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Social and Environment Justice
The triple bottom line covers both the social and environmental dimensions. Justice might be a vague concept but it is one of those "you know it when you see it" ideas, for which any company can and should develop specific metrics. Social justice can be focused along three dimensions -- the supply chain, the internal and the external. The supply chain is given special treatment among external stakeholders because it has become a focus in the social dimension in recent years. Fair trade farming has become a major focus, especially for products sourced from the developing world like coffee and chocolate that are often sold at premium prices in the west. There are frequent controversies about sweat shops or factory conditions like those of Foxconn, the controversial Apple supplier. Typically, companies that produce goods that are sold at premium prices (Nike, Apple, etc.) are more at risk for controversy than a company like Costco that sells at lower prices, because justice is always weighted on a balance. The central theme of supply chain justice is that the profits from an activity are distributed in line with the inputs. Costco must instil a code of conduct for its suppliers in order to ensure that workers are well-treated. This is important because it is otherwise difficult to manage the outcomes throughout the supply chain, save with bargaining power than comes from being a major buyer and enforcing a code of conduct.
Costco is a leader in social justice for workers, so probably needs to do little in that regard. The company pays wages that are much higher than those of its competitors, and gives superior benefits to its workers as well. This is a central element of the company's strategy, and has resulted in very low turnover rates among its employees (Stone, 2013). Social justice for other external shareholders is a little tougher to manage, but the company should be aware that its actions do affect other people, especially people in the communities in which Costco operates. These communities must be taken into account, and Costco can contribute through charitable works and community involvement projects in order to improve its triple bottom line with respect to social outcomes.
Environmental justice represents the idea that we should leave the world no worse off than we found it. A noble idea, almost impossible to implement in practice given consumption levels in the Western world. Still, Costco can operate in line with principles that reduce energy consumption in particular, and reducing waste. The company has bargaining power to reduce packaging, for example. One of the benefits of seeking to reduce both energy consumption and packaging is that both of those things cost money, and the company can make improvements to the financial bottom line by making improvements to the environmental bottom line simultaneously.
Social and environmental impacts can be difficult to measure sometimes, but there are ways. The first measure for most companies is the avoidance of controversies, because those damage the brand. It is a good starting point to avoid screwing things up so badly that there is negative financial impact. But that is just a starting point. Other measures for social impacts include the following. For the supply chain, a living wage for every country can be quantified, and the company should pay that. Certain benefits can be quantified as well, should the company so desire. For its own employees, Costco already has external equity covered, but it can take into consideration the concept of internal equity, wherein the compensation for an individual in the company is commensurate with that person's benefit to the company (Kappel, 2012). The gap between executive wages and worker wages is one of the key measures that gets headlines, and is a prime example of the concept of internal equity.
Environmental measures are easy to come by, especially with respect to usage measures. Energy usage can be quantified, and the power company probably already does this. Solid waste and waste water can also be measured. There are many measures for each individual type of resource used, and ultimately Costco can measure all of them, set objective, and measure performance against those objectives
True Cost Accounting
The concept of true cost accounting is related to the triple bottom line, in particular with respect to measurements. True cost accounting seeks to include the cost of negative externalities into the pricing of goods and services (Investopedia, 2014). There is little doubt that a company with a low cost business model is not going to enthusiastically start pricing in externalities, increasing prices and reducing its competitiveness. The concept of true cost accounting is better applied to the idea that the company should understand the externalities that are created in its business operations and then seek to eliminate those. There are some negative externalities associated with every business. A Costco store has a fairly large footprint on the ground. The company sells gasoline at lower prices than competitors, which actually runs counter to true cost accounting. So these lower gasoline prices, the fact that the store attracts people to drive from miles around to go to the store, all of this creates significant negative externalities that are not priced at all into Costco's operations. The company has a long way to go before it holds true to the concept of true cost accounting.
Supply Chain Management
The supply chain is one of the more important battlegrounds for the triple bottom line. The supply chain is an area where companies -- especially those with low cost business models -- seek to lower prices by taking advantage of comparative advantages of other nations, usually in the cost of production. While this does not necessarily reflect in an ethical dilemma -- low wages in China might be perfectly acceptable because the cost of living is much lower there -- the supply chain is an area where the company must be conscious of its influence. Many companies will put pressure on their suppliers to deliver goods at the lowest possible cost. When cost is the only thing that is emphasized, the suppliers will naturally focus on ways to cut costs. Compromises are made on quality, and where there are poor worker protections, the workers often bear the brunt of cost-cutting measures either in their wages, benefits, working conditions or all three. It is important, then, that a company like Costco that relies primarily on overseas production must leverage its bargaining power to ensure that its suppliers are working with the same triple bottom line principles that it works with. The large volume of goods that a company like Costco buys -- Costco is the 2nd-largest retailer in the U.S. -- allows them to bargain with suppliers over a lot of different things, so Costco has a responsibility both to its own shareholders and to the people and environment in the company's supply chain, to enforce triple bottom line standards.
Ethics are a key element in the triple bottom line. For every company, how the different issues in the triple bottom line are defined and how they are measured is up to management. Thus, the triple bottom line measures will reflect management's own sense of ethics. There are a number of different ethical codes that can be utilized to determine how the company should operate. The triple bottom line tends to be built along the idea of consequentialist ethics, and seems rooted in a concept very similar to utilitarianism (Sinnott-Armstrong, 2011). The slight difference is that while Costco is expected to provide the greatest good for the greatest number (through supply chain management, internal equity, etc.) most businesses are also specifically oriented to avoiding catastrophic outcomes first and foremost. Such outcomes, good examples being the Apple-Foxconn issue or the Tazreen garment factory fire in Bangladesh, have strongly negative public relations consequences -- not to mention the human cost -- and it is important that the company avoids these. Clearly, the triple bottom line is oriented towards a system that promotes equity of outcomes, and this surely means avoiding strongly negative outcomes like deaths in the supply chain that can be traced, for example, to the company pressuring its suppliers to lower costs.
Part II. Pless and Maak (2012) outline four orientations that leaders have towards responsibility. They found these with a survey of just 25 managers, so there might be even more orientations, especially around the world. Costco probably does not have the orientation that would be common in America, for example, at least not among major corporations. Each of the orientations presents unique challenges with respect to implementing the triple bottom line.
When a company sees responsibility from the shareholder point-of-view, relying on agency theory, that puts the manager squarely focused on the financial bottom line. The key is that this is not mutually exclusive to the triple bottom line. That is in fact a central theme to the triple bottom line, that one need not sacrifice the financial bottom line…[continue]
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