Dev Rangarajan
    Regenerative Companies
    Maximizing shareholder wealth isn't going to work forever.

    In agriculture, there is the idea of permaculture. What this means is planting things that return nitrogen to the soil, improve the overall yield of the farm, and create self-sustaining ecosystems that return value to the world. Topsoil depletion is a big problem for our food production, largely because we only planted one annual crop over and over again and then harvested it and sent it away to be eaten. As a result, our food is less nutritious than it used to be, and we have to do more genetic modification and use more artificial means to produce the same yield. Fortunately, smart people are working on this problem, and developing solutions for producing our food supply in a more permanent way.

    Permaculture is one example of regenerative design, it’s a system of principles that consider 2nd, 3rd, and nth order consequences and try to design systems that return value rather than capturing it. While typically applied to food, it’s time for businesses to be judged by this metric. Currently, short term wealth generation is prioritized, which leads to practices that are unsustainable at all levels of the company, and this isn’t good for anyone, even the shareholders who get more short-term value from it. As we’re seeing during this pandemic, stock buybacks and poor capital allocation are company killers, and my goal is to pull the narrative toward companies that do more than clear simple financial metrics.

    The key principle here, is that any resource the company extracts (financial, social, physical, or emotional capital), it should feel an obligation to return more of that same resource. That is the mark of a truly great company, and one that will be around for a long time. Right now, some companies get close to this, everyone who interacts with them leaves the interaction guilt-free and feels like they contributed something valuable and got something valuable back. Other companies are extractive, they take one form of capital and turn it into another, and somewhere in the chain, something is being depleted. These companies often scale super well, conquering untapped resources and turning them into (typically) cash. However, we can’t continue to glorify these organizations. What they do isn’t hard or necessary, they aren’t making the world better. They may see some short term, or even a long period of returns, but fundamentally they are vulnerable to people realizing that they aren’t creating real value.

    I don’t think this is something that can be solved with regulation, there are too many incentives to allow for short term extraction. Instead, this needs to be solved in the much harder way, by pulling the market toward it. So much needs to be built around rewarding regenerative companies, and ensuring that investors see returns that are both higher and less risky. This is one of the tough challenges that we have to solve as a human race, how do we build things that do more? In order for regenerative companies to be successful, they need to hit higher metrics than the past generations of ‘successful’ companies. Fortunately, it’s far easier to reallocate capital than it is to put nitrogen back into the ground.

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