Good growth vs parasitic growth for responsible business

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By Professor John Bryson
Department of Strategy and International Business, University of Birmingham

Spring, and especially Easter, is a time when growth is on the agenda. It is time for renewal. For companies, it is a time to consider the end of one tax year and the beginning of another. A successful business is defined in terms of growth based on profitability, turnover, shareholder value, dividends, bonuses, and market share. A failing business is one in decline, or one that represents a takeover opportunity in which assets can be acquired cheaply and restructured to create growth.

The mantra across perhaps all nations is that growth is good and should be the primary objective of all businesses. Another mantra linked to growth is productivity. Growth and productivity are linked to profitability and indirectly to tax revenue. This results in the productivity paradox; productivity is all about asset optimization and this then undermines organizational resilience and, at a national level, economic sovereignty.

The challenge for all businesses is to break the productivity paradox by developing business models based on responsible approaches to growth and productivity that are resilient and sustainable. Here it is possible to argue that a company’s primary responsibility is the creation of shareholder value and this must take precedent over all other forms of value. It is important to acknowledge the importance of shareholder value, including pension funds, but this needs to be placed within a more sophisticated understanding of how value is created.

Value creation is a complex process as companies create many different forms of value. The important point is to acknowledge the interrelationships between value defined in profitability terms and other forms of value. Thus, all companies create value-in-use for customers and should also create a set of much broader societal values-in-use. Profit creation is directly linked to actual and perceived values-in-use created for customers, and indirectly related to the creation of wider societal values-in-use. These wider societal values can include providing employment that underpins local consumption and national taxation. It can also include ensuring that a company does not engage in activities that result in costs that are transferred to governments or to citizens. These costs include failing to pay a living wage, environmental pollution, and waste.

This leads to a set of principles that define responsible business and which should be discussed by all companies:

  • A responsible business is one that creates more value for society than it extracts as part of a monetarization or value capture process. These include values created for individual consumers and the wider society.
  • A business that fails to add more value than it extracts is operating as a parasitic company that is only interested in extracting profit. Such businesses must be extremely highly taxed when they transfer costs that must be covered by citizens and governments.
  • Shareholder value must be understood as being directly related to the creation of other forms of value.
  • All companies must balance the creation of local employment with the extraction of place-based revenue. This principle applies locally and nationally. Selling to consumers in a place without creating employment opportunities, and without paying taxes, is one definition of a parasitic company.

A responsible business has another important characteristic. A business may be established with the primary objective being to create shareholder value and, by definition, such businesses may become parasitic. The alternative approach is that a business should focus on developing solutions for major problems. These may be problems faced by people – consumers – or much broader societal problems. Developing solutions to these problems will create much broader consumer and societal values that will underpin revenue generation and profitability.

These principles suggest that there are different ways in which a business can grow. There is good growth that is sustainable and focused on balancing revenue generation and profitability against wider societal values. Then there are different degrees of parasitic growth based on direct and indirect exploitation of people, other companies, and the environment.

It is important to reflect on the definition of a parasite – something that lives on another organism – a host. A company that fails to create more value for that which it lives upon is on a pathway towards failure as the danger is that the host is damaged. All this suggests that there are different forms of growth – good growth that adds value and parasitic growth that is based on people, company and environmental exploitation.

Professor Bryson was part of Lloyds Banking Group Centre for Responsible Business’ third annual conference on Thursday 25 March 2021. Rewatch the panel sessions and find out more on the Centre’s website.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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