In my last post I highlighted five themes across the Post Growth Pioneer (PGP) businesses I studied for my Sustainable Development research project:
- Enlightened growth aspiration setting
- Post growth capital structure and investor relations
- Non-financial employee remuneration
- Stakeholder partnership orientation
- Mission- / morals-informed innovation.
In the next series of posts I will explore each of these themes in more detail, with real although anonymised examples from the cases. The six PGPs represented a range of sectors—engineering services, retail, utilities, consumer goods, financial services, and publishing—which suggests that escaping a growth imperative and delivering broader prosperity outcomes is possible for many for-profit businesses.
Enlightened growth aspiration setting is the foundation for post-growth business strategy. Growth is a target that has both necessary (an adequate return to investors to attract capital) and discretionary (leader-driven aspiration) components. The discretionary component might be influenced by market conditions, or an unusual company-specific event such as the need to absorb an acquisition. What is less obvious is that over time even the necessary component of growth can change: for example, taking steps to reduce external borrowing reduces the need to make interest payments, and therefore the need to grow gross margins.
For PGPs, setting a growth target is an act of conscious will to reflect the choices of business leaders, rather than being derived from the necessity to produce profits for investors. The PGP leaders I interviewed were not averse to growth per se, but only wanted it if it served the larger mission, e.g.,
‘...we are trying to grow because what we're doing we believe is good and the more that we do of it the better.’ [Bank]
All understood the link between growth aspiration and non-financial outcomes, from employee stress to the risk of inviting incautious or unethical behaviour in pursuit of growth goals. Consequently, PGPs subordinate their growth or business scale target to the larger, non-financial impact the business leaders wanted to have, and and to maintaining high ethical standards:
‘...I'm certainly not averse to us taking on some more staff (to grow the business), as long as we tick all of the boxes for keeping the ethical direction and the corporate culture sensible.’ [Engineering firm]
Sector characteristics often suggest enlightened growth approaches. For example, the PGP energy supplier I spoke with faces a highly regulated market where prices are capped by government rules, but the supplier must buy on the wholesale market, making margins unpredictable. The supplier turned this into a smart growth approach: it helps consumers to reduce their exposure to fluctuating wholesale energy prices by offering solar PV panel installation services. As a result, the consumer will purchase less energy from the supplier via the grid, but will purchase the solar system and may agree to sell home-generated excess KWh back to the grid if current market prices mean the supplier can sell those on for a (shared) profit.
In other cases the development of the market limits growth options; the PGP bank feels it benefits from a useful constraint in the supply of certain asset classes:
‘...we can't just, even if we wanted to, grow very quickly because of that pressure to lend money [given ethical investment opportunities into the real economy are limited].’ [Bank]
Many sustainability advocates, including former Unilever CEO Paul Polman call for a re-examination of business “purpose” as a precursor to reimagining the products, processes, and policies needed to move beyond an extractive growth orientation. I was reminded recently that the term purpose has become tarnished in recent years through overexposure as a panacea for reinventing business, and by the difficulty of pinning down a clear definition.
I find the notion of a critical re-examination of a business’ growth aspiration to be a constructive alternative. It is analytically tractable by decomposition into discretionary and necessary components. It can be expressed in inspiring terms of missional impact as well as bald profit figures.
And it creates a fascinating opportunity to imagine the non-financial gains that might be made if growth were better matched with human needs rather than wants. From this space, it is possible to imagine a lower growth target that is compatible with continued profitability but also enabling increased prosperity outcomes such as reduced employee working hours [Publishing house PGP], reduced demand for a damaging product [Energy supplier PGP], or more consumer savings directed into ethical investments [Bank PGP].
In the next post I’ll cover Post growth capital structure and investor relations.