Triple Bottom Line Theory Essay
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All corporations are concerned with how much revenues and expenses they are generating, which in turn determines their overall profits, also known as their bottom line. The bottom line is what is used to measure the profitability of a company. The Triple Bottom Line Theory not only measures a company’s bottom line, but it also measures the company’s overall impact on the surrounding environment. In fact, according to the article, Leading for Sustainability, “business serves several purposes in the economy.
One, of course, is to generate a profit for investors. To judge from the focus of financial reports, profit is the only purpose of business”.
The Triple Bottom Line Theory is a way of expressing an organization’s impact and sustainability on both a local and a global scale. According to Savitz, a business “operates so that its business interests and the interests of the environment and society intersect”. Leading for Sustainability notes that “the Triple Bottom Line (TBL) evaluates business success by three factors: social performance, economic performance and environmental performance. A recent study showed that leaders believe that taking care of people, profits and the planet are critical to organizational success, both now and in the future”.
Organization Profits Theory, on the other hand, states that a corporation tries to remain fully responsible to its stockholders and thus tries its best to maximize profits. What is meant by profit? Dictionary.Com explains that Profit relates to “an advantageous gain or return; benefit”. Profit is “the return received on a business undertaking after all operating expenses have been met. It is, therefore, the rate of increase in the net worth of a business enterprise in a given accounting period”.
Here is how it all comes together. Stockholders buy shares in a company in order to receive dividends and in order to later sell their stocks for a gain. The stockholder wants the company that they are investing in to do whatever it can to maximize their profits. After all, writes Andrew Savitz “[A] sustainable corporation is one that creates profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts”.
The Triple Bottom Line Theory and the Organization Profits Theory are both similar in that each theory advocates a company’s right to maximize its profits for the sake of its stockholders. Douglas Mitchell in (2006) explains that “if you were traditionally trained…you probably heard that the purpose of a corporation is to reward its shareholders with earnings, dividends and stock-price gains”. The difference between the concept of Triple Bottom Line Theory and Organization Profits Theory is that the Organization Profits Theory does not take it any further than just maximizing profits, whereas, The Triple Bottom Line Theory goes beyond just maximizing profit gain to caring about “the impact the organization create on users, customers, employees, suppliers, partners, distributors, lenders, the communities affected and the environment” (Mitchell, 2006).
Corporations must, however, be aware that maximizing profits has to be balanced with the effects of making profits. Corporations also have to take into account what it does to the surrounding environment on both a local and global scale. Savitz (2006) does strongly believe that corporations today already understand that there is a “direct correlation between financial success increasing and social and environmental achievement”.
Ethically speaking, corporations sometime find it difficult to maximize profits while being concerned with what’s going on in the environment. Usually, a company has to give up something in the environmental area in order to maximize its financial bottom line. Look at Chevron, as an example, and how it was once a thriving organization. Chevron has been accused and subsequently fined by the Environmental Protection Agency for illegally and improperly dumping used oil into the ground. Chevron is not the only company that has increased its profit gain without regard for the environment (people).
Most times, it would seem to this author, that when companies begin worrying about people and the planet, these concerns usually affects their bottom line. The trick, then, is for businesses to find a happy medium between making its shareholders richer while making the community stronger and happier. Businesses need to “look at how it can prosper financially while protecting and renewing the social, environmental and economic resources they need”. Mitchell (2005) concludes “they need to be aware that they can fail if they do not tend to those other resources”.
Leading for Sustainability-A Leadership View. (March 2008). _Leading Effectively_. Center for Creative Leadership. Retrieved, May 10, 2008, from http://www.ccl.org/leadership/enewsletter/2008/MARview.aspx
SAVITZ, A (2006).THE TRIPLE BOTTOM LINE: HOW TODAY’S BEST-RUN COMPANIES ARE ACHIEVING ECONOMIC, SOCIAL AND ENVIRONMENTAL SUCCESS: JOSSEY-BASS PUBLISHERS, NEW YORK
Profit. (n.d.). _Dictionary.com Unabridged (v 1.1)_. Retrieved May 10, 2008, from Dictionary.com website: http://dictionary.reference.com/browse/profit
Triple bottom line. (2008, May 10). In _Wikipedia, The Free Encyclopedia_. Retrieved 16:35, May 10, 2008, from http://en.wikipedia.org/w/index.php?title=Triple_bottom_line&oldid=211506581
Accounting Today. Glenn Cheney,The corporate conscience and the triple bottom line.(Assurance: technical developments, professional issues and engagement changes) Date: 12-JUL-04 Retrieved May 10, 2008 from http://goliath.ecnext.com/coms2/summary_0199-12747_ITM
Mitchell, D. (2006). An Anecdotal Accounting of How to Measure a Large Company’s Impact on Its Stakeholders. Retrieved May 10, 1008 from http://www.amazon.co.uk/ An Anecdotal Accounting of How to Measure a Large Company’s Impact on Its Stakeholders