The Multiple Bottom Line Perspective

The Multiple Bottom Line Perspective -- Wednesday August 31, 2011

The mulitple bottom-line perspective focuses on how a comapnies social performance is interfering with its financial performance, and reputation.

There are three perspectives regarding this theory:

Perspective 1: A socially responsible firm is more financially profitable which leads to a good reputation. The concept behind this is that a good social performance attracts more shareholders (who for example share the company's attitude), which then earns the company more financial capital to work with which in turn strengthens the reputation. The good reputation then leads to attracting even more shareholders and this financial capital can be put towards more social performance. This circle is beneficial for the company, its employees who will be treated fairly, the shareholders because the value of their investments in the company increases, and the society as a whole.

Perspective 2: Here, a firm's good financial performance increases social performance, because they'd like to give more back to the community as they have more benefit. As the benefits increase and the company can spend more money on social activities, the public will hear about it which will increase the company's reputation. This is beneficial for the compamny, the shareholders (after all a good reputation leads to a higher attrictiveness to other shareholders

which in turn increases the comapny's value etc.), and the employees, because a better performance usually also pays off for them. In good times, this might be a good perspective, but if a company goes through rougher times, it would hang on to its money and not invest any (or only little) in social activities.

Perspective 3: This perspective argues that social responsibility, financial performance, and reputation interfere and influence each other, but there's no real driving force.

When we think of CSR a company needs to keep all three perspective in mind and not solely think that perspective one (even if that perspective argues that a little bit) is a recipie for a company's success. All other factors need to be considered as well (e.g. shareholders, employees, consumers, attitudes, financial means etc.) What the authors of the book want us to do is think critically about this subject. Let's take perspective one and imagine that a company might be doing a lot of awesome social activities, but if they treat their employees bad (e.g. underpay them, don't give them bonuses while the managers increase their salary every year etc.), this will reach the surface (mostly through media) and affect the reputation of the company to some extend. So, even though perspective one tells us that good CSR will increase financial performance and consequently the reputation, it might be true, if all other factors are not being carefully considered by the company as well. Another example: A company might do good on its CSR and employees but is financially a little unstable. This would not make the company very attractive to shareholders. So, the bottom line is that a company has to keep really every little factor in mind and how each factor interrelates with and influences other factors, if they want to be successful.