JURIST Guest Columnist Leah White, University of California, Davis School of Law Class of 2013, is a Staff Editor for the school’s Business Law Journal. She writes on the effectiveness of the Sarbanes-Oxley Act and encourages legislation to increase corporate social responsibility…

Consumers’ demands have always influenced businesses. As concerns over ecological responsibility rise, consumers perceive many corporations as more altruistic through outreach programs and the promotion of green technology. While this perception may be true, some corporations may exaggerate their corporate social responsibility efforts. In order to ensure corporations’ commitments to corporate social responsibility, the Congress should create legal obligations, like accounting reformation under the Sarbanes-Oxley Act, for these corporations which force their officers to consider the financial impacts of social responsibility and acting green — a “triple bottom line.”

Corporations seek profits for shareholders. Over the course of time, business goals have evolved to include social considerations as well. These new goals have been manifested through changes in the directives guiding many boards of directors. Initially this consideration focused on other members of society. Now it has expanded to include environmental factors. This new triple bottom line has become a growing trend within the business world. Despite a board of director’s ability to take these outside factors into account, a corporation’s primary function continues to revolve around maximizing profits for shareholders in the company. When more consumers and investors push for corporations to maintain a triple bottom line, then corporations will consider not only their shareholders, but also society and the environment. This new bottom line focuses on the three P’s of a twenty-first century business: profit, people and the planet. This dynamic shift in business considerations occurred in part because of the growing interest and expectations that corporations give back to their greater communities.

With the aim to maintain and grow their market shares, corporations preserve the hard-won reputations of their brands. As concern over the environmental effects of businesses grows, corporations are gradually pushed into acting as more than profit machines and forced to aim for the triple bottom line. In today’s world, if a corporation wants to climb to the top of its industry, it must present itself as environmentally conscious and giving back to the community. Corporations use marketing and targeted displays of community outreach in order to show its socially responsible side. By marketing its image as a company that gives back to the community and invests in green technology, a corporation can bolster the public’s belief in its commitment to a triple bottom line regardless of whether the corporation actually tries to reach it. The recent “organic” craze illustrates this concept and provides a parallel view of how marketing effects a consumer’s perception.

In the late 1990s, consumers began to become concerned about the lasting health effects from consuming genetically altered food and food with chemicals from lingering pesticides. Consumers began to demand “natural” products and grocers began to supply these products on their shelves. Various food producers quickly began advertising their food as all natural, hormone and pesticide free, or locally grown. With all this different terminology, consumers often believed they were getting a less altered and chemically exposed product when compared to other options for the same product. Many companies’ chose the correct marketing buzz words but failed to fulfill the consumer’s expectation of the product. As consumers became aware of this inconsistent labeling, the Food and Drug Administration (FDA) created set guidelines for what constituted organic. As a newly certifiable term, organic quickly became recognized as applying only to the upper echelon of natural food products. The creation of this label certification provides consumers with a clearer guide to understanding exactly what they are receiving when they purchase an organic product. Despite this new certification, many products still advertise themselves as all natural or pesticide free. These producers want the image of wholesomeness achieved by their organic competitors without incurring the costs of an organic label. Despite the increased awareness of the FDA organic label, these non-organic, natural foods still sell.

The evolution of the organics labeling scheme provides an illustration of some of the issues that have arisen regarding corporate social responsibility and the degree to which companies truly pursue a triple bottom line. In both cases, public interest has pushed companies towards a particular behavior such as organic food or environmentally friendly practices. In response, corporations began shifting their image to reflect the public’s desire. Similar to all the different buzz words initially used to describe organic food, corporations continue to attempt to sell themselves to consumers as caring corporations. While some companies are in fact genuine in their commitment to the triple bottom line, the spectrum runs all the way to corporations like Enron and Tyco, which focused solely on increasing profit to the detriment of others through fraudulent accounting practices. Ultimately, the public discovered Enron and Tyco’s fraudulent behaviors and Congress responded through the Sarbanes-Oxley Act.

In 2002, Congress enacted the Sarbanes-Oxley Act. The act reformed corporations’ accounting standards and required that the CFO or CEO sign all the quarterly account statements, seeking to make the heads of corporations personally liable for the accuracy of the signed statements. In order to protect themselves, executive officers heightened standards and increased the scrutiny of company practices. This ultimately created a trickle down effect, leading to entire corporations striving to meet more stringent standards. The implementation of higher standards following the Sarbanes-Oxley Act demonstrates how laws and legal culpability change corporate behavior.

The Sarbanes-Oxley Act represents a legal obligation under the triple bottom line and provides clear insight into the behavior of corporate America. Some corporations will always strive to do as little as possible for anyone but their shareholders; after all, a corporation’s primary function is to generate profits. As a result, legislation is necessary to ensure that corporations act beyond their fiscal interests. Further legislative advancement of the triple bottom line can provide more expansive consideration and protection for society, and it will allow for progress to occur in a more widespread fashion. Only when high level officials face personal legal obligations requiring them to fully pursue the triple bottom line, will we begin to see other systematic changes within the corporate framework.

Leah White studied Business Administration with concentrations in Finance and International Business at Seattle University. At the University of California, Davis School of Law, she is a member of the Environmental Law Society and Moot Court. She has previously interned with the Department of Water Resources, Office of the Chief Counsel.

Suggested citation: Leah White, The Triple Bottom Line: The Need for Greater Corporate Accountability, JURIST – Dateline, Nov. 27, 2011, http://jurist.org/dateline/2011/11/leah-white-corporate-responsibility.php.