How is a firm’s success judged?
While traditionally a business is considered a success if it shows a profit, and a failure if it has losses, that is clearly not the only way to evaluate performance.
The Triple Bottom Line, also known as the TBL, was first coined by John Elkington in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business.
Although it is an accounting framework, it is a more modern approach that doesn’t only take financial gains into consideration when judging the success of an organisation.
Instead, this approach evaluates three aspects: social, environmental and financial to judge how a firm is performing, and how its footprint is affecting people and the world around them.
The bottom line is the last or “bottom” line in a statement of revenue and expenses that shows a profit or loss for a given business.
If a firm is profitable, but their practices are making a local area residents’ sick from toxic fumes, can that firm really be judged a success?
To account for these ethical dilemmas, environmentalists called for different standards to evaluate performance, and two more lines were added to the bottom line, creating a triple bottom line.
While the TBL is typically used by nonprofit organisations to evaluate what kind of benefits they offer to the community, it can very well be, and is, adapted for the private sector.
For example, a for-profit business that employs veterans, and encourages staff to volunteer for neighbourhood beautification, has positives in its triple bottom line: they earn a profit, help the community by employing those that may otherwise not find a job, and help the environment by planting trees and cleaning up the streets.
Modern managers need to incorporate the triple bottom line into their business processes by practicing corporate social responsibility (CSR), which is a promise that gets integrated into the very core of the company’s structure, focusing on doing what’s right.
In order to accomplish that, business practices must be transparent to staff, investors, clients and the general public.
This viewpoint is being amended even further to include a fourth aspect, called the quadruple bottom line (QBL).
This addition focuses on the future, judging the business’ impact on social practices and the environment for future generations.