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Ariel Investments' John Rogers Jr. -2-

So financial literacy helps not only in kids learning at an early age about investing and savings, but they also learn about financial-services careers that can be so lucrative. And we think it prepares them to be better entrepreneurs if they get exposed to financial literacy at an early age, learning how to budget and all the things necessary to start a business.

But I do think, when I talk to parents about how can you create wealth for your families, I tell them the most important thing is to get your child into the appropriate studies that will allow them to be qualified to work in the parts of the economy where the wealth and the jobs are being created today.

And most people in our community, because of the discrimination we face, we don't know about hedge funds, we don't know about private equity. We don't know much about venture capital. We don't know about the enormous wealth that is created by these parts of the economy that have just sort of sprung up. If we want to bring wealth to our communities, we have to get our young people exposed to the markets at an early age so they can get career paths that will lead them to the right places.

At the same time, these private-equity firms and hedge funds and venture-capital firms have to start getting out of their comfort zone and stop only hiring people that look like them and hiring from their own communities in our segregated society. We have to hold these institutions accountable.

Pension funds hire private-equity firms; family offices do, universities and hospitals and foundations do. If all those anchor institutions in our community told their private-equity managers and their hedge-fund managers and their venture-capital managers that they had to have staff that looked like America and they had to have leaders in those organizations that look like America, I guarantee you, they would find that talent once the customers asked and insisted on it.

MarketWatch: I want to hear more about the private sector, but first I want to hear more about the public sector: Are there any regulations or tax-code changes or laws that could be changed in order to help close the wealth gap?

Rogers: I was very fortunate during the Obama administration to chair his Council for Financial Capability for Young Americans, and one of the suggestions we gave the president at the end was that we would hope that the government would encourage financial institutions to partner with urban schools in the way that we have. The federal government can't mandate it, but I think that would go a long way.

If all the major financial institutions in this country, small, mid-sized and large, did what we've done with the Ariel Community Academy, (link)you would have a whole different story out there. It would be an amazing success story.

I think the second thing the government can do is follow what's happening in Australia. Australia has the best kind of Social Security on steroids where they allow all citizens to create wealth and, over a long period of time, have money put aside for their retirement benefits.

[The government can] put tax incentives in place to bring back defined-benefit plans. Right now, all the regulatory and tax law incentivizes corporations -- strongly incentivizes corporations -- to get out of the pension-fund business, and replace it with the 401(k) business.

And that's especially debilitating for Black and brown folks coming along, who are not as familiar with the markets. So they're going to, of course, get into the 401(k) late and they're going to get in and out, sell their securities at the wrong time. When the markets are panicking, they're going to panic. They're going to also be more likely to take hardship withdrawals or loans from their 401(k) plans. All those things conspire for people of color to be able to not have the kind of retirement they deserve.

It would be wonderful if the government could intervene backwards, and go back to the way it used to be, where the incentives for corporations were in line to have strong pension plans. It was meaningful and material and made all the difference.

I was on a call with [BlackRock (BLK) chairman and CEO] Larry Fink. He's talked a lot about this, and he was saying he didn't understand why the press, why the presidential candidates, (link)why congressional leadership wasn't focused on this issue of the future of retirement income for Americans. And I made the point to Larry that it's much worse for people of color. This is a crisis for everyone, but it's a super crisis for folks of color.

MarketWatch: Now getting to the private sector, and boardrooms in specific. You've been on both sides: You sit on some boards, and in Ariel Investments, you encourage boardrooms to become more diverse. Why do you do that and what have the results been?

Rogers: We can point to now over 45 instances where we have caused a corporation to have what we call a Jackie Robinson moment, and have their first diverse board member. So we're really quite proud of that, from Sotheby's (BID.JO) to Jones Lang LaSalle (JLL).

When we talk to these companies, we tell them, "We're one of your bigger shareholders, we believe in you, we think you're going to be a great business. But if your management team and your board looks like a 1940s company, it's hard for us to have confidence in you as an investment. We want a company that looks like a 21st-century company that cares about these issues but understands that if you search for diverse talent, you're going to have a stronger team."

There's a lot of research (link) that shows diverse perspectives lead to better decision making. And, of course, when you have diverse leadership you're going to have better understanding of your diverse customer base. And that's really, really important.

As the country gets more and more diverse, if you don't do this well, you're just going to get further and further and further behind. And your competitors that get it will race ahead of you because they are going to have better talent, deeper talent and better connections with their customer base.

I know sometimes people think we're a pain in the ass, because we keep plugging them and plugging them, and pushing them and pushing them. But if a company doesn't get it, then at some point we may have to decide we're going to sell.

Under the leadership of our ESG team, we are going to be keeping track of this and then voting against directors a year out if they have not had that Jackie Robinson moment.

MarketWatch: To what extent can ESG [environmental, social and corporate governance] investing close the racial wealth gap?

Rogers: I always use the example of the University of Chicago, where I've been a longtime trustee, close to 20 years. We were talking about the fact that at the time when Bob Zimmer became president and, at some point, realized I was the only Black trustee there out of 60 trustees.

We were having lunch or breakfast, and I said, "Bob, if every progressive institution like University of Chicago never works with minority-owned companies or asks the majority companies to have minority leaders in their relationship with the university, how do you expect us to create the wealth and stature to qualify to be on the board?" He said, "Every once in a while, someone helps you think about a new way to solve a difficult problem. And so John's done that for me."

There's now over 95 companies that are doing business with the University of Chicago -- professional services, financial services, technology, et cetera -- that weren't 11 years ago.

There's some other institutions in town doing great work like that. Northern Trust (NTRS), McDonald's, Exelon (EXC) have been absolutely fantastic.

But those are sort of the exceptions, really, that have really made a true commitment. I'm sure there are some others out there, and some others out there nationally. But too often, the economic opportunities are not open for people of color, even today. And, you know, as Dr. [Martin Luther] King said, many well-meaning white Americans deplore prejudice, but accept or ignore economic injustice (link).

(link)And we continue to see that in our country today.

MarketWatch: What did the Paycheck Protection Program in the CARES Act and the money it distributed to Black-owned businesses show about the wealth gap, and race and business?

Rogers: It was much harder for Black and brown businesses (link)to get access to that vitally needed capital in the heart of the pandemic.

We didn't have the relationships with the banks. We just did not get the opportunities to save our businesses the way that the majority community did. So I think that's part of this whole financial-literacy issue; it's part of this whole relationship. Again, segregation, discrimination. Implicit, unconscious bias is still out there where people think that we're not worthy of the loans and the opportunities that PPP brought forth.

The second thing that's really important, and I think it's not been talked enough about, is the disproportionate amount of Black and brown businesses that are in the parts of the economy where the pandemic hurt them the worst.

If you're in construction and catering, janitorial services, low-margin businesses to start with, you're out of business when the pandemic hits. If you're in private equity, hedge funds, venture capital or lawyers, accountants -- they're able to work from home. Many are doing as well or better, financially, than before the pandemic hit.

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12-02-20 0621ET

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