Billionaire Robert Smith Explains The 2% Solution To Structural Racism In America | Forbes

Yes, you know, I just articulated quickly. If you think about the biggest challenge — there are many challenges in America — but nowhere is structural racism more apparent than in corporate America. And in the case of, I'll walk through a couple of industries or at least one industry: the deprivation of capital is one of the areas that creates a major problem to enablement in African-American communities, Latinx communities, etc. And I think we think about the idea of reparative, restorative, and regenerative capital. How do you do that? How do you do it effectively? Well, as we were working to re-architect what I'll call the ability to deliver the Paycheck Protection Program loans through the CARES Act and enabling a lot of our Community Development Financial Institutions and minority-owned banks to deliver capital into these communities, we discovered a few things. One is that structural racism in the financial services community — there are about 4,700 banks in America, only 21% are... only 21 are Black-owned, and they have less than $5 billion in assets. And the total amount of assets in US commercial banks is $20 trillion. So if you think about structural racism and access to capital, 70% of African-American communities don't even have a branch bank of any type in those communities. We said, 'Well, why don't we think about how do we address it?' One of the first things to do is put capital into those branch banks to lend to these small businesses to actually create an opportunity set. So if you look at the top ten banks — $970 billion over the last ten years of net income — what if you took 2% a year from every one of those banks and said, 'Let's drive that 2% into the core of the regenerative activity of these CDFIs and MDIs' — small, I call them capillary banks. What effects would that be? There are a number of things that happen. One, it drives into the communities; it drives into these small businesses, which employ 60-plus percent of African-Americans anyway. These small businesses — the average American family gives away 2% — of course our Giving Pledge members give away a lot more than that, but 2% feels like the right number. But you do it over ten years, 2% a year of net income, you can do it through their foundation so that you get some tax benefits across that. But you use that to not only enable the capital infusion into the banking systems and the businesses, but you also have those banks adopt and provide technical assistance and enable them to help those banks actually build more capacity. Those banks don't bank those communities. And so part of me is: 'All right, here's your responsibility to become more thinking about stakeholder capitalism as opposed to shareholder capitalism.' And you can do that across multiple industries — you can do it in healthcare, you can do it in financial services, you can do it in sports. And I think that's the solution. So what I'm in the process of doing is working on — they talk about allocation or donations. It can be both. If you think about it, you can actually donate it to a foundation that actually now drives it into Tier 1 capital effectively in the financial services industry. So there are different ways to do it. Some we can go direct into the industry; you have to have a place to receive it. But there are food deserts in these same communities. We'll find the biggest — if it's Amazon's Whole Foods or Walmart's, let's think about corporate responsibility into those communities to derive more effective distribution of high-quality food — local, high-quality, low-cost foods — into those same communities. But that's corporations taking that level of responsibility. So I've been socializing this with members of the Business Roundtable, the World Economic Forum, church leaders, private equity titans, our philanthropic friends and Giving Pledge members, youth groups, and a number of our called social activists, to see if we can build the right coalition to say this is the right thing to do. The federal government can play a part in this, but I think we need to have the whole community of business leaders now step up and say, 'Let's do our part.'

I think you do it, but I think if we get the right leaders in each of the industries, they will take pride in what they are doing. They will inspire their other industry competitors to do the exact same thing. I hope there will be a competition ultimately amongst them to say, 'Let's drive this. Who can create the most efficient way to apply their industry expertise, capital, and revitalization capital into each of the industries in these communities?' I think that will show Americans there is hope, there is an opportunity for the American Dream to be revitalized, and frankly give us all confidence that we can actually make this a better country and a better place to live. And also, it could be good business, because these are underserved markets and these are people who historically pay back their loans at a higher rate than the average. The default rates in those communities are actually lower than the FDIC. We've had a group from McKinsey working with us, and I said, 'Listen, if you actually activate the wealth and income of the African-American community to the average in the white American community, it increases our GDP by $1.5 trillion a year.' Now think about that. There's a payback that breeds an economic sustainable engine.