Dear Eartha,
What does it mean when I hear people talk about “the bottom
line”? — William, Blue River
Dear William,
Thank you for your inquiry! Once upon a time in the
business world, there simply used to be the bottom line. But today, we’ve
expanded our horizons and recognize there’s more to it than that. As an
example, in the investment world, Socially responsible investing (SRI) and
environmental social governance (ESG) recognize three main bottom lines:
financial, social and environmental.
Let’s look at the history of the triple bottom line as
explained by the Indiana Business Review. The phrase was first used in 1994 by
John Elkington, founder of the British consultancy SustainAbility. He argued
that companies should be looking at three very important yet different measures
when evaluating the success of a business.
“One is the traditional measure of corporate profit —
the ‘bottom line’ of the profit and loss account. The second is the bottom line
of a company’s ‘people account’ — a measure in some shape or form of how
socially responsible an organization has been throughout its operations. The
third is the bottom line of the company’s ‘planet’ account — a measure of how
environmentally responsible it has been.”
Today, you might hear people use the three Ps to refer
to profit, people and planet. The goal is to measure the financial, social and
environmental performance of the corporation over time. According to Elkington,
only a company that produces a Triple Bottom Line is taking account of the full
cost involved in doing business.
The confusion comes in actually measuring these bottom
lines, especially within the people and planet areas. How are they measured,
and what is the common unit of measurement across all three aspects?
It could be helpful to measure across a common index
and, at the end, determine a score that is monetized, so that the profitability
portion can be increased or decreased depending on the people and planet
portion.
The issue of measurement continues to be a tricky
subject but one that small- and medium-sized companies are starting to tackle
with some regularity.
According to the Worldwatch Institute, “Echoing the
growth in corporate social responsibility reporting, a growing number of mostly
small- and medium-sized companies are taking environmental and social
stewardship further and becoming benefit corporations — companies that are
legally bound to have a positive effect on society.” Known as B-corporations,
these companies are setting standards for socially and environmentally
responsible ways of doing business.
There are currently about 200 benefit corporations in
the US — none of which are publicly-traded companies at this point. The total
gross revenues for all certified benefit corporations are about $6 billion
annually, and, together, these businesses employ about 30,000 people.
Signs indicate that interest in becoming a benefit
corporation is growing. B-Lab is a nonprofit advocate for B-corporations and
provides online tools to help fledgling social enterprises. The number of
companies annually using B Lab’s online assessment tool, which is a marker for
broader interest in eventual B Corps certification, grew from 280 in 2007 to
2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual
companies had used the tool. That number continues to grow as we see the
success of many of these B-corporations.
Most benefit corporations to date are either small- or
medium-sized businesses. But they include a few larger companies that are
privately-held, such as the outdoor apparel and accessory firm Patagonia, which
became a benefit corporation in early 2012. They posted annual sales of about
$540 million for the fiscal year ending April 2012.
King Arthur Flour of Vermont is another large benefit
corporation. The employee-owned, 223-year-old company reported sales of about
$84 million in 2010.
Proponents of this new corporate form say it “bakes a
triple bottom line into a company’s DNA” and frees companies from the fear of
shareholder lawsuits if their decisions fail to maximize shareholder value
because of some competing interest of other stakeholders, such as workers.
According to a 2013 article from Environmental Leader,
benefit corporation status is intended to establish the directors’ fiduciary
responsibility to consider the interests of all stakeholders.
The triple bottom line allows for a more robust
analytical framework increasing facets in how companies are scrutinized. Over
time, this will hopefully develop into a healthier form of capitalism.
In contrast, recent stories such as fraudulent actions
by automaker Volkswagen show there is still egregious disregard for our
environment by companies around the world. Ideally, benefit corporations will
continue to see success and become a new model for doing business in a socially
and environmentally conscious manner.
-High Country Conservation
No comments:
Post a Comment