Resurrecting The Triple Bottom Line

Last week Goldman Sachs entered the territory of the surreal. Analyzing profit margins, Goldman observed, in a period of below-trend global growth, weak demand, and industrial overcapacity, margins should revert to the mean and come down.

But what if they don’t? Goldman made the startling statement: “There are broader questions to be asked about the efficacy of capitalism.”

I myself have wondered about the “efficacy of capitalism” in this “profits without prosperity” environment. Are profits the only way to measure a company’s worth? Is “spreadsheeting” society generating the returns we want?

So I started to do some digging on alternate models of measurement.

Enter an oldie, but goodie from 1990’s management theory, John Elkington’s “Triple Bottom Line,” sometimes called 3BL.

In 1994 Ellkington argued companies should be preparing 3 different (and separate) bottom lines:

  • The Bottom Line – A measure of corporate profit
  • The People Account – A measure of how socially responsible an organization has been throughout its operations
  • The Planet Account – A measure of how environmentally responsible a company has been

Only a company that produces a 3BL is taking account of the full cost involved in doing business.

There is no easy way to measure 3BL, but that is its strength.

Smart people at the Indiana University Kelley School of Business have come up with some ideas:

  • Monetizing all the dimensions of the 3BL, including social welfare or environmental damage
  • Calculating it in terms of an “index”

Other smart people at companies around the world could do the same. Regardless of what measurement is used, implementing 3BL makes good business sense.

Not convinced?

Well, calculate the costs of ignoring the 3BL.

Flint’s recent contamination of its water supply is a great example. A city manager, encouraged to “spreadsheet” a town’s water supply wound up poisoning its children, with clean-up costs in the billions. So much for cost-savings, not to mention ethics.

Volkswagen defrauded consumers, manipulating emissions software to pass emissions inspections with high marks. Volkswagen vehicles emitted 10x more nitrogen oxides than those allowed by the EPA. Reputational damage aside, Volkswagen will pay billions to retrofit their cars with the proper emissions controls and the company is facing a criminal investigation. Never again will Volkswagen bugs be synonymous with peace and love.

And if you think consumers don’t care, you’re wrong.

56% of consumers stop buying from companies they perceive to be unethical, according to Mintel.

Elkin has called himself an “Ambassador from the Future,” because he tries to channel the needs of the voiceless (who are powerless or not yet born) into today’s decision-making processes.

Time to resurrect 3BL. Maybe we can restore Goldman’s faith in capitalism.