Model for the Triple Bottom Line
In this day and age, we are coming to understand that the social impact we have as businesses affect our ability to be functioning and profitable businesses. The idea of social responsibility when it comes to business is not new – in fact the idea of corporate social responsibility was created in 1953 by American Economist Howard Bowen, and thus was born the idea that businesses had a social contract with the society around them, and they therefore have an obligation to serve the needs of that society. In the 1980’s, R. Edward Freeman furthered this idea and created stakeholder theory, which modeled out the specific stakeholders and groups (e.g. employees, investors, government, community) to which companies should give regard when it comes to making decisions. In the 1990’s, another thought leader like John Elkington created the idea of the Triple Bottom Line that specifically looks at a business’ impact on people, profit and planet. This means that a company’s financial, social, and environmental performance is intentionally measured over time, to truly account for the full cost of doing business and to understand how we can improve our business functioning. Long story short: we’ve known about our companies’ responsibilities to the community and world around us for nearly seventy years, at the time this book is being written. We have made continual improvements and advancements to our understanding of these ideas of social responsibility, and it is becoming a necessary consideration to how we operate our companies.
The idea has been that corporations exist to maximize shareholder value, but corporations are starting to realize that if you only focus on [financial returns], you create resistance for your growth, and that diminishes shareholder value over the long run. A smarter strategy is one that creates wealth by benefiting other stakeholders. When your growth is good for the community, employees, customers, government, the country, environment, the world, and thereby good for shareholders, that is the ultimate strategy, because everybody wants you to win. - Kaihan Krippendorf
In my quest to understand how love and service can impact business strategy and operations, am presently inspired by new research coming out of Oxford in partnership with Mars, Incorporated on the Economics of Mutuality (EoM). I would argue EoM is a better, more advanced version of the stakeholder model.
A Simplified Model for the Economics of Mutuality - with purpose at the center
In Economics of Mutuality, a key question that is asked is, “what is the right amount of profit for a business to make?”, and it contends that maximum profits are not the “right amount of profits. This aligns with the stakeholder model, and it goes one step further. According to Dr. Jay Jakub, the Senior Client Advisor, Chief Advocacy Officer at EoM, Incorporated and pioneer in research regarding the economics of mutuality, the purpose of business is to create profitable solutions for the problems of people and the planet. In my understanding, this model differs from the stakeholder model in one key aspect: instead of viewing various stakeholders in relation to the firm, the company views itself as one of the many stakeholders.
Essentially, in this model it is not the business that is central, rather, the larger, societal purpose that the business hopes to advance is central.
This means that the business itself exists to do societal good, and it is a core part of the strategy and day-to-day operations, rather than Corporate Social Responsibility being one of the considerations a business makes in its overall strategy. In this movement, many stakeholder pain-points and motivations are evaluated, and non-fiscal performance metrics are emphasized to ensure that the social good that is being done is measurable. This approach is remarkable because it works. There have been several case studies that have come out of the EoM that have shown that regardless of the market or industry, companies have found success investing in the relationships of employees and the community at large, and this yielded greater financial returns for the business, as well as impressive results across human and social capital metrics. This human-centric approach worked for the distribution of Wrigley products in East Africa, where a new business model was developed to embrace the entrepreneurial spirit of the region, meet unique market conditions, and develop trust in the community. This approach also worked in Panama, where a construction company called Conservatorio was able to engage in projects of urban revitalization without a normal gentrification process, instead helping low-income residents take advantage of the revitalization process while keeping cultural centers intact. This approach also worked for SAP, the ERP system company, where an integrated strategy that focused on economic, social, and ecological consequences of their actions within a larger ecosystem contributed to a better financial performance and more trust in senior leadership.
As it turns out, developing meaningful relationships and being a positive force for good in the lives of your employees and your community is a viable business strategy – regardless of the industry we are in or the market we have.
When we take the time to truly humble ourselves, to understand how our actions impact the broader society in which we operate, and to actively choose to love and serve people around us, people will notice, and they will want to see us succeed.