MANAGEMENT FOR THE TRIPLE BOTTOM LINE: A STAKEHOLDER PERSPECTIVE
David A. Bainbridge
Alliant International University
Rene Naert
Alliant International University
Ute Jamrozy
Alliant International University
Gregory A. Lorton
Alliant International University
Abstract
Put simply, the way in which stakeholders react to company decisions can have a dramatic effect on the
success or failure of a company’s investment decision, be it on sales revenue, market share or any other
strategic indicator (Earl et al., 2000).
Introduction
A stakeholder perspective in management can add value and improve triple bottom line performance.
Stakeholders include companies; employees; communities; and those who work for or with you, care
about or dislike your company, make your market, or make your work possible. A stakeholder view,
instead of a shareholder view, is predicted to be better at delivering long term value, profitability, and
sustainability. A stakeholder perspective can improve both strategic and tactical decision-making for a
company or organization and increase the value of its accounting practices, use of information
technology, and marketing strategies.
We suggest that the stakeholder perspective can enable a company to be more competitive and to gain
a competitive edge, improve worker satisfaction, improve productivity, reduce risk, protect reputation and
market, discover opportunities for new products and services, improve relations with regulators, facilitate
good relations with supply chain and subcontractors, and reduce marketing costs.
These all factor into the triple bottom line model for management. The triple bottom line approach
recognizes that imperfect markets and incomplete costs make short-term stock value to shareholders a
poor measure of company value, wealth creation, or sustainability. The goal of triple bottom line
management is to increase productivity and profits while improving the quality of life for customers,
employees, communities; protecting and restoring the environment; and encouraging competitors and
fellow-travelers to make the same adjustments.
By 2003 over a third of the Global 250 included the financial benefits of sustainability or corporate
social responsibility as a main component of their economic reporting in sustainability reports (Kolk,
2003). By 2005 companies around the world were participating, with more than three-fourths of the
Global 100 prepared reports on social and environmental performance (SustainAbility, 2006). Much of
the pressure for this enhanced reporting has come from stakeholders rather than shareholders. More than
10,000 sustainability reports are prepared every year (most in Europe), but the lofty goals articulated in
these reports are rarely fully incorporated in management decision making. And smaller organizations
have only recently been receiving more attention (EMAS, 2006). An enhanced stakeholder perspective
can help facilitate this integration of stated goals with practice on the ground.
The Stakeholder Perspective
Stakeholders include companies; employees; communities; and those who work for or with you, care
about your company, make your market, make your work possible, or are affected by your operations,
products and services. The perception of stakeholders as important actors in decision-making first began
in urban and land use planning in the 1970s, where the interplay of social, economic, and environmental
issues has been recognized as important for many years (Susskind and Cruikshank, 1987; Margoluis and
Salafsky, 1998; Booher et al., 1999; Margerum, 2002). The stakeholder role in business management
emerged in the 1980s, with several books and a series of papers arguing over its value and application
(Freeman, 1984; Donaldson and Preston, 1995). The recognition that a stakeholder perspective can add
value and improve sustainability of business has evolved more recently, in regulatory issues, strategy,
finance, and governance (Turcotte and Gendron, 2005; Armstrong, 2005; Dempsey, 2005; Steurer et al.,
2005). Stakeholder engagement has become a key part of reporting requirements in programs such as the
Global Reporting Initiative and the AA1000 Standard (GRI, 2002; AccountAbility, 2006; Slater, 2004).
Stakeholders may include a wide range of actors, from regulators to workers, fellow travelers,
supporters, and critics. Identifying the stakeholders is a first step. The list may range from 10-20 for a
simple company or project to 50-60 or more (Winterfeld and Edwards, 1987; Grayson and Hodges, 2004).
Stakeholders are then interviewed or studied so that their goals, values, and expectations can be identified.
It may then be possible to group stakeholders into clusters with similar aims. Some are clearly much more
important than others, so a ranking or weighting scheme may be of value (see Appendix).
Echoing a noted paper in environmental law, it has also been suggested that perhaps trees should have
managerial standing (Starik, 1995). Starik argues that because non-human nature is not currently
adequately represented by other stakeholder groups and that integration would provide a more holistic,
value oriented and strategic approach. This is in some ways related to Deep Ecology as advocated by
Naess (1989). This extensive stakeholder view seems unlikely to advance very quickly, but may
eventually prove useful to improve consideration of complex environmental systems in decision making
for sustainability.
Strategic Management
Business managers have traditionally been taught that business decisions should be made that
maximize the shareholders’ return on investment (Friedman, 1970). Projects and investments are selected
and implemented when the net present value (NPV) is positive. This approach is both simplistic and
complicated. It is simplistic because decisions are made using a limited set of financial criteria and are
strongly influenced by decisions about discount rate. It is complicated by the inherent role uncertainty
plays in most decisions and by the difficulty in assessing the potential financial impact of many business
activities when markets are turbulent or health or environmental risks or liabilities are not well
understood.
The growing recognition that this is not enough, and that companies could be both environmentally
friendly and profitable (Porter and van der Linde, 1995: Elkington, 1997; Gordon, 2001) has led to a
broader consideration of company operations, including social and environmental costs and benefits. The
triple bottom line both simplifies and complicates business decisions. It complicates decision-making by
increasing the number of criteria upon which business decisions are made, making it less likely important
factors will be ignored (Schaltegger and Burritt, 2000). On the other hand, it simplifies many
environmental and social decisions by specifying, clarifying, and evaluating potential costs, benefits, and
risks using environmental and social criteria.
Elements of the stakeholder perspective and triple bottom line approach already exist in other
established business performance enhancement programs. The Balanced Scorecard approach of Kaplan
and Norton (1992) includes such elements and was developed to emphasize the difficulty and
incompleteness of financial criteria as the sole criteria for all business decisions. More recently, the Lean
Six Sigma approach emphasizes a number of criteria embraced by the triple bottom line (George et al.,
2004; Pickrell et al., 2005).
Researchers have defined environmental management systems (EMSs) ranging from reactive to
proactive (Dunphy et al., 2003; Lorton, 2006). For companies pursuing a strict compliance approach,
financial criteria are often not even applied to environmental decisions. Decisions made in response to
compliance requirements are made solely out of a desire to avoid violations and potential fines. These
firms generally see compliance as a requirement, independent of financial decisions. They often fail to
identify products and processes that are costing them money for compliance and those that are not
(Schaltegger and Müller, 1998).
On the other hand, firms that go beyond reactive compliance approaches by using pollution prevention
strategies often continue to make environmental decisions based solely on financial criteria (Schaltegger
and Muller, 1998). Even decisions based on regulatory compliance will be made by identifying choices
that offer the lowest costs. In many cases, environmental decisions are made using the same financial
criteria and processes as other operating and investment decisions. The pollution prevention approach to
environmental management usually provides organizations with a number of options for dealing with
environmental issues. Using typical capital budgeting criteria, those options that yield the highest net
present value are selected after estimating discounted cash flows for investments, operating costs and
savings. Some of these companies now may prepare sustainability reports, touting their efforts, but
confusing reporting sustainability with acting sustainably (Milne et al., 2006).
The most developed sustainable management programs follow the triple bottom line approach (Laszlo,
2003; Thurm, 2006). In doing so, some decisions may be made that would not be if the decisions were
made solely on financial criteria. For example, steps to improve the environment often include external
costs that are costs borne by society and have no immediate impact on the firm’s financial statements.
Switching from traditional financial criteria to the triple bottom line requires that organizations expand
the consciousness of the external impacts that their decisions have on society and the environment. One
step that can assist this change in mindset is to consider that these issues are likely to have financial
impacts on the organization, either now or in the future. Even some externalities can become costs to an
organization if the impacts on society and the environment are significant enough to influence changes in
consumer demand or to cause governments to enact laws that eventually impose regulatory costs on
organizations. The stakeholder perspective can help identify risks (potential trigger points) and
opportunities for management (Grayson and Hodges, 2004)
Tactical Management
Although the stakeholder perspective is most commonly used in strategic management, it can also be
applied at the tactical or operational level (Earl et al., 2000; Hoffman, 2006). Stakeholder considerations
can be applied in contracting, design and planning decisions, material selection, and operations. The first
step is to identify key stakeholders (ideally this will already have been started at the strategic level) and
their interests and performance goals. Then the competing or complementary goals of various
stakeholders can be weighted and balanced against corporate intentions and performance goals. This may
be refined with sensitivity analysis and then subjected to a financial/risk efficiency review for decisions
such as which contractor to hire, which material to use, or which location would be most appropriate for a
new facility.
True Cost Accounting
As the eminent British economist A.C. Pigou (1920) noted early in the last century, the market will
fail unless it includes all costs. The flawed and incomplete market we have today, with enormous
uncounted costs and incorrectly attributed costs, performs very poorly, and Milton Friedman’s dictum, “A
company’s only responsibility is to increase profits for stockholders” leads to potentially catastrophic
environmental and social costs (Friedman, 1970). Most markets today consider only a small fraction of
the total transaction cost, leaving most “externalities” out of the picture (Antheaume, 2004; Bainbridge,
2006). If full costs were known many current market transactions would not occur; and we would face a
much more hopeful, secure, and sustainable future (Schaltegger and Müller, 1999; Robért et al., 2002;
McDonough and Braungart, 2002). Incorporating true costs in the market is probably the most important
thing we can do, letting consumers choose the sustainable option because it is the best investment (Young
2006).
In fact, engaged stakeholders have helped make this new approach to accounting a requirement in
several arenas. Failure to consider external costs has outraged and mobilized various stakeholder groups
and brought new reporting requirements and new demands for more complete accounting. As broader
accounting mandates have developed, companies have found that they can offer new benefits as well as
additional costs.
Added reporting has helped companies better understand the life cycle costs of products, from the
cradle to the grave, made, used, disposed, or cradle to the cradle, made, used, recycled, reused, or returned
to nature (Sonneman et al., 2001; McDonough and Braungart, 2002). This is the goal of most
sustainability reporting, from the Eco Management and Audit Scheme (EMAS) to the Global Reporting
Initiative (Orbach and Liedkte, 1998; IEFE, 2005; GRI, 2002; Rikkhardson et al., 2005). True cost
accounting can also improve investment decisions (Moilanen and Martin, 1996). It will not be easy,
because we haven’t invested much money in studying these issues, and the flow pathways and impacts
can be complicated and long term.
To understand the full costs of both human and ecosystem effects we need to know much more about
material flow (Brigenzu et al., 2000; Pedersen and de Haan, 2006). This is something chemical engineers
have studied for decades within facilities and companies, but all too often the boundary has been the edge
of the plant--not the atmosphere, stream, field, or organism where small amounts end up and wreak havoc
(Reck et al., 2006; Driscoll et al., 2007). Seemingly innocuous materials that are currently poorly
regulated or studied can be ecotoxic. These include nitrogen and phosphorus, which can be very hard to
manage and can have devastating effects on both terrestrial and aquatic ecosystems (Vitousek et al., 1997;
Günther, 1997).
To better understand these issues we need to improve company balance sheets and update them
regularly. These balance sheets will evaluate facilities, production, operation, maintenance, service and
disposal (Sigma Project, 2002; Forum for the Future, 2003; ISAR, 2004; IFA, 2005).
These accounts and balance sheets need to be done at the enterprise or activity level as well as
aggregated for the corporation or organization (Schaltegger and Müller, 1998). And then local, regional,
state, and national accounts must be compiled to look for incrementally small leaks that become
significant when they are combined in the environment (Palm and Jonsson, 2003; Hansen and Lassen,
2003). The cumulative effects of zinc in runoff from buildings, equipment, and other sources may be
ecotoxic, even when individual releases are low (Karlen et al., 2001). And finally the effects on the value
of Nature’s Services must be considered (Howarth and Farber, 2002).
A Subset of a Revised Company Balance Sheet
Figure 1 (Facilities, Transport Not Included)
Although much progress has been made in environmental accounting (Gray et al., 1995; Rikkhardsson
et al., 2002; Schaltegger and Burritt, 2000; Baue, 2006), the work has really just begun. Much more
accurate and complete information is needed on a wide range of costs and benefits (Bainbridge, 2006). It
also has to be made easier, so that small companies can develop reports that are complete and add value to
operations. If we undertake this type of accounting today, it is labor intensive and therefore costly.
IT and Data Mining Tools for Effective 3BL Stakeholder Reporting
Modest investments in improved environmental accounting can lead to significant gains in Triple
Bottom Line profitability, corporate image, and reduced liability. Environmental accounting demands
new skills, tools, and more integrated accounting across department and division lines enterprise wide
(Rikkhardsson et al., 2005; Schaltegger et al., 2006). A wide range of stakeholders, inside and outside the
organization, can also benefit from having access to this information (Naert and Bainbridge, 2007). The
growing importance of stakeholders has led to new software applications. Stakeholders may be identified
and analyzed using software developed by companies, including Stakeware (Stakeware, 2006).
To exercise sound managerial control an organization needs access to high quality, pertinent, real-time
data. Massive amounts of data are collected from a multitude of business-oriented transactions routinely
tracked in a typical business day. If we add environmental and social information on top of this, the
overload becomes even worse. Decision makers often feel they are overwhelmed by the avalanche of data
they must sift through to capture a simple nugget of relevant, useful information. To facilitate the rapid
improvement of accounting processes and procedures needed to produce an effective Triple Bottom Line
accountancy will require organizations to successfully harness the value of information buried deep
within the veins of its data repositories and accounting systems.
Information systems technology (IST) can be an enabling force for this task and can have a direct
impact on the innovative operational results of an organization (Huang and Han, 2005). IST capability
make it possible for an organization to capture the data required to monitor the appropriate metrics needed
to assure the creation of quality products and services (Herbslep, 1997). TQM recognizes that product
quality is achieved at every level of a process, and the output from quality processes is a quality product
or service (Visitacion, 2003). The implementation of the stakeholder-oriented triple bottom line approach
will increases the number of criteria upon which business decisions are made and increase the complexity
of the decision-making metrics and data requirements. The parallel between the need to create and
implementation of the “quality culture,” and the need to infuse an ecological and social accountability
within the fabric of mainstream organizational thought and operations is in many ways a similar
challenge.
Much remains to be done to define the best or ideal IT application tools and processes to identify,
capture, cleanse, process, and disseminate the integrated data required to integrate stakeholders and
implement the Triple Bottom Line approach. Tools that make this efficient and easy for even small firms
to do are urgently needed. For larger firms this software/middleware might interact with Microsoft, SAP,
Abacus, and other office accounting and management packages, while for the smaller firm these tools
should be free or low cost (see, for example, Simpson et al., 2005) and ideally, easily integrated with
programs such as Quicken or Quickbooks. And these should probably be on-line, to capture rapidly
developing improvements in understanding.
The immense amount of data produced by most data repositories makes it nearly impossible for a
person to effectively analyze the information that might help them make better decisions (Dass, 2006).
Data Mining operations, however, as an evolving focus within the IT discipline, provide a promising
solution. Data mining (DM) can be used to explore, collect, and analyze large volumes of data to detect
hidden patterns and to convert raw data into valuable information (Chye, 2002). DM could very well be
the ideal tool to use to expedite the implementation and realization of the stakeholder-oriented triple
bottom line.
Management professionals across a range of disciplines will need to work together to blend the
various process strategies, methodologies, and tools of DM for potential application in this more complex
accounting and management environment. Using DM’s viability as a self-regulated, cybernetic tool,
which can effectively sift through enterprise-wide database repositories discovering knowledge, and
providing automated structured trend analysis may be of critical importance in speeding the transition to
full cost accounting, profitability, and a sustainable future (Naert and Bainbridge, 2007).
Database developers, information source managers, and accountants must also be educated on the
importance of this work and the need for readily accessible information (Lintott, 1996; Gray and Collison,
2002; Chua, 2006). This could help make sustainability reporting faster, cheaper, more effective, and
more fun. Quality assurance and auditing systems also need to be refined (Beets and Souther, 1999;
Wallage, 2000).
Marketing Strategies
In marketing, a shift towards stakeholder thinking has occurred through a redefinition of what the
marketing function entails. In 2004, the American Marketing Association (AMA) changed the definition
of marketing away from “creating exchanges that satisfy individual and organizational needs,” towards “a
set of processes for creating, communicating, and delivering value to customers and for managing
customer relationships in ways that benefit the organization and its stakeholders” (Sevier, 2005). This
approach of marketing moves towards long-term relationships with loyal customers as opposed to one-
time exchanges. It also considers other beneficiaries beyond the customers. Marketers have attempted to
identify these stakeholders, including their norms, issues, influences, and power (Maignan et al., 2005).
However, few efforts exist to identify qualitative needs of the stakeholders and the type of exchange
relationships within the marketing system. Miller and Lewis (1991) suggest a value exchange model for
all stakeholders, in which all partners receive, create, generate, and distribute values in a much more
complex and dynamic value exchange system as compared to the original customer/organization
interaction. Miller and Lewis (1991) defines the objectives of stakeholders as, “an objective is a value or a
set of values that are sought by or on behalf of a person, persons, or organization and for which there is a
willingness to make a sacrifice or effort.”
If we consider this sacrifice as a “price to pay,” we may also recognize that the value exchange goes
beyond product for profit; and that social and environmental costs need to be included in true-costaccountability.
Miller and Lewis (1991) and Clulow (2005) recognize the challenge of balancing this
system based on the weight and importance of stakeholders. So far, much of the effort has been devoted
to avoiding anticipated problems. This may involve gaining the support of pressure groups so no
consumer boycott will be initiated and brand reputation will not be hurt.
Few marketers have recognized the interdependence between stakeholders and the company as an
opportunity to create vibrant living corporate community systems similar to natural systems. Patagonia
and a few others have worked to identify their community and used sustainability as a factor to help keep
the community together (Chouinard, 2004).
Beyond the clear identification of stakeholders’ needs, marketers also need to focus on better
communication with their stakeholders. Information technology can support more complex
communication strategies, but the type of messages sent are equally important. Targeting specific
stakeholder groups, recognizing their value in the system, and doing so through authentic and transparent
messages and information, will perhaps reestablish more trust and credibility in marketing
communications.
Summary
The stakeholder perspective is a powerful approach that can improve management of companies and
organizations. It improves the level of understanding of the business environment, increases
understanding of customer wants and needs, improves communication along the value chain and helps
identify new opportunities, and identifies possible risks and potential costs. The stakeholder perspective
can be used at the tactical or strategic level to improve profit and reduce risk. Effective use of the
stakeholder perspective benefits from true cost accounting throughout product or service life cycles. This
can be streamlined with better management of information systems and data management. Improved
sustainability from use of the stakeholder perspective can improve product fit to customer demand and
create new opportunities for marketing and improving customer relations.
Stakeholder involvement is required in several sustainability reporting systems and can be seen as a
problem (new thinking, new systems) or an opportunity. We would argue that it is an opportunity that
offers long-term value to the companies that embrace it, and the communities where they work, and to the
stability of the planetary ecosystems that support us. Stakeholders desire what we all want: better, faster,
cheaper, more sustainable and more fun!
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Appendix
A Brief List of Stakeholders
Authorizers
Regulators
Consumers
Executives
Managers
Workers
Workers families
Unions
Supply chain
Contractors and subcontractors
Distribution chain
Investment community
Media
Communities (plant locations, supplier plant location, impacted)
Competitors
Governments – local to national, international
Industry trade groups and associations
NGOs – social, environmental
Regional, national, global communities
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