A RESPONSE TO "GETTING TO THE BOTTOM OF 'TRIPLE BOTTOM LINE' " Moses L. Pava Abstract: Wayne Norman and Chris MacDonald launch a strong attack against Triple Bottom Line or 3BL accounting in their article "Getting to the Bottom of Triple Bottom Line'" (2004). This response suggests that, while limitations to 3BL accounting do exist, the critique of Norman and MacDonald is deeply flawed. Wayne Norman and Chris MacDonald make a strong attack against Triple Bottom Line or 3BL accounting in their article "Getting to the Bottom of 'Triple Bottom Line" (Norman and MacDonald 2004). They correctly note that there has been relatively little academic research on this topic. This is particularly troublesome given that this term is now widely used in business circles. A Google search in February of 2004 returned roughly 52,400 web pages that mention this phrase.' One of the purposes of their paper, then, is to begin a rigorous debate about the strengths and weaknesses of 3BL. This is an important and long-overdue goal. Unfortunately, the authors' own conclusions are deeply flawed. The authors begin their analysis by methodically setting out five claims that they believe are being made by the supporters of 3BL. These are as follows: Measurement Claim: the components of "social performance" can be measured in relatively objective ways on the basis of standard indicators. Aggregation Claim: A social "bottom line"—that is, something analogous to a net social "profit/loss"—can be calculated using data from these indicators and a relatively uncontroversial formula that could be used for any firm. Convergence Claim: Measuring social performance helps improve social performance, andfirms with better social performance tend to be more profitable in the long run. Strong Social-Obligation Claim: Firms have an obligation to maximize (or weaker: to improve) their social bottom line—their net positive social impact— and accurate measurement is necessary to judge how well they have fulfilled this obligation. Transparency Claim: The firm has obligations to stakeholders to disclose information about how well it performs with respect to all stakeholders (Norman and MacDonald 2004: 246). © 2007. Business Ethics Quarterly, Volume 17, Issue 1. ISSN 1052-150X. pp. 105-110 BUSINESS ETHICS QUARTERLY Immediately after presenting these five claims, the authors criticize the "vagueness" of these formulations. "[T]he truth of many of these claims is salvaged at the expense of their power," they write (Norman and MacDonald 2004: 246). In particular, Norman and MacDonald believe that the transparency claim is especially weak. They state that everyone believes that corporations have obligations to disclose some information to stakeholders beyond financial measures, but the real questions is "what information do stakeholders actually have a right to, and how would one justify such rights-claims?" (Norman and MacDonald 2004: 246). I believe that the authors are correct when they complain that there is virtually no substantive discussion among academics about what must be disclosed, what can be disclosed, and what may not be disclosed to corporate stakeholders. And, to the extent that their article sparks a dialogue centered on this single issue, it will have served an important purpose. However, this problem about the boundaries of what is appropriate and not appropriate to disclose is not unique to the advocates of 3BL accounting. This is a problem for everyone interested in more and better corporate disclosure, presumably even Norman and MacDonald. For example, Wal-Mart—which is not one of the companies that have adopted 3BL accounting—is currently under intense pressure to disclose the names of its overseas factories. The question of whether or not Wal- Mart has an obligation to disclose this information can be debated, but it does not hinge on one's acceptance or non acceptance of 3BL accounting. The fundamental basis of the authors' rejection of 3BL accounting is based on their rejection of 3BL's so-called Aggregation Claim. Apparently they accept the other four claims of 3BL (even transparency). To Norman and MacDonald the Aggregation Claim is the only distinctive aspect of 3BL accounting. In their memorable words, "what's sound about the 3BL project is not novel, and what is novel is not sound" (Norman and MacDonald 2004: 247). But Do Advocates of3BL Really Accept the Aggregation Claim? What Norman and MacDonald want for social and environmental reports is "an agreed-upon methodology that allows us, at least in principle, to add and subtract various data until we arrive at a net sum" (Norman and MacDonald 2004: 249). This, they state, is what the Aggregation Claim demands. But, given that this methodology does not exist, and given that this is the only distinctive claim of 3BL accounting, the whole movement, in their view, becomes "a kind of he" (Norman and MacDonald 2004: 256). It would seem that Norman and MacDonald's critique of 3BL accounting is wholly dependent on their assertion that advocates of 3BL really do accept the Aggregation Claim. According to Norman and MacDonald, "Organizations such as the Global Reporting Initiative and AccountAbility have embraced .. . the 3BL concept for use in the corporate world" (Norman and MacDonald 2004:244). Surely A RESPONSE TO NORMAN AND MACDONALD then, one would imagine from the flow of their argument, these two organizations especially would fully endorse the Aggregation Claim. But Norman and MacDonald note correctly just a few pages later that this, in fact, is not the case. They admit that "the Aggregation Claim .. . is definitely not endorsed by any of the major social-performance standards to date" (Norman and MacDonald 2004: 247). They also note, that in practice, no company endorses this claim. So if the Global Reporting Initiative, AccountAbility, and real businesses do not endorse the Aggregation Claim, who does? Norman and MacDonald must and do admit that, in practice, no one actually accepts it. Their point is that even though no group really accepts the Aggregation Claim, logical consistency demands that advocates of 3BL should endorse the claim. Here is how the authors derive their conclusion. "The keenest supporters ofthe 3BL movement tend to insist, if only in passing, that firms have social and environmental bottom lines in just the same way that they have 'financial' or 'economic' bottom lines" (Norman and MacDonald 2004: 249, emphasis in original). Flawed Logic There is no source for this claim. Given that the entire argument rests upon its truthfulness, this is surprising, especially in a paper that already includes thirty- seven endnotes. For the sake of argument, however, let us assume (despite the fact that this claim has not been documented) that it is true. Does the Aggregation Claim logically follow from the claim that firms have "social and environmental bottom lines in just the same way that they have 'financial' .. . bottom lines"? The central point of my response is that it follows only if the advocates for 3BL already accept an Aggregation Claim for the financial bottom line. My most important disagreement with Norman and MacDonald is with regard to this precise issue. It is simply not the case that there exists a single number that aggregates financial performance, and therefore no one should demand this of social and environmental reporting either. I think that one can argue that the overriding point of the metaphor of the triple bottom line is to challenge the traditionally held assumption that any number alone—including net income—can meaningful capture the appropriate assessment of corporate performance. Norman and MacDonald seem to take it as a matter of faith that net income, or the traditional bottom line, is the single source of financial information included in annual reports to shareholders. It is the number that aggregates financial performance. This is not the case, though. For years there has been an increasing demand for better financial accountability. The Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) in the U.S. have met this demand by requiring additional disaggregated disclosures. Anyone who teaches financial statement analysis will tell you how important it is to blend information from many different sources about many different elements of performance. At the simplest level, no one would dream BUSINESS ETHICS QUARTERLY of evaluating a company without looking at operating cash flows in addition to net income. Similarly, no one would consider an investment by focusing on operating cash flows and completely ignoring a risk measure. Is there anyway to aggregate net income, operating cash flows, and risk? Not to my knowledge. It is true that financial accounting continues to report a number called net income, but it is not true that accountants claim that this number tracks financial performance in a one to one fashion. What is truly confusing about the Norman and MacDonald paper is that they themselves seem to recognize this very point in an extended endnote. They state: It really should be noted that the income statement, with its famous "bottom line," is but one of the principal financial statements used to evaluate the health of a firm. The others include the balance sheet, the statement of cash flows and the statement of owners' equity. (Norman and MacDonald 2004: 259, n. 20) What they fail to notice here, however, is how devastating this note is to their own argument. By everyone's agreement, net income does not aggregate financial performance into a single number. It is better thought of as a matrix of financial performance indicators. If so, why hold the advocates of 3BL reporting to a higher standard than is currently acceptable in thefinancial realm? In other words, if you can not summarize financial performance with a single, objective number, you certainly should not expect to summarize social and environmental performance in this way. The Irony of a Triple Bottom Line One of the major limitations of the business ethics movement, to date, has been the inability to measure and track social and environmental performance in a meaningful, consistent, and comparable way. But blaming the advocates of triple bottom Hne reporting for this failure is to blame the only group that has noticed this problem and is trying to remedy it. Rather than criticizing triple bottom line reports for their failure to provide a magical number that aggregates ethical performance, academics should understand the real import of 3BL reporting and try to improve it. Triple bottom hne reporting is a metaphor to remind us that corporate performance is multi-dimensional. Perhaps the phrase multiple bottom line reporting might have been a more accurate description of the goals for this movement, but this is not the crucial issue here. What is important to note is the irony inherent in the phrase 3BL. And this is exactly what Norman and MacDonald have missed. Isn't the very claim of more than one bottom line a contradiction in terms? Of course it is. But that's the point. There is no bottom hne nor was there ever a bottom hne—only multiple and contingent bottom lines. A RESPONSE TO NORMAN AND MACDONALD Limitations of3BL Norman and MacDonald raise some important criticisms concerning 3BL accounting. Most importantly, their concern that some companies are abusing it to promote their own interests is accurate. Consider the case of tobacco company Brown and Williamson's triple bottom line report as an illustrative example of the problems of 3BL. Specifically, the company's claim in its social and environmental report that "balancing responsibility to ensure the long-term sustainability of our company with our responsibilities as a good corporate citizen is not a dilemma" is, at best, hard to understand (see Brown and Williamson 2003: 51). Further, does the company recognize that cigarettes are addictive in nature? If so, the company does not say this in this report. Although the document does state explicitly that members of the "public health group" hold the position that nicotine is an addictive substance, the company itself does not take a position on this issue here (see Brown and Williamson 2003: 33). In fact, the company states that smokers "choose to use tobacco products" (the company's emphasis) and "should be free to do so." In addition, a report advertising itself as "a social and environmental report" should include some specific statistics on the admitted dangers of cigarettes. For example, how many people die each year from smoking Brown and Williamson's cigarettes? We're told over and over again in the document that there are forty-five million smokers, but there are no specific statistics about the dangers these smokers are facing. Obviously, the company is trying to represent its own interests in the best possible light. There is nothing wrong with this. There is a problem, however, when one uses ethical language to hide unethical behavior. What does all of this imply about 3BL reporting? Jettisoning it because it can be misused is like throwing out the baby with the bathwater. Certainly if we have learned anything over the last decade it is that even audited income statements are subject to manipulation. Just as no one is calhng to get rid of income statements, no one should call for the abandonment of 3BL reporting. Not Just an Academic Debate This is not just an academic debate. The FASB is currently overhauhng its basic conceptual framework. This project should be of critical concern to the business ethics community. Among other issues, the FASB is addressing the objectives of accounting and deciding which stakeholders will count. As of this writing it looks as though the FASB will re-assert its current and exclusive emphasis on information related to the prediction of cash flows, and will ignore social and environmental indicators (Bullen and Crook 2005). The FASB would be well-advised to examine the vast and growing business ethics hterature on stakeholder theory before it commits itself once again to Milton Friedman's thin theory of profit maximization. The triple bottom line is not a panacea. But, unhke Norman and MacDonald, I beheve it is a step in the right direction. Triple Bottom Line accounting puts the BUSINESS ETHICS QUARTERLY notion of accountability back into accounting. Further, it is derived from a more ethically defensible theory of the firm than the traditional annual report with it sole emphasis on profit maximization for shareholders. Note 1. My own Google search in July 2005 revealed 166,000 hits for "triple bottom line," an increase of more than 200 percent in just a year and a half. References Brown and Williamson Tobacco USA. 2003. Social and Environmental Report 2002/2003. Winston-Salem, N.C.: R. J. Reynolds Co. Bullen, Hasley G., and Kimberly Crook. 2005. "Revisiting the Concepts" (May), www .fasb.org. Norman, Wayne, and Chris MacDonald. 2004. "Getting to the Bottom of Triple Bottom Line,'" Business Ethics Quarterly 14(2) (April): 243-62.