Sustainability... For Business?

Sustainability. It is one of those words whose meaning has shifted, in recent years, from the dictionary definition to a more trendy meme-style feeling. When I hear "sustainability", I think of environmental activists and left-wing reactionaries with an agenda to sell but I also think about average folks who just want things to work year after year in a non-wasteful manner.

You probably thought this posting was going to be about how businesses can operate in a more sustainable environment, but I want to talk about another aspect of sustainability... back to the dictionary meaning of the word: "able to be maintained at a certain rate or level." I want to know why businesses cannot exist in a sustainable, non-growth manner.

Friday's Wall Street Journal had an article about how Tesco, UK's massive grocery and merchandise retailer, is struggling to continue its growth curve. Because growth has subsided, the Tesco stock has plummeted over the past 12 months. Yet, over the past five  years, dividends have steadily increased to 4.40% yield, revenue has risen steadily (though not rampantly) and earnings per share is consistently in the 30-40 pence range.

So what is wrong with this picture? The Street expects more from the company and it punishes the stock price because Tesco does not live up to its expectations. Yet, Tesco has over half a million employees worldwide, pays taxes and lives in the communities of at least 17 countries.

This blog post is not about Tesco or any scandal that a WalMart, GE, Sears, Exxon or any other large company may engender. The point I want to pursue is what is wrong with a company achieving a desired size and then maintaining that position by constant modification, targeted expansion and careful management?

Back in the day, you could depend upon a stock to produce a dividend and provide modest increases in value, so that forty years after purchase and reinvestment, a relatively small number of shares would be worth enough for a couple to retire on.

There are millions of small businesses which have 5-500 employees, are not publicly traded and consistently make good money, provide reliable employment for many folks, pay taxes and contribute to the local community, allowing the owners to have a lifestyle somewhere between comfortable and very well off. I am not talking about hedge fund managers and bankers, but people who own construction firms, real estate companies, even local farms or manufacturing businesses. Year by year, they stay about the same size, make the same amount of money and provide for themselves, their employees and their community.

I am not suggesting that a company develop a market and then just sit there reaping their benefits (like government programs and other subsidized entities are wont to do.) I am talking about companies reaching a comfortable size and then innovating to adopt new production methods or to bring in new business by providing a new service or product. All the while, most of their numbers remain about the same. Taxes go up, insurance rates goes up, wages increase, health care requirements soar, liabilities and lawsuits continue to occur, so a well managed company always has to be looking for new ways and new revenue streams, but growth that would make a Wall Street firm sit up and take notice? No.

If a sustainable business, by The-Asterisk definition, is good for small and medium sized businesses, why is it such an anathema to large, publicly traded businesses. Is Wall Street and the financial markets a case of the tail wagging the dog?

I have stated many times that I think that Wall Street has long since jumped the shark on its usefulness as a way to fund companies. I actually believe that if 95% of the function of brokers, arbitrageurs and investment bankers could be replaced with a simple internet-based program like eBay or crowdfunding sites, we would be a lot closer to the real need for investment capital and business valuation.

Since we are only eight days away from a very important mid-term election, let us remember that as the candidates tear each other to shreds through TV, radio and Internet adverts, the real villain in our economy, our society, our well-being and sustainability has its home at the southern tip of Manhattan Island, not opposite ends of Pennsylvania Avenue.


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