Word of The Day – Sustainable Growth

Sustainable Growth –  Looking towards the horizon rather than the next pothole in the road

Definition – The Sustainable Growth Rate (SGR) is the “maximum growth rate that a firm can sustain without having to increase financial leverage“. (Source:  Investopedia )

Discussion: Jack Welch, former CEO of the General Electric Company (GE) which got billions in bailout funds from the US government in 2008,  launched this idea with his famous quote in 2009 – “Shareholder value is the dumbest idea in the world. It [the value of shareholders’ stocks] is a result, not a strategy.”

Welch added, “Your main constituencies are your employees, your customers and your products.” (Source “Sustainable growth is the new incarnation of capitalism” Financial Times Mastering growth supplement 5/18/11 p 2) In his new book, The New Capitalist Manifesto,” Umair Haque refers to new incarnation as “constructive capitalism”.

Sustainable growth is a radical notion in a world where the bottom line governs all!

The idea of a sustainable growth rate for corporations suggests that fraud, financial speculation, environmental and economic damage, and all kinds of other social ills can spring from the effort of large companies to hit their growth targets each quarter.

The alternative to the bottom line is “creating shared value” with the other communities besides shareholders, that as Mr. Welch points out, a corporation also serves.

Related terms: Constructive Capitalism; Dividend Payout Ratio: Thin Value; Thick Value

Copyright © 2011 Nancy K. Humphreys