Most weeks I get mixed signals of progress towards a better world. On Tuesday I attended an inspiring lecture on regenerative economics, and on Thursday I celebrated the public launch of The Post Growth Guide, a pioneering source of emerging best practice in ethical and sustainable business. I also interviewed with a sustainability strategy consulting firm, one doing genuinely advanced and impactful work with global business clients. However…
…I am struggling with the private equity investment this firm received recently. The investors will want a return on their funds, and so the consultant must grow its profits, and in a people-powered business that implies revenue growth rather than cost cutting. Will it be good growth? Will that revenue growth enhance the prosperity of the employees or will it come at the expense of their work-life balance? I, of course, might be in a position to influence the trajectory, but it’s a gamble because the dialogue so far has not been emphatically post growthy™.
Today is Friday and I’m consuming like a late-stage capitalist: I’m on a train heading towards the town I’m moving to, preparing to sign a lease on a rented home after first making a stop to buy a (“pre-loved”) car.
Mixed.
The Post-Growth Pioneer (PGP) firms I have studied understand that progress is directional; slow, but cumulative. Aiming to be a better business—more ethical, less growth-hungry, more non-financially orientated—is much more credible if underpinned by a governance and funding model that is consistent with the intent. Increasingly, new firms are set up with various forms of legal status, such as the UK B Corp, that promote ethical governance that is independently verifiable. But most businesses still have for-profit (LLC / PLC / Inc…) legal status, which allows for easy capital-raising by selling shares, the flip side of which is that it becomes necessary to provide returns to investors, which typically locks in a growth orientation.
What can for-profit firms do to escape the pressure to grow and all the side-effects that brings?
PGPs have explored novel structures that can protect the mission from growth dependency. One approach is to separate capital raising from equity ownership. One PGP, an ethical bank (yes, at least one bank out there deserves the label!), raises capital by selling Depository Receipts to investors that offer a fixed dividend rather than the usual entitlement to a (variable) share of profits granted by shares. This raises capital while protecting the bank’s planet-positive mission by restricting the necessary growth rate and forestalling takeover. A bank executive told me:
‘The mission is protected by [a] charitable trust entity that owns 100% of the bank’s equity…even if somebody did buy up all of the Depository Receipts, they would have no control over the company’.
Another PGP, a publishing company, created an employee trust that holds 1/3 of the equity of the company and a veto over any potential sale. The shares were gifted to the trust by the two majority investors, an extraordinary act of generosity that preserves the mission and independence of the firm.
The PGP bank also illustrated another form of post growth governance: contrarian incentive policies. Banks are notorious for excessive exuberance and risk-taking during growth phases in the business cycle. This behaviour is known to have played a role in past financial crises, bidding up the prices of investable assets beyond any relationship to true value, encouraged by vast bonuses payable for exceeding growth targets in assets owned or under management. The PGP bank, by contrast, behaves differently:
‘…we don't get bonuses against predetermined targets, and there are limits between the highest paid and the lowest paid so the structure is quite inflexible in terms of reward.’
These policies have profound repercussions; not only does it limit profit-chasing behaviour but it also impacts recruitment. They cause candidates to self-select between the PGP bank and mainstream competitors based on personal motivations, and this is encouraged by related HR policies focusing on career development and reasonable working hours. The PGP bank attracts and retains employees more motivated by work-life balance and the bank’s ethical mission to grow sustainable investments in the real economy (meaning: hard assets like wind farms, rather than esoteric financial products) than by maximising their income.
Contrarian ownership models and incentive policies act as long-term behavioural signals; ways of protecting missional intent, inviting investment without yielding control, and attracting a particular kind of attitude among employees. I find this encouraging, since it allows for any firm to experiment with innovations in incentives, metrics, HR policies, and missional-protection strategies in response to whatever sector-specific growth pathologies they need to combat. I’ll try to take this experimental principle with me into strategy conversations with corporate leaders.
Read all my posts about sustainable strategy at: world.hey.com/jeremy.clark/