Sunday, October 18, 2009

Idea: Triple bottom line

Triple bottom line

Aug 27th 2009

It consists of three Ps: profit, people and planet

The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profit—the “bottom line” of the profit and loss account. The second is the bottom line of a company’s “people account”—a measure in some shape or form of how socially responsible an organisation has been throughout its operations. The third is the bottom line of the company’s “planet” account—a measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business.

In some senses the TBL is a particular manifestation of the balanced scorecard (see article). Behind it lies the same fundamental principle: what you measure is what you get, because what you measure is what you are likely to pay attention to. Only when companies measure their social and environmental impact will we have socially and environmentally responsible organisations.

The idea enjoyed some success in the turn-of-the-century zeitgeist of corporate social responsibility, climate change and fair trade. After more than a decade in which cost-cutting had been the number-one business priority, the hidden social and environmental costs of transferring production and services to low-cost countries such as China, India and Brazil became increasingly apparent to western consumers. These included such things as the indiscriminate logging of the Amazon basin, the excessive use of hydrocarbons and the exploitation of cheap labour.

Growing awareness of corporate malpractice in these areas forced several companies, including Nike and Tesco, to re-examine their sourcing policies and to keep a closer eye on the ethical standards of their suppliers in places as far apart as Mexico and Bangladesh, where labour markets are unregulated and manufacturers are able to ride roughshod over social and environmental standards. It also encouraged the growth of the Fairtrade movement, which adds its brand to products that have been produced and traded in an environmentally and socially “fair” way (of course, that concept is open to interpretation). From small beginnings, the movement has picked up steam in the past five years. Nevertheless, the Fairtrade movement is still only small, focused essentially on coffee, tea, bananas and cotton, and accounting for less than 0.2% of all UK grocery sales in 2006.

One problem with the triple bottom line is that the three separate accounts cannot easily be added up. It is difficult to measure the planet and people accounts in the same terms as profits—that is, in terms of cash. The full cost of an oil-tanker spillage, for example, is probably immeasurable in monetary terms, as is the cost of displacing whole communities to clear forests, or the cost of depriving children of their freedom to learn in order to make them work at a young age.

Further reading

Elkington, J., “Cannibals with Forks: the Triple Bottom Line of 21st Century Business”, Capstone, 1997

Savitz, A.W. and Weber, K., “The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social and Environmental Success—and How You Can Too”, Jossey-Bass, 2006

Willard, B., “The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line”, New Society Publishers, 2002

Down Mexico

Oct 13th 2009


Brazil-envy is rife in Latin America’s other big economy

When Brazil was not only included but named first among the BRICs, the widely used acronym for the leading emerging economies, Mexican business leaders protested that their country should also have been there. Well, maybe. But adding an "M" to the initial letters of Brazil, Russia, India and China would have made the name much less catchy (MBRICs? BRIMCs?). And the man who coined the acronym in 2001, Jim O’Neill of Goldman Sachs, has said that Mexico (along with South Korea) was in fact considered, but did not quite fit.

Mexico’s Brazil-envy is more intense than ever, as this columnist discovered last week in Mexico City. One local business leader said he was optimistic about the economic outlook, but that was because “I choose to be, because I don’t want the alternative—and, besides, next year can’t be any worse than this, can it?” Others mostly seemed worried, predicting several difficult years ahead.


The Mexican economy was hit hard by the slump that followed the collapse of Lehman Brothers last year. Brazil’s economy suffered much less—and is already roaring back, in sharp contrast to Mexico’s. This is symbolised by the strength of Brazil’s stockmarket. Last week Santander, a Spanish bank, raised $7 billion by selling shares in its Brazilian subsidiary, the biggest share offering the country has seen. In June the initial public offering (IPO) of Visanet, a Brazilian credit-card firm, raised almost $5 billion, and there are several other big local offerings in the pipeline. By contrast, the most recent IPO in Mexico was in June 2008.

Part of the problem is that Mexico, especially since the creation of the North American Free-Trade Area, has increasingly specialised in making things cheaply for export to America, a strategy that looks less than brilliant now that the American consumer is on strike. Meanwhile, commodity-rich Brazil is benefiting from exporting to China, which has made up for weaker exports to America with a domestic spending binge which, among other things, requires lots of imported materials to build new infrastructure.

But that is by no means the only difference between the two economies. Mexico has lately been plagued by some serious management gaffes. Cemex, a cement firm that was not so long ago an exemplar of the trend for world-beating multinationals to emerge from developing economies, is suffering serious indigestion after borrowing heavily to make foreign acquisitions at the peak of the market.

Comercial Mexicana, the country’s third-largest retailer, lost a fortune after a currency hedge moved against it when the dollar soared during the financial crisis. This presented an opportunity to Wal-Mart, an American retailer which is the market leader in Mexico. It has taken advantage of its rival’s weakness by expanding rapidly, opening a couple of hundred new stores in the country this year. The only other business with such ambition in Mexico at the moment is the empire of Carlos Slim, a telecoms magnate, which has also been busy expanding during the crisis. More success for the powerful Mr Slim—now perhaps the richest man on earth—is regarded even by Mexicans as something of a mixed blessing.

Mexican business people are also depressed by growing fears for their own security. Violence is increasing in the country as the government takes on the illegal drug cartels, prompting them to retaliate brutally. Mexico is now close to the top of the list of countries where kidnapping is likely. Crime in Brazil’s cities is also bad, but it does not seem to be getting notably worse.

Pemex continues to decline as Brazil's oil reserves, and its state oil firm, Petrobras, soar

In the eyes of business leaders the government’s lack of success against organised crime is on a par with its failure to reform the economy. Although some business people are content that the Mexican economy is dominated by a small, powerful clique, many feel that the lack of competition is a serious problem. Many also lament the failure to reform the sluggish state oil and gas monopoly, Pemex, which continues to decline as Brazil’s reserves, and its state oil firm, Petrobras, soar. Just as worrying is the slow progress in revamping the tax system. Mexico has one of the world’s lowest ratios of tax collection to GDP, which deprives the government of the funds it needs to do its job properly.

Brazilian entrepreneurs found that President Luiz Inácio Lula da Silva and his Workers’ Party were much less hostile towards business in office than in opposition. Lula’s most likely successor in next year’s election is an experienced figure from the business-friendly Social Democrats, who in their last stint in the presidency passed vital reforms that laid the foundations for Brazil’s recent strong growth

Mexican business leaders fear that their president, following his party’s heavy defeat in recent parliamentary elections, may see out his remaining three years as a lame duck. The one hope is that, seeing how bad things look, Mr Calderón may be provoked into embarking upon the fundamental reforms that the economy so badly needs. In that light, what could be more encouraging than the government’s decision on October 12th to take on one of Mexico’s most powerful unions by closing down a big, state-run electricity provider? If this battle is won, perhaps Mexican business people can start believing that their country has what it takes to become more competitive and powerful than its big rival down south. If not, plenty more gloom and doom are likely to follow.

Posted via web from jlalfaro's posterous

Monday, October 5, 2009

HP may be ready to deal, as tech M&A heats up

Hewlett-Packard Co may get acquisitive again despite its recent absence from the technology sector's M&A scene, analysts said, and Brocade Communications Systems Inc may a prime target.

Brocade is putting itself up for sale, and HP has looked at the company's assets but has not made a formal bid, sources told Reuters. Brocade and HP declined to comment.

Brocade makes routers and switches for blade servers, as well as software to help companies manage data efficiently. It has been expanding its partnerships and already sells equipment to HP, International Business Machines Corp and Dell Inc.

Analysts say HP's sprawling portfolio has cushioned it against the shock of the IT spending downturn, but that investors now want to see the world's largest computer company move to ramp up growth. Some say one way to do that is through acquisitions.

Stifel Nicolaus analyst Aaron Rakers said HP is likely looking to acquire in areas such as software and networking, to complement its ProCurve networking product.

HP has been relatively quiet on the M&A front, Rakers said, given that the company is still working through last year's blockbuster $13 billion acquisition of EDS.

"As we roll out into the next couple of quarters, I wouldn't be surprised to see them do something," he said.

Kaufman Bros analyst Shaw Wu said HP and its rivals are focused on offering customers an end-to-end suite of products. Cisco recently began selling computer servers targeted at data centers, pitting the company against HP and IBM.

"It makes sense for HP to add to its portfolio in two areas: one is networking, the other is software," Wu said. "The more software and the more networking that they do, the better the margins."

Wu said Brocade would be a good fit for HP, noting that an offer for Juniper Networks -- another tie-up much speculated on in markets -- the No. 2 networking equipment maker after Cisco, would be a bolder and more expensive move.


Juniper's market capitalization of roughly $13.8 billion is more than three times that of Brocade. F5 Networks (FFIV.O: Quote, Profile, Research, Stock Buzz) is another networking name that crops up in acquisition talk.

As the IT sector has stabilized, the economy steadies and credit looses, M&A has been picking up. Last week, Cisco agreed to acquire Norwegian videoconferencing company Tandberg for $3 billion, leading analysts to wonder whether HP would respond.

There were also major deals in an IT services sector that analysts say is ripe for consolidation: Dell's $3.9 billion bid for Perot Systems Corp and Xerox Corp's $5.5 billion play for Affiliated Computer Services.

HP has a formidable warchest of $13.7 billion in cash should it decide to deal. It has made more than 45 acquisitions since 2001.

Besides EDS, major deals in recent years include the $4.6 billion acquisition of Mercury Interactive in 2006, and the $1.5 billion purchase of Opsware in 2007-- two of the more than two dozen software deals HP has made since 2001.

The company wages battle on many fronts in the IT sector, from Dell and Acer in PCs, to IBM in services and servers, to printers.

Pacific Crest Securities analyst Brent Bracelin said last week that HP has been in "digesting mode" with EDS but added: "I would expect them to get back into an environment where they become much more aggressive as they enter 2010."

"HP isn't in a position where they're going to be left out of the consolidation race."

HP has been tightly managing costs as it works through the EDS deal. It expects to generate $3 billion in savings by the time the integration is complete.

Rakers said the services sector deals in recent weeks provide more evidence that HP's purchase of EDS was a smart one.

"The EDS stuff was validated, if you look at the multiples that Dell's paying for Perot," he said.

(Editing by Edwin Chan; Editing by Richard Chang)

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