the beginning, obviously, of the era of shareholder capitalism. I think now it's fair to say that many people have a very different view. There's a focus on stakeholder capitalism. The business roundtable formally shifted its mission, as you know, last year. And I think that may be an interesting place to start our conversation because, as you will see, we have 2 CEOs amongst our speakers, and I will now briefly introduce everyone, and they'll come up on your screen. Rebecca Henderson, who is the John and Natty McCarthy University Professor at Harvard Business School. Welcome, Rebecca; David Hunt, President and CEO of PGIM, the investment management business of Prudential. Welcome, David. Ron O'Hanley, Chairman and CEO of the State Street Corporation. Welcome, Ron. And Raghu Rajan, Professor at the Booth School of Business at the University of Chicago. Hi, Raghu. Welcome. I really can't think of a better group of people to have an interesting conversation about this topic. I'm not expecting any clear conclusions, but I am expecting differences of opinion. So this is -- let this be a kind of challenge to you. I hope you don't all agree for the next hour.

For those of you who are watching, feel free to ask questions, they will come up, I hope, technology permitting, and I will see them and I will ask them during the conversation and certainly at the end. But let's start, Rebecca, with you, setting the scene for us. Friedman style shareholder capitalism. Is that a thing of the past? And is it good riddance to it?

Yes. When Friedman said, "The Social Responsibility of Businesses is To increase his Profits." He did so on the back of a very powerful intellectual wave. A wave that said if firms put their heads down and maximize profits, that will maximize prosperity, individual freedom and even social welfare. But there was an important asterisk to what he said. And the asterisk was profit maximization what maximizes prosperity, asterisk, when externalities are properly priced, there is genuine freedom of opportunity, everybody can play and firms cannot fix the rules of the game in their own favor. When those 3 conditions do not hold, when prices do not reflect real costs, markets are not genuinely free and fair, and there is no guarantee that maximizing profits will maximize welfare. When firms can dump, when we all can dump greenhouse gases into the atmosphere for free, imposing very real harms on populations now and in the future. When millions of people feel they cannot access the markets when they cannot participate in the economy, because of the color of the skin or where they are born or their education. And when the belief is, the perception is and perhaps the reality that firms are buying the rules that maximize their own profits, by keeping our competition and distorting the market, that's not going to give us prosperity or freedom. That's going to give us a world in which, according to Edelman, more than half the population say capitalism is not working for them. And half the people under -- in the states, half the people under 25, say they prefer socialism to capitalism. They probably mean they want decent health care. But even so, it's not a good sign.

Well, thank you. That was very clear and very, very passionately put. Ron, do you agree with that.

So I actually agree with much of what Rebecca is saying. Because if you -- and I think the asterisk is a good way to describe it because what Milton Friedman believed in more than anything else was power of the market, but it was the power of a free and functioning market. And I think what we've seen -- and by the way, this isn't the first time we've seen this, right? This -- we've seen this cycle happen before. The last really big cycle when this happened was at the turn of the 19th into the 20th century. You had exactly -- if you read the headlines and if you read kind of the antecedents of Rebecca, they'd be saying exactly the same thing. It's just the kinds of players were different, but markets were not functioning. There was -- but back then, the response was, let's push business out of the way, and now let's have government step in. And then ultimately, you see, let's push government out of the way and let business step in. And I think what's different about this time, you're seeing, again, the same kind of imbalances in an equity that's caused by different things. But I think what's different this time is, I think there's an acknowledgment by business that it's not either/or. It's not either business is going to win or government is going to win. That to get this right and to get this right on a sustainable long-term basis that there needs to be a cooperation between government and business on how to make markets actually work. And I think to the extent to which we ground this in markets and saying, what is it, and being very explicit about it, what is it that's not working about the market and what do we need to do to get the market to work and not make it about some kind of ideological, it's either government or business.

Thank you. So I think both of you raised 2 really interesting sort of strands to this conversation. One is, to what degree are the shortcomings of the market that you identified, Rebecca, the externalities and so forth, things that need government to fix them, to price the externalities and so forth? And to what degree is the responsibility of business to either step in because government has fallen short or to step in because it itself has a role? And I wonder, Ron, to turn to you. First of all, do you agree with the broad perception of the way that Rebecca has framed this conversation? And secondly, how do you think about where the responsibility lies?

So I think in the past, it's been too often about governments stepping in because business wouldn't do something about it. Whether that was real or perceived, let's leave that question to others. And I think to the extent to which we let it go that way, invariably, you're going to end up in excess going one way or the other. And in effect, that's what's happened. You had this kind of great set of reforms that occurred in the beginning of the 20th century. You then ended up with a stock market crash depression, a World War, a Cold War. But which also gave an underpinning for a fairly long wave of prosperity and the belief that this seemed to all be working. And now it's not. And if it's a simple, "Okay, we're going to have to fight and see who wins, government or business." Invariably, you're going to get excess. So I think to get to a better answer, working together is the way to do it. And I know that sounds pollyannish. But ultimately business can do a better job with government than either party working on its own.

Yes. We'll get to how that cooperation can happen in a second. David, what's your perspective?

So Zanny, I really wish the problem were as simple as the business roundtable is simply redefining the role of companies. And unfortunately, I agree with much of what Rebecca said about her diagnosis. But I think that the actual solution is going to be much more complicated. I think it is terrific that companies now are taking a real stand for a more equitable society, but they can't do it on their own. And if you were to ask me to list the changes that we need, changing kind of the corporate mandate would be fairly low down. Much higher for me are fixing some of the problems that Rebecca outlined. First is the pricing of externalities. I mean, we simply can't fix our climate issue if it remains completely free to pollute. So simply put, we're going to have to tackle that one way or the other. Secondly, we simply must provide the kinds of benefits, whether that is retirement benefits or health care to a much broader range of society if we are going to be able to have the kind of safety net that we need in order to have a dynamic economy. With 40 million Americans who don't even have access right now to a retirement savings plan. And last, Zanny, we have an economy that is actually operating at a slower rate of metabolism than we've had in 40 years. We have much more concentration of industries. We have higher profit margins. And we've had a government that has had a completely less a fair approach to antitrust regulations. And we can come on to this more in a moment, we need a fundamental rethink of antitrust, but we must find a way for our economy actually to speak up its rate of creative destruction, so that we create more jobs and actually unlock more growth.

Those are all -- thank you. Those are all terrific topics that we should return to, I hope, during this conversation. But just on the -- Raghu, let me turn to you last, but not least on the broader on. You're at Chicago. So was Friedman wrong? And if so, if he was wrong, I have a follow-up question for the new stakeholder capitalism, which is how do you basically distinguish between the hierarchy? Or how do you prioritize between the various stakeholders the company has?

Yes. No, this is a great question. Look, I think Friedman had a tenure to politics. And that was his mistake rather than that he was fundamentally wrong, and I'll come to that in a second. But Rebecca's analysis of the problem, I think, is absolutely right. We have government failure in many ways. We have rising inequality. We have climate change which goes unaddressed. We have corruption. We have growing concentration of business. But I fail to see why the solution to this is -- lies in corporations. I mean, it lies in better government. I'm a firm believer and render unto the state, the things that are the states and unto the firms the things that are the firms. Don't let the firms -- I mean she talks about firms fixing the rules of the game, but a lot of what is now being sought is firms fill the gaps left by the government and devise rules of the game in those areas. That seems to me overstretch. I like the idea of cooperation, but I'm very suspicious just as Adam Smith was of very intensive cooperation between the government and businesses. Government should be somewhat separate from businesses. They should understand what they need, what their problems are. But they should stand at an arm's length while formulating the rules of the game. And businesses should operate within that, part of the problem, the swan, so to speak, is intensive cooperation between governments and business. Last point, and I'll stop here. What did Friedman actually say? He talked about maximizing the value of shareholders. And many of the critics say, "Oh, this is about short-term shareholder value maximization. If you see a woman an old lady crossing the road and you can make a penny off her, you will strike her down as a corporation." No corporation behaves like this. There are some CEOs. Al Dunlap had this kind of reputation. But really, corporations are thinking about maximizing the residual value, which is the shareholder value after paying everybody else. And that means they have to worry about everybody else. If you care about your workers and they have to be motivated to work well in the corporation, you're going to do well by them. If your suppliers have made investments and you care about them, you're going to do well by them in order to maximize shareholder value. People try and distinguish this by saying, "Oh, you should be thinking about long-term shareholder value maximization." A lot of CEOs, I believe think about it that way, even if not explicitly, implicitly. Come then to the business roundtable. We have to treat stakeholders well. It's -- they don't distinguish between stakeholders. Everybody is a stakeholder. And if everybody is, and you have to treat them all well, you're not treating anybody well. Maximizing the value of all stakeholders means maximizing the value of none. You have to pick and choose. So this is the last point. Friedman had a tenure because he didn't sort of emphasize that some of the other things people cared about, the health of workers, the environment, all those were part of long-term shareholder value maximization. And he had to pay a [ nod ] to it in order that the whole principle of shareholder value maximization not be thrown out of the window. What is important today, and this is where I think this notion of purpose comes in is to identify the stakeholders who are critical to the long-term value of the company, and incidentally to long-term shareholder value maximization and essentially elevate them. I, as a company which has workers I care about, am going to pay much more attention to my workers. Companies can make that kind of statement, and they will do better for it, but it's not against the principle of shareholder value maximization.

I completely agree with Raghu and completely disagree. I agree that Milton Friedman had very much the long-term in mind and that nothing inherent short-term about shareholder value. Jeff Bezos would never have been able to run millions of dollars in losses if there was something short termist about -- something inherently short termist about the shareholder value perspective. But I disagree, profoundly. But that means we're all set and that we should leave to government, the fixing the problems that we face. But the answer to climate change is to price externalities. The answer in equality is to make sure we have the kind of benefits and labor legislation we need and adequate health care. Yes. That's correct. But in saying it, Raghu leaves out something very important. And that is the role of business in denigrating and destroying so much of government capacity and public trust in government. Just take a simple example. Why do we not have climate legislation in the U.S., at least partly because the fossil fuel industry devoted hundreds of millions of dollars to denying the reality of climate change and to actively lobbying politicians to persuade them not to regulate it. So it's not the case that there is the government sphere, and there is the business sphere and never the 2 should meet. We are living in a moment in which business is incredibly powerful. And in which an important part of the private sector has spent many years saying we should drown this government in the bathtub. It can't be trusted. It can't do anything. 10 worst words in the English language, I'm from government, and I'm here to help. So I believe that it's now incumbent on business to begin to redress that balance. To be, as David was, to say we really need government. Business needs government. And to begin, in the meantime, to address the massive problems that we face, both to point the way towards appropriate legislation. And to uncover the kinds of long-term opportunities to make money and make a difference, which I think have been too long neglected.

So with that challenge over to the 2 CEOs. Let me start, David, with you. Rebecca just said that the role -- we shouldn't forget the role of business in denigrating and destroying government capacity and public trust in government. Do you think government -- business has done that? And if it has, is the role going forward, a new relationship of the sort Rebecca describes? Or is it what I imagine Milton Friedman would have said, which is swift competition between businesses?

So like a lot of these, there's enough truth and also rumor to go around in each part of this. I really do believe, back to the central tenet I was leading with, that we do need more competition as a core part of this. We do need to price in externalities as part of it. And we do need a reset and a new partnership between government and business to make all of that happen. And I think that one of the things that I'm optimistic about as we come out, hopefully, of this pandemic next year is actually this time of change has caused a bit of a reset in people's understanding of the need for government, the role of government and the role of the private sector. We've seen a lot of change that's happened very quickly. And personally, I think we can have a kind of reset of that, which would address a number of Rebecca's questions and concerns.

Can I just push you a bit on that? What would this reset consist of? This rate -- this new partnership as you put it between government and business? Just perhaps be a bit more concrete. What exactly do you mean?

So let's take a specific example. I talked earlier about the fact that one of the things that was true about the '50s and '60s and where we really had many people coming into the middle class and we had a burgeoning middle class, was that the share of people who actually had a retirement plan, had health care and actually could afford to buy a house was exceptionally high. We have completely taken that away over the last 25 years. And we now have a situation where relatively few people have the same kind of protections that they did. We have many more contract workers who now don't have any benefits. We have small businesses, which can't possibly offer a health care plan or retirement saving because they're too expensive. And we have [indiscernible] which basically have programs, which are not affordable. So we need to have a completely reset of the structure of our benefits plan that's much more affordable, and those who are contract workers in small businesses that we can have coverage for that. That will take government on the one side, but we actually can provide a lot of that through the private sector, once we have the proper legislation incentives in place. We don't need government to do that. We just need the right legislation to do.

So that's a very interesting example, and Ron, let me turn to you with that one. Because in some ways, the U.S. is quite unique in the role that in the post-war period firms played it in the provision of health care. I mean, in Europe, that's -- we have a very different system, as you know. And that blew up in response to public policy. So David is right, that public policy sets the incentives, which firms then work in. We're not -- in the 21st century, when we have a growing gig economy. When we have people likely to change employers very frequently, what is the right provision by the firm? What should firms be doing? And what should government be doing in these areas of health and retirements, particularly?

Yes. Well, I mean, sticking with that same example, the reason that business got involved in the provision of benefits had very little to do with anything other than it was a means to get around a government policy, right? There were wage and price controls. There was competition for labor, couldn't raise wages, so let's instead offer benefits. And it was a loophole in which businesses could attract talent. So the whole underpinning of the corporate sponsored benefit system had little to do with any kind of broad-based policy and everything to do with let's work our way around a rule that wasn't working that was, in fact, distorting markets. So I guess in some ways, leaving aside what the -- I don't know that -- in fact, I don't agree with Rebecca in terms of business spends all its time thinking about how to destroy government. But I do agree with the point that this isn't going to get solved by either throwing it to one or the other, that there really needs to be, first, an acknowledgment that it's actually really important to price these externalities in. Second, an acknowledgment that government left to itself is invariably behind. I mean, the whole point that David's been funneling about antitrust. I mean, the reason why we are where we are is you've got antitrust legislation and approaches that were built in an old economy and you've got a new economy that's based on platforms, right? And there's been no modernization. And the only way that we can actually address these things and address them in a timely way is to see much more cooperation than we're seeing now. But at some point, there needs to be a set of rules that are put in place. And for me, I think the most important rule is externalities have to be priced in, right? But that is the way we are going to operate. It's the ultimate preservation of markets. And if we start with that kind of philosophy, I think then it starts to move us towards the spot where the shareholder in fact has to acknowledge that there's a set of costs that the corporation has to absorb to be able to -- for all of us to operate in a way that makes sense.

That's a very clear one, and it obviously has a very powerful impact on thinking -- how you think, for example, about climate change. And you've all agreed very vocally with that. But can I push you on the question of social provisions. So particularly health benefits, retirement benefits, income protection. Are those, in your view, the purview of government and government should do it? Or are they the responsibility of business? And if so, what is the role of business there?

Are you asking me that, Zanny?

Yes, sorry. You do...

Let's take health care in the U.S. I think there needs to be a policy framework puts in the objective function that everybody in the United States is going to be provided with adequate health care. And if you take that as your objective. So to the extent to which it's provided by government, by business or by both, it almost doesn't matter, but you have to have that kind of objective function in place and an enforcement of the achievement of that objective. The realities are, it's probably a mixture of both. But right now, we don't even have that objective in place or an agreement, but that's a worthy objective.

Rebecca, back to you then. Because I want to turn now from the broad where we should get to to how we should get there. And from your first remarks at the beginning of this conversation, it seemed as though you think that the override -- one of the overriding goals needs to be to change the way the relationship between government and business. Does that require political reform to get there?

Yes, I think it does. And I apologize, both to my colleagues on the panel and to anyone listening, if I seem to imply that business spends most of its time thinking about how to destroy government. I do think it's the case that business needs to step forward in support of a strong transparent accountable democracy. That just in the same way that many CEOs are comfortable to step up and say, I don't discriminate against gay people. I don't think the state where I'm located should do that either. That business should also step up and say, I think we should pull money out of politics. I think that there should be no vote of suppression. I think gerrymandering is a bad idea. I want to do everything I can to encourage my employees to vote, to support the health of the democracy. Let's make sure very publicly that business does business, and I'm a huge capitalist. I don't think we can solve the problems we face without the free market and without business doing all it can, but we need government and we need an independent democratically electable, strong government. I think business can play a major role in making that happen. I'm imagining a kind of unilateral disarmament, where business says, "Yes, it's tempting to get involved. It's tempting to spend money on political races and try and make sure I get the outcome I want. And if my competitors are doing it, well, then I have to do it." Let's have unilateral disarmament. Let have government be government, business be business, real cooperation, but a face-to-face transparent cooperation.

Well, David, what would happen if you propose that at your Board?

I think there'll be a general agreement. I think that it's been very nice to see actually businesses stepping up more and more for a lot of the issues that you just outlined, Rebecca. And I think maybe the best one is, one around regulation. So we have been very public. And I think we actually passionately believe that we need really good effective regulation. We don't lobby against regulation. We just want it to be working well. And so I actually think that you will see more CEOs stepping up for that, and you'll see more boards supporting it. But I think the characterization, Rebecca, about kind of a war and the level of acrimony that you described, I also don't feel. I actually think that all of us who do believe in the capitalist system want to actually change it and reform it so that it can deliver the benefits that we know it has the potential to. But I think the actions of that means we will go down a path, which looks more and more like a European socialism. And at least from my point of view, I think we are much better served by changing the mix of government incentives, but allowing the private sector to provide a lot of these services. That's what is the engine of innovation and growth in our economy. And I think if we give that up, we've really lost what's special about American ingenuity.

So if I may, I completely agree with you about liking the American system. But we're living at the moment in a country where the administration has actively rejected regulation of externalities, at least the climate externality, has ceased enforcing an enormous number of environmental regulations. And I know that there are amazing companies like the one you run, which are standing up and saying, we need to do something about this, and this is a huge issue. But there was a lot of business support for these moves. There was a lot of business support. And so I think it's important to bear in mind that there is a fraction of business people who are very suspicious of government, very suspicious of regulation. And I think one of the things we need to do is really work with those leaders to persuade them that the kind of reform that I think we both have in mind is absolutely in their long-term interest.

Rebecca, let me push back to you. Raghu you're back, and I'm coming to you in a second. Just to slightly -- to move on to this question about regulation because it seems to me you are all saying businesses welcome the right kind of regulation. The question is, well, who determines the right kind of regulation? One business may like one kind of regulation, another business will like another kind of regulation. And how -- if there is going to be this new partnership as you've all put it between business and government. How does one get to work out if it's not the democratic process, what that right regulation is? And Raghu, I'll throw it to you with also a question from the audience, which I will read to you along these lines. The question asks, how do you rationalize increased government involvement into business to repair inequities in income, given this set of facts, heavy government regulation from 2009 to '16 led to a stagnation of wages for the bottom quintile. The reduction in regulation since 2016 has led to bottom quintile income growing faster than for the top decile and minority employment and wages are faster than any time in 40 years. You get the thrust of that. Basically, this is as a member of the audience who thinks that deregulation has actually achieved many of the goals that I think you are arguing for, for more regulation. Raghu?

Look, I think we all want better regulation. That sometimes means more, sometimes means less. Certainly, on climate change, we may need more. But I sort of see -- I worry about this view that business, as Rebecca said, is incredibly powerful. So let's ask them to do more. That seems to me a little bit of a contradiction. I mean many people are worried about Citizens United, which gives business a much greater say in politics. But these are often the same people who also worry that business is not doing enough to promote, say, transgender bathrooms in certain states and should add their voice to the liberal voice. I mean I do believe that it would be good to have businesses a little more distance from politics, regardless of which side of the political establishment you're on. The role of business is actually to do business, to produce a better widget. And of course, it would be good if they do it in a way that respects their workforce, that respects the environment. And the way to push that is, first, for them to recognize that it's in their own interest, long-term interest to do that. And second, where necessary for government to put the regulation in place. Now there are some fantastic corporations that are moving ahead and doing some of these things themselves. But of course, we know that sometimes when corporations develop regulations themselves, they do self-regulation. There is a danger that they cartelize the process and have regulations that benefit themselves rather than the broader public. So we have to be a little wary of the lessons of the past and try and create a separation. Last point here, I mean, the check on government is democracy. The check on business is the market. But for business to do the role of government, there are very few checks and balances there. And so to that extent, I do worry about businesses expanding their role too much. On this issue of -- you could argue deregulation created more growth. Now whether that growth was adequately redistributed, that's a big question. Certainly, one could argue that it is possible to redistribute that. And maybe the challenge is to make sure that more people in the economy benefit from that growth. Some of it requires government action, some of it requires community action and some requires business action, but we should have each one do their own role in the most appropriate way.

Let's move now on now to how business -- what is the decision-making process that decides what business actually does? Is it -- I don't wanna say the Board, but what is driving that? How does business decide between different stakeholders? And in doing that, what's the role, particularly of institutional investors?

I think that increasingly, particularly amongst large businesses in developed countries, you're seeing a higher and higher proportion of that business -- of those businesses actually owned by the index funds. And whether you think that's good or bad, the good piece, the good part of that is an index fund is essentially a permanent capital in the public markets. As long as the company is in the index, it will be owned by the index fund. And inherently then, they need to take a long-term view of this. And I think increasingly, you're finding these long-term investors actually focused on not just what's going to get you to the next great quarterly result. But what is the source of long-term value creation. A recognition that some of these things like climate change, some of these things like the role of where you're sourcing your goods from actually has implications for long-term value. So the investor has a very important role here, and it brings in actually a long-term lens, a lens that oftentimes is actually longer-term than the agents of business, i.e., management that are running the business.

And how much do you think the focus on ESG? The rise in the kind of body of investors who are concerned about that is really shifting already. Is this something that we think we're in the early stages of, and we're going to see much more?

I would say that we're still in the early stages because part of it is trying to figure out what does it mean industry by industry for long-term value creation. Some of it's obvious, right? If you own real estate in low-lying coastal areas, you kind of understand what the implications are. But I think that as we become more educated about the implications broadly for what we're seeing -- for the broad implications for climate change on numerous segments of business population. I think that that's becoming more and more known. I think the desire to put numbers around this, things like TCFD and other kinds of measurement schemes that are being -- that corporations are being asked to answer to. In my mind, is just an extension of the closure. And that we're disclosing what it is that's important or not important about what you do and what I as an investor need to know about what you do.

So just in case everybody is watching things. I'm ignoring the rest of the panel. I am indeed ignoring them because I'm afraid we've lost everyone apart from you. So I -- we are going to carry on having this fascinating conversation, until someone tells me that they're back. But I want to -- to go on from what you just said, my worry in this is that you end up with a series of different imperatives being driven by shareholders, which makes the whole goal of what the company is trying to pursue a lot less -- more fuzzy. And do you sense any sign of that? In the end, what is going to be the driver by which a Board, a management group sets out to put the hierarchy on these different things, the EBIT, the SGIT, the GBIT, any other bits that are needed.

Look, Zanny, your caution is very important here because to the extent to which the only tool is shareholder proposal. What you're going to find is, is that it's a little bit like you're moving the money and the advocacy away from lobbying congress to lobbying actually institutional investors and using the shareholder proposal. So it's not a good solution by itself. If I go back to what we need to be thinking about is how do we have a framework that makes sense for us to operate in. In other words, the framework of what I think Rebecca was implying earlier and even Raghu were implying earlier. If I can join them up, which is pricing in externalities and really making sure that competition is true competition. If you have that as the framework and then recognize that shareholders have a role here because many of them, if not most of them, but many of them actually do have a long-term view. If you think about why you invest and why does somebody invest, there's always this kind of criticism that it's about the short-term. But most of the liabilities are in fact very long term. David referred to retirement earlier. That's a 70-year liability. So you ought to be putting investments against that with a very long-term view that you think about some of these things that go beyond of quarterly performance.

That's a really interesting way of putting it. But when I hear the way you've laid it out, you have -- the importance of pricing and externalities. All 4 of you have emphasized that and rightly so. The importance of competition, absolutely central. Once you have those two, then you have the framework within which, as you just said, you should think about ESG, any other stakeholder goals. I guess, to my mind, the first and the second are such enormous challenges, and we're such a long way from that. I wonder whether all -- we're focusing a lot of attention on the role of the firm. While these first 2 are still unaddressed. And Raghu, I can see you. I hope this means the audience can hear you, and I don't know how much of our conversation you followed. But how would you react to that characterization?

Well, I think both Ron and you are absolutely right. Ron says, let's find a way to price the externalities. And he says, once you do that, once you get competition. You create a framework in which firms will tend to do the right thing, not everyone. And certainly, there's a role for corporate governance. Certainly, there's a role for some kind of oversight, but people will move in the right direction. And your point that really fixing those problems in a sense, these are government failures, and it is intriguing that in a era of government failure, we are looking to the corporation to be a solution. When in fact, corporations are doing what they do in a reasonable way, and one may be uncomfortable with the extent of political influence, et cetera, but that's a government problem, not a corporate problem. So I would say, focus on the right place and also be careful about changing too many things because of, a, dysfunctional administration. It may well be a lot of things come back when you have a more functional administration.

Well, let's turn. Yes. David, I think you are back.

One other really important point here to build on and maybe a good example is competition. Which sounds easy at 1 level, but actually devilishly hard at another. I would really agree with the professor that this is a government failure. So for the last, I would say, 15 years, as our economy has moved from a world where we had the old microeconomics that you learned about diminishing returns to scale was true to a world of platforms where we have network effects, and we can no longer measure monopolistic benefit by simply what's happening to the price to the end consumer. We've had no real rethink of the entire approach that we take to antitrust. We've had really no new approaches to how we should think about data privacy, at least in the United States. And these are all really important roles for government. They can't be done by private corporations. They can -- maybe need some input from the private sector, but these are issues in our government system now, which desperately need to be fixed over the next couple of years.

Well let's turn both to that one of antitrust and boosting competition and to the other one, which you've all raised, which is pricing in externalities, and I would include carbon at being right at the top of that. And I want a sense from each of you of how high those 2 are on the list of priorities? How likely they are to happen? And what needs to be done to make them happen? And what is the role of, particularly for the 2 CEOs, the role of the firm in making those happen? So David, back to you, you raised concentration. How likely is there to be action? And what do you need to do to push action?

So I actually think that it's increasingly likely that there will be action on that front. I think we're understanding a lot more about the nature of competition in network-based industries. And I also think that we have some good examples from around the globe. I mentioned data privacy a moment ago. I think that what the European Union did with GDPR is not perfect, but it's interesting. And I think there will be a lot of lessons that the U.S. can take from that. So I do believe we are entering into a new era of antitrust picking, which doesn't just think that bigger is bad, but actually looked at the entire economics and the different economic players and the role of information and data in how the economic machine works. And we can do a much more surgical job of actually figuring out how to stimulate competition. But in this country, it's not just about high tech, right? We have higher concentration in airlines and utilities, in banking than we had. And many of that is actually because of increased regulation, which as we all know, in general, when industries go over increased regulation, there's more concentration. And so we're going to have to actually decrease a lot of the unnecessary regulation as we are moving more on the antitrust front.

And well, before I go to the others for the same question, what's your sense of the odds of progress on pricing externalities?

Maybe I'm just an optimist, but I actually think that we will ultimately get there. As I was saying before, even if the government is reluctant, I think the capital markets are going to get there. We are going to be looking at company's carbon footprints. We already take that data, and we put an ESG rating on every single stock and bond that we own. And increasingly, institutional investors are saying, they want to limit the amount of carbon footprint that they have in their portfolios, and they're already going to push us in that direction even without government intervention in that. And I think that's actually very positive. And I think that institutional investors have an important role in measuring, providing transparency and then providing products to institutional clients. So they can express their views of ESG factors.

But that's not a substitute for a carbon tax or some formal pricing.

I didn't mean to imply -- no, absolutely not. We should absolutely move ahead with carbon tax. But in the meantime, it's better than nothing.

Yes. Rebecca, I don't know how much of that conversation you managed to catch. But just to you the questions about what are then the priorities for government? Do you agree that the priority of boosting competition -- is it right up there? You obviously mentioned pricing in externalities yourself. And what's the best way to achieve those goals? And what is the role of business in achieving them?

I agree that they are both critically important priorities. I would put pricing carbon right at the top. I would put strengthening the democracy as my second priority, but competition definitely on the top 10. I think business has an important role to play. Listening to the discussion, I've been struck. Raghu has been saying, "Oh, we shouldn't have business even trying to do good." But I think an element that's been missing is the complementarity between what business does and what government does. The more business tries to reduce its carbon footprint, the more it's clear, one can do that and maintain a very healthy economy. The more you drive learning curves down the -- the more you reduce the cost of the technology. So it was purpose-driven entrepreneurs like may I say, Elon Musk that I think really accelerated the introduction of electric vehicles. It's what's been learned by the private sector in grappling with solar and wind that's been an important input to putting in the right kinds of regulations and making sure we can really decarbonize the energy system. So there's an important complementarity between what business does internally and what those regulations should look like and how government should act. And last but not least, I think it is so important for business to step up and say, we need a democratically accountable government so that the regulations reflect the will of the whole population. And to that end, we are going to support civics, not politics. So everyone should vote, everyone's vote should count. Let's all pull back our money out of politics. Let's actively encourage the repeal of Citizens United. I think that's the royal road to all the solution of all the issues that we've been talking about.

Except -- I'm going to have to push back here, and it's maybe a bit of the conversation where we lost you thanks to technological problems. But you're right. But assume you're right, businesses have different views of what good regulation is, good government is. And people have different views. That -- really have legitimate differences of opinion about where the right equillibrium is. And so you speak as though business is a kind of monolith, and there is one set of views coming from business. How if you have lots of different businesses with different views. That's kind of what you have right now. They're lobbying for different goals.

So Zanny, this is such an important point. I'm saying, let's start lobbying for particular policies for exactly the reasons you suggest or lobby in just the best way, which is to say, well, here's what I think in an appropriate way. Where I think business should put together is to ensure that our society remains prosperous and free. That there's a real balance between business, government and a strong civil society. I think there's a great deal of evidence that it's democracy that should be making these decisions, not business and for democracy to do that, it has to be broadly legitimate and deeply rooted in the population. We have more than 70% of the American population that says our policy is set by the elites. I have no role in policy. We have only 25% of people under 30, who think democracy is essential because they're saying it's not working. It's not working for me. So I think there's an institutional question here. And the individual policies, of course, we disagree. And business should not set policy on its own, it should be part of the broader political conversation. But strengthening our ability to have that political conversation. I think that's in the interest of business as a whole. And indeed, in my better moments, I think that just as institutional investors have decided that climate change presents a systemic risk to the entire economy. And as David said, institutional investors are increasingly pushing their firms to use less fossil fuel energy. I think the destabilization of democracy is another systemic threat to the long-term health of our economy. And one that my hope is a majority of business could unite behind addressing.

We have only a few minutes left. Even with the extra time we've got, thanks to our technological problems, we have just under 5 minutes. So I wanted to give each of you the chance to cast your eye forward and to -- because this has been a really interesting conversation. I'm not sure we're -- we have a complete agreement, and that's good because that's what I hoped for that you would all disagree a little bit. But look forward now, and 2 questions. How much of a turning point has the pandemic been? Is there a chance now for something really different? And if you were able to mandate that change, what would it be? Raghu, with you first.

Yes. First, I want to correct something. I'm not saying business shouldn't do good. I think they should figure out how best they can work within the parameters that go into making a good widget. And that means having a happy workforces. That means not spoiling the environment that they operate in. It means all the things that Rebecca wants. It just means that they have to figure it out within a broader context of creating value. On the issue of what should we focus on. I mean, it certainly seems inequality is the big concern going forward. And of course, to the extent that businesses can work within their community, it can be a win-win for both them. [Audio Gap] where possible networks for young people to join in. There's a lot that business can do to reduce that, and it can be also very much profitable for their long-term existence in their community. So I think that -- thinking about how they can work in the environment they're in, seems to be very important at this time.

And do you think this -- before I turn to the others, that the pandemic, that the COVID has increased both the need for that and the likelihood of it?

The pandemic has exacerbated and deepened every fault line there was before. And so to that extent, it has accelerated the need to do something. I mean, think about the poorly paid frontline workers who are both exposed to the pandemic, but also have very thin buffers to live off. That's an example of where we should be able to do better going forward. And I would argue that certainly, businesses can participate in this as they work within their communities.

Ron, what about you? What -- how much of a turning point is the pandemic? And what in your view is the top business priority?

So I think the pandemic has been a turning point. I agree with Raghu, and I'm not going to repeat his points, but I'll add a couple. One is, I think the pandemic has put a focus on a great failure of government and not just the United States government, but many governments around the world. I would include Europe, and it's a public health failure, right? We have really lost our way in terms of how we think about public health. It's very much a role of government and something that we have to fund going forward. Secondly, I think it's revealed the importance of resilience at all levels. And I'll use the airlines as an example. The fact that now we've had -- the airlines have faced 3 black swans over 3 decades. Right, 9/11, SARS and now the pandemic, right? It asked the question -- and I'm just using it as an illustration, not picking on the airlines. How do we think about resilience and capital resilience? And what kind of capital should companies be carrying to manage their way through these kinds of things and not be in the spot where we all have to turn to government to actually bail us out. So I think public health and resilience in my mind is that will -- should get a lot of attention going forward in addition to what Raghu has said.

And those are areas where you think firms are stepping up and the prospects of firms working with government is also -- that's an area where you can see that shifting.

I do. I do.

Great. Thank you. David, to you. Your priority, is it a turning point? And what would your priority be?

So unfortunately, I do think that the pandemic will be a little bit of a turning point, but maybe not for a particularly warm reason. And that's what I think that the inequality gap that we've all been worrying about for the last 10 years is only going to grow worse as we come out of this. We have, as an economy, figured out how to support markets, I think, reasonably well through these difficult times. But we haven't really figured out how to get cash in the hands of small businesses and individuals in a way in which Main Street also comes out of this okay. And as a result, unless there's a big change to the fiscal programs going forward, which I certainly would advocate. We are going to have a worse situation regarding inequality. And my hope is that as that -- it gets bad, that, that will create a huge swarm of pressure for change. And the #1 change, and I led with this at the beginning of the hour is that we need to have basic employee benefits, whether that's a retirement plan, health care plan, disability in place for the vast majority of Americans. The current situation that we have with people who cannot really get through. And from Ron's point, resilience cannot survive a $250 medical payment is simply too high. Our people need to have resiliency through these situations, and that would be my #1 priority.

Thank you. Rebecca, in literally 20 seconds because we're out of time, what would be your top priority of the many that you've laid out so eloquently?

Climate change. The pandemic was the pop quiz, climate change is the final exam. We have to build in resilience and preparation into our society.

That was brilliantly clear. Thank you all so much for bearing with us and for a really fascinating discussion despite its interruptions. I learned a lot and enjoyed a lot. Thank you all, and thank you, everyone, for watching. Goodbye.