John Elkington

Some people are able to convey important ideas clearly through outstanding writing.  Others who lack the ability to write well make our ability to understand critical analyses a challenge, a source of considerable frustration.  [Of course, logically there are also others, like me, who neither have important ideas nor write well, but for now it is the second category that matters.]  John Elkington has many important ideas, but his writing style is such that it is hard to appreciate them.  In Cannibals With Forks, he manages to offer examples from companies on every page, as well as lists of evidence, actions, plans and checkpoints.  Even the index is in three columns over nine pages.  Let me be clear, he has developed a number of key insights, but his style is both complex and rather forbidding.  The result is frustrating; the content should be embedded in good management, but the detail is almost overwhelming.

It was twenty-five years ago that John Elkington’s Book ‘Cannibals with Forks’ was published.  Why that title?  Elkington quotes Stanislaw Lec, a Polish poet, in the Foreword.  Lec asked, “Is it progress if a cannibal uses a fork?”  Elkington answered that it can be, especially if the cannibals are companies.  When corporations carve up and digest other companies and industries introducing sustainable capitalism in the process, it’s using a fork!  The title is catchy, the image is memorable, and yet like the book that follows, it is complex image and close to confusing.  When you notice the book’s subtitle, The Triple Bottom Line of 21st Century Business, it is hard to imagine what exactly this book is going to cover.

In exploring the importance of triple bottom line accounting, and despite his enthusiastic claims to the contrary, John Elkington is not the first to suggest that companies should be focussed on social and environmental outcomes as well as financial ones.  Various forms of stakeholder focus for business have been debated for a very long time.  He may have coined the phrase ‘the triple bottom line’, but the underlying logic goes back to Adam Smith, if not much earlier.  Indeed, if there was anything novel in the latter part of the 20th Century, it has to be exactly the opposite, with Milton Friedman and his absurd contentions over the primacy he suggests should be given to shareholder returns and the ‘free market’.

Friedman sets the context for Cannibals With Forks.  He was the academic who argued “Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion – the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals – the technique of the marketplace.”  Friedman wasn’t a fool and was quick to add a rider to the proposition: “The possibility of coordination through voluntary cooperation rests on the elementary – yet frequently denied – proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.”  Not a bad proviso, since in practice most transactions are not ‘voluntary’, and in most cases the purchasers are far from fully informed.  I know, picky, picky!

Like Elkington, Friedman addressed important issues, but he wrote well.  Here he is on the place of government.  Government “is essential both as a forum for determining the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color the majority want and then, if he is in the minority, submit.”

Nice way to sell capitalism, since it ignores the realities of practice.  Yes, please have a tie in that colour you want, even if its production is pushing pollutants into the river and damaging a source of drinking water.  Surely you don’t expect us to address all these ‘neighbourhood effects’, effects on third parties for whom it will be tricky to find ways recompense them.  That’s life.  It’s easy to make fun of Friedman.  We all know you can’t buy any colour of tie you might want, as we are constrained by those the manufacturer will make, unless you are very rich and can afford custom made ties.  In the store, the colours that sell are determined by the majority, and profitability.  As for pollution, companies will reluctantly meet some pesky environment protection rules but no more than they have to.  ‘Surely that’s enough?’

Not enough for Elkington, who, in contrast, is arguing for what some call stakeholder capitalism, the idea that a company must meet the needs of all its stakeholders, groups that include employees, customers, managers, shareholders, governments, suppliers, distributors, etc.  If we recognise these various parties and their interest in the enterprise, then the triple bottom line approach ensures that metrics of performance are not just about financial outcomes, but broader issues of concern to all those groups.   In the simplest terms, his triple bottom line agenda focuses corporations not just on the economic value that they add, but also on the environmental and social value that they contribute – or destroy.

Underlying and creating the changes he writes about, Elkington believed there were seven revolutions taking place.  The first of these was about markets, as they would become more globalised.  He argued that for the foreseeable future, business will operate in markets that are more open to competition, both domestic and international, than at any other time in living memory.  He thought the resulting ‘economic earthquakes’ would transform our world:  I wonder if he thinks that today?  His second trend was more hopeful than apparent, a shift in values from a focus on economic value to adding social and environmental concerns.  He was aware that some argued ‘the business of business is business’ but suggested these changes in values were already taking place.  And yes, there have been some positive changes.

From looking at how business operates, Elkington moves on to context.  First, he identified transparency as his third area of change.  With transparency, business would find its thinking, priorities, commitments and activities under increasingly intense scrutiny worldwide.  Some forms of disclosure he felt would be voluntary, but others would evolve through the actions of government and other agencies.  He even thought the transparency revolution was close to being ‘out of control’, commenting “even China is being forced to open up by such factors as the global SARS epidemic that it helped to spawn”.  Makes interesting reading today as we see China’s transparency during the COVID pandemic!  Finally, he quite astutely noted that information technologies have the potential to offer improved transparency, from data access and analysis on computers on the internet through to ever smarter smartphones.

Beyond these changes, he identified some other impacts on company disclosure.  One area concerned supply chains.  He saw companies being challenged about the implications of their activities both up and down the supply chain.  Once again, he correctly anticipated companies focussing on the acceptability of their products, not just at at the point of sale, but with a broader emphasis on their performance from cradle to grave, from the extraction of raw materials right through to recycling or disposal.  As this has become more evident it has been accompanied by another change, with new forms of partnership between companies, between companies and other organizations, even between  companies and advocacy groups and non-profit agencies.  Elkington realised there would still be friction and, on occasion, outright conflict, but he foresaw that advocacy groups would need to find ways to both challenge and yet work with enterprises.  He linked this to businesses taking a longer-term perspective in some aspects of their activities, while also addressing real-time review and assessing short-term issues.  Much along the lines I often argue, he observes “The use of scenarios, or alternative visions of the future, is one way in which we can expand our time horizons and spur our creativity”.  In all these areas, there have been some shifts in practice over the past few decades.  You can see why his book is dense, given how much territory he covers.

I suspect it is the last of the changes he anticipated that now seem the most important and that was in corporate governance.  He suggests “Now, instead of just focusing on issues such as the pay packets of ‘fat cat’ directors, new questions are being asked.  For example, what is business for? Who should have a say in how companies are run?  What is the appropriate balance between shareholders and other stakeholders?  And what balance should be struck at the level of the triple bottom line?  The better the system of corporate governance, the greater the chance that we can build towards genuinely sustainable capitalism. … The centre of gravity of the sustainable business debate is in the process of shifting from public relations to competitive advantage and corporate governance – and, in the process, from the factory fence to the boardroom.”  In this case, all I can say ‘if only this was happening a little faster’.

In introducing Elkington’s approach, I said it was complex, and his style was somewhat frustrating.  If we concentrate on the core of his approach, was he right in discerning changes that would lead to the adoption of a triple bottom line approach?  His ideas have merit, but they face two problems.  The first is the pace and nature of change.  In arguing changes were in train, twenty-five years later progress has proved to be slow and uncertain.  Like many others, he foresaw a transition to global competition, open markets across the world.  Today, we see every indication of competition in global markets, but not in the way Elkington imagined.  Instead, we live with with state-enabled competition, while attempts to tear down trade barriers and open markets are going backwards, trading blocs and major economies imposing more and more limits and constraints.  Any shift from reporting financial metrics to triple bottom line accounting has been marginal:  if it were not for climate change, attention to social and economic factors in assessing corporate performance would scarcely exist.

Have his other revolutions seen significant worldwide changes?  Transparency, new value systems, new forms of partnership, these are processes that get used and abused as corporations seek advantage.  There is little evidence that these measures are being adopted and are moving in the same direction or even that they are being consistently applied.  His hopes for new value systems, and a more effective understanding of the long-term as opposed to the short term remain on the agenda, but far from well or consistently addressed.

That leaves corporate governance.  For a few years it appeared that there were new metrics and concerns being adapted by boards.  However, given that financial performance remains paramount, the changes that have taken place have been within that focus, rather than any firm adoption of a triple bottom line approach – at least among the majority of corporations.

The triple bottom line approach is central to the stakeholder model of a company, providing the evidence that corporations are responding not just to shareholders, but also to employees, managers, banks, suppliers, customers, government, society, and the environment.  I think expectations were high twenty-five years ago, but even then there were other alternatives.  Charles Handy had a different view.  He saw a company as operating in what he described as a ‘bounded space’, facing competing pressures from those various groups he called ‘ring holders’, rather than stakeholders.  In his model, companies don’t work for these entities, but rather work within the constraints each impose:

“[T]he corporation whose principal purpose is to fulfil itself, to grow and to develop to the best that it can be, given always that every other corporation is free to do the same.  It owes something to each of the ring-holders, but is owned by no one.  It is in charge of its own destiny, and it is immortal or would like to be.  It is not a piece of property, inhabited by humans, it is a community, which itself has property.  It also has shares, traded publicly, bought by punters, but those punters have limited powers.  They cannot go into the auction room unless the company defaults, or assists them to.”

Like Elkington’s proposals, Handy’s suggestions have seen mixed interest, not all as he had hoped.  For example, he suggested we think of the people working in a company as members of a community, not as the property of the business.  Sadly, that view has gained little traction.  Managers still control staff, their ‘human resources’.

Further, in seeking to abolish the belief that shareholders ‘own’ a company, Handy’s ideas have travelled a rocky road.  Most companies still feel beholden to their shareholders, although every so often an academic will rediscover the relevant arguments.  In a recent issue of the Harvard Business Review, Professors Joseph Bower and Lynn Paine wrote on ‘The Error at the Heart of Corporate Leadership’  (a title guaranteed to get readers interested!).  They point out “legally, shareholders do not have the rights of ‘owners’ of the corporation”, nor are they “owners of the corporation on any traditional sense of the term”.  That must have caused a nice stir at the Harvard Business School, which for years has taught the importance of maximising shareholder returns and directors’ responsibility to shareholders above all others.  A good article, 27 years late, but unlikely to change many board perspectives.

Let’s draw up a balance sheet for Cannibals with Forks.  On the positive side, Elkington identified many important issues, and added weight to the realisation that what is measured is what defines targets and plans .  There has been a slow but steady move towards offering better accounting for performance by companies, and some aspects of the triple bottom line approach have been adopted.  It seems possible, even likely, this will increase in the next few years as climate change demands more decisive moves by governments and enterprises.

On the negative side, much of what is changing is happening as a result of forces outside business, and the key issue, corporate governance, seems stuck where it was when Elkington was writing.  Companies still seem to think shareholders ‘own’ the business, and the board is answerable to them alone, rather than to the whole range other stakeholders, and in doing so sustaining a reluctance to address social expectations or even government preferences.

The title of his book was well chosen, better than he realised.  Corporate cannibals have learnt to use forks rather than fingers.  However, they still act as if they have been given a licence to do what they want, and use forks, knives, battering rams and explosives, as well as any other implements to ensure they are able to keep eating whatever they want, whenever they like.  John Elkington’s book offers valuable suggestions for the future, but, sadly, most corporations remain predatory, the triple bottom line aspirational rather than real.  It remains one small but important step in progress down the path to rethink ‘what’s a company for?’

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