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Triple Bottom Line

 

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

Socially Responsible Corporations
To survive over time, every organization needs to take in more money than it spends. (The only possible exception may be the U.S. government.) This means that even nonprofit organizations must, in a sense, make a profit. But making a profit isn’t the same as maximizing profit. In the first instance, profit is a means to an end; in the latter, it’s the purpose that trumps all others. Millions of organizations earn enough money to stay alive, yet pursue goals other than profit. Is it possible for publicly traded corporations to be like that? Can they have multiple bottom lines? Can they, in other words, rise above their profit-maximizing algorithm?

There are several ways this might be possible: enlightened managers might choose a higher goal than profit, shareholders might insist on it, and government might require it. Let’s consider each possibility.


There are several ways this might be possible: enlightened managers might choose a higher goal than profit, shareholders might insist on it, and government might require it. Let’s consider each possibility. ...

MANDATORY RESPONSIBILITY
I don’t think it will ever happen, but consider this scenario. Imagine Congress passes a law requiring every corporation — in exchange for limited liability — to have a triple bottom line. The law also says that at least a third of corporate directors should represent workers, nature, and communities in which the company operates. And it protects directors from lawsuits if they favor nature over profit. You’re the CEO of Acme Corporation. What changes do you make after the law takes effect?

Well, you might start by increasing your accounting budget. You’ll need, henceforth, to keep track not only of money but also of your nonmonetary impacts on society and nature. This isn’t easy, though presumably shortcuts will be developed. Next, you assign people to find ways to reduce Acme’s negative impacts on nature and society, ranking the proposals by years to payback. You budget a modest sum for the most cost-effective projects, giving preference to those with public relations value. You publish ads and reports, patting yourself on the back for doing what the law requires. And you remind your board of directors that, if they choose, they can snub offers from the likes of Charles Hurwitz and forgo large capital gains for shareholders.

All this would be well and good. But given the algorithms that still rule, how much difference would it make? And even if it did have some effect, would it make enough difference in the right ways? After all, you might spend your small green budget on one thing, while nature most needs something else.

Now, as an alternative, imagine that the price of nature is no longer zero. All of a sudden, it costs big bucks to pollute or degrade ecosystems. Overnight, your managers scramble to cut pollution and waste. The higher the price, the faster their behavior changes. And it changes in response to specific natural scarcities, as indicated by specific prices.

The question is, which of these approaches would work better — mandatory social responsibility, or increases in the price of nature? The answer, without doubt, is the latter ... read the whole chapter

 

 

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