Triple Bottom Line Theory

Essay by MsLadyExecutiveUniversity, Master'sA+, May 2009

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Triple Bottom Line Theory & Organization Profits Theory

All corporations are concerned with how much revenues and expenses they are generating, which in turn determines their overall profits, also known as their bottom line. The bottom line is what is used to measure the profitability of a company. The Triple Bottom Line Theory not only measures a company's bottom line, but it also measures the company's overall impact on the surrounding environment. In fact, according to the article, Leading for Sustainability, "business serves several purposes in the economy. One, of course, is to generate a profit for investors. To judge from the focus of financial reports, profit is the only purpose of business".

The Triple Bottom Line Theory is a way of expressing an organization's impact and sustainability on both a local and a global scale. According to Savitz, a business "operates so that its business interests and the interests of the environment and society intersect".

Leading for Sustainability notes that "the Triple Bottom Line (TBL) evaluates business success by three factors: social performance, economic performance and environmental performance. A recent study showed that leaders believe that taking care of people, profits and the planet are critical to organizational success, both now and in the future".

Organization Profits Theory, on the other hand, states that a corporation tries to remain fully responsible to its stockholders and thus tries its best to maximize profits. What is meant by profit? Dictionary.Com explains that Profit relates to "an advantageous gain or return; benefit". Profit is "the return received on a business undertaking after all operating expenses have been met. It is, therefore, the rate of increase in the net worth of a business enterprise in a given accounting period".

Here is how it all comes together. Stockholders buy shares in a company...