Responsible Business Practices Matter
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by Amy Haddon on 07/21/2011
Read about why socially & environmentally responsible business practices matter (also known as the Triple Bottom Line).
Among those of us who work in sustainability, the Triple Bottom Line is a well known concept. Recognizing people, planet, and profits as the three pillars of modern organizational success, the Triple Bottom Line, or TBL, is a helpful framework for evaluating a company’s contribution to economy without placing undue hardship on our society and environment. Considered to measure the full spectrum of accounting by including both human and natural capital, TBL has also come to be known as corporate social responsibility.
A primary difference between TBL practices and historic, economically-driven business practices is that TBL is concerned with the involvement of stakeholders rather than just shareholders. By this definition, stakeholders include anyone who is affected by the actions of the firm. Taking into account a much broader perspective on its impacts, ideally, a firm operating by the TBL standards will make decisions that have a much more far-reaching, long-term positive impact on its employees, the environment and the community in which it operates.
But what does it really mean to be a socially responsible company, and ultimately, how does pursuit of the TBL actually benefit organizations?
The simple answer lies in a cost-benefit analysis. If we, as business leaders, are truly honest with ourselves, we must acknowledge that the single-minded, profit-driven bottom line of the Industrial Revolution is outdated; no longer can we afford to do “business as usual.” Global competition, consumer demand, increasing production & shipping costs, and the growing threat of environmental degradation and resource depletion force us to consider the true cost of doing business in the 21st century.
Let’s consider both the subtle and overt costs of conducting profit-driven business these days.
Many industries including food production, textiles, manufacturing, mining, shipping, and more, place a high demand on the environment. Production practices that are chemically-based release potent toxins into groundwater, the air, and surrounding environments with potentially devastating consequences. Many of these same practices rely heavily on water, coal, and petroleum in order to manufacture their products; resources that we now understand are finite.
Environmental disasters are one of the most costly exposures for a company. Consider the Exxon Valdez oil spill that occurred in 1989. Billions of animals were killed following the oil spill in spite of the heroic efforts of volunteers; 20 years later, oil was still present at more than 40% of the sites measured. Exxon faced enormous political and social pressures to assist in the cleanup of the spill. They also faced more than $3 billion in federal fines, penalties, and civil and punitive court awards.
Global competition for labor has never been higher than it is today. With increasing consumer demand for goods, many companies have turned to outsourcing and automation to keep costs (and often quality) low. In the course of a mere two years, 2007-2009, the U.S. lost 1.5 million manufacturing jobs to companies based abroad that could do it cheaper or faster.
Competition isn’t the only risk that companies face, however. Employee claims of discrimination, unfair labor practices, and more are at an all time high. In 2010 for example, employee labor claims under the Fair Labor Standards Act rose by more than 10%. The Equal Employment Opportunity Commission (EEOC) reported in 2010 that discrimination charges had increased in all categories, including national origin and race discrimination. Some 50% of all federal filings are employment lawsuits.
Poor employment practices aren’t cheap. Not only do high profile suits tend to attract the attention of the press, labor unions, and other potential plaintiffs, but the dollar amount associated with successful suits can be millions of dollars. In 2009, Sears settled a disability related case with the EEOC for $6.2 million. On average, it will cost a company $500,000 to settle a single sexual harassment lawsuit.
There is perhaps no more devastating blow to a company than the impact of changing customer habits. Companies that fail to predict and anticipate market and consumer behavior changes risk going the way of the dinosaur. Companies that lose customers face not only the direct revenue loss of that customer’s current and future purchases with the company, but also stand to face indirect losses via that customer’s social effects on other potential buyers.
There are many reasons customers might jump ship and stop buying a company’s product - price, competition, perceived value, quality, and availability are just a few. However, harder to measure are the losses experienced by a company that loses a customer’s trust due to unethical, insecure, or unsafe business practices.
Consider pharmaceutical manufacturer Eli Lilly, for example. In the largest whistleblower settlement in U.S. history, Lilly settled with employees and consumers for a whopping $1.4 billion following serious allegations regarding the manufacture of the drug, Zyprexa. Facing similar pressures, Merck settled with Vioxx users for $4.85 billion following reports of significant side effects. Product recalls are also extremely costly; not only is there a direct dollar cost associated with a recall, but harm to or loss of human life can also tarnish a company’s reputation beyond repair.
Using the TBL framework, a company can reduce, limit, and even potentially eliminate these costs. As a result, all stakeholders can instead feel a sense of security and pride in a company’s commitment to more than just profit. Here are examples of benefits that result from pursuing the TBL philosophy:
- Creates cleaner environments that support the health and safety of all stakeholders, including future stakeholders
- Reduces costs and improves revenues as a result of less wasteful production processes and operations
- Produces clean, safe, and regulated work environments that improve worker loyalty, productivity, and retention, thereby increasing revenues and decreasing costs
- Improves company longevity and overall sustainability
- Creates the ability to reach untapped markets and appeal to new consumers and investors
- Improves customer loyalty, leading to additional revenues, market share, and improved public and media relations
- Strengthens communities with improved health and economic security
- Improves stock performance
At Renewable Choice, we’re committed to helping our clients succeed in the pursuit of their TBL goals. By providing frameworks for environmentally preferred purchasing, sustainability strategies, and socially and environmentally responsible business practices, we help to guide our clients as they begin the transition from an economic focus to one that considers a much more holistic view of success. If you are interested in learning how we can help your business become more profitable and sustainable, please contact us or check out our sustainability checklist to see how you are doing.
Amy Haddon is Director of Business Operations for Renewable Choice.