Measuring Performance Using the Triple Bottom Line
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Measuring Performance Using the Triple Bottom Line
Ralph Waldo Emerson once noted, “Doing well is the result of doing good. That’s what capitalism is all about.” While the balanced scorecard provides a popular framework to help executives understand an organization’s performance, other frameworks highlight areas such as social responsibility.
One such framework, the triple bottom line, emphasizes the three Ps of people (making sure that the actions of the organization are socially responsible), the planet (making sure organizations act in a way that promotes environmental sustainability), and traditional organization profits. This notion was introduced in the
early 1980s but did not attract much attention until the late 1990s. The triple bottom line emphasizes the three Ps of people (social concerns), planet (environmental concerns), and profits (economic concerns).
In the case of Starbucks, the firm has made clear the importance it attaches to the planet by creating an environmental mission statement (“Starbucks is committed to a role of environmental leadership in all facets of our business”) in addition to its overall mission.[5]In terms of the “people” dimension of the triple bottom line, Starbucks strives to purchase coffee beans harvested by farmers who work under humane conditions and are paid reasonable wages. The firm works to be profitable as well, of course.
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K E Y T A K E A W A Y
Organizational performance is a multidimensional concept, and wise managers rely on multiple measures
of performance when gauging the success or failure of their organizations. The balanced scorecard
provides a tool to help executives gain a general understanding of their organization’s current level of
achievement across a set of four important dimensions. The triple bottom line provides another tool to
help executives focus on performance targets beyond profits alone; this approach stresses the
importance of social and environmental outcomes.
E X E R C I S E S
How might you apply the balanced scorecard framework to measure performance of your college or
university?
Identify a measurable example of each of the balanced scorecard dimensions other than the examples
offered in this section.
Identify a mission statement from an organization that emphasizes each of the elements of the triple
bottom line.
[1] Short, J. C., & Palmer, T. B. 2003. Organizational performance referents: An empirical examination of their
content and influences. Organizational Behavior and Human Decision Processes, 90, 209–224.
[2] Kaplan, R. S., & Norton, D. 1992, February. The balanced scorecard: Measures that drive performance. Harvard
Business Review, 70–79.
[3] Miller, C. 2010, June 15. Aiming at rivals, Starbucks will offer free Wi-Fi. New York Times. Section B, p. 1.
[4] Jargon, J. 2009, August 4. Latest Starbucks buzzword: “Lean” Japanese techniques. Wall Street Journal, p. A1.
[5] Our Starbucks mission statement. Retrieved on March 31, 2011, fromhttp://www.starbucks.com/about-
us/company-information/mission-statement. Accessed March 31, 2011.
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The CEO as Celebrity
L E A R N I N G O B J E C T I V E S
Understand the benefits and costs of CEO celebrity status.
List and define the four types of CEOs based on differences in fame and reputation.
Be able to offer an example of each of the four types of CEOs
Benefits and Costs of CEO Celebrity
The nice thing about being a celebrity is that when you bore people, they think it’s their fault.
Henry Kissinger, former US Secretary of State
The word celebrity quickly brings to mind actors, sports stars, and musicians. Some CEOs, such as Bill
Gates, Oprah Winfrey, Martha Stewart, and Donald Trump, also achieve celebrity status. Celebrity CEOs
are not a new phenomenon. In the early twentieth century, industrial barons such as Henry Ford, John D.
Rockefeller, and Cornelius Vanderbilt were household names. However, in the current era of mass and
instant media, celebrity CEOs have become more prevalent and visible (Figure 2.7 “CEO”). [1]
Cornelius Vanderbilt was one of the earliest celebrity CEOs; Vanderbilt University serves as his
legacy.
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Image courtesy of Mathew Brady and Michel Vuijlsteke,
http://en.wikipedia.org/wiki/File:Cornelius_Vanderbilt_Daguerrotype2.jpg.
Both benefits and costs are associated with CEO celebrity. As the quote from Henry Kissinger suggests,
celebrity confers a mystique and reverence that can be leveraged in a variety of ways. CEO celebrity can
serve as an intangible asset for the CEO’s firm and may increase opportunities available to the firm.
Hiring or developing a celebrity CEO may increase stock price, enhance a firm’s image, and improve the
morale of employees and other stakeholders. However, employing a celebrity CEO also entails risks for an
organization. Increased attention to the firm via the celebrity CEO means any gaps between actual and
expected firm performance are magnified. Further, if a celebrity CEO acts in an unethical or illegal
manner, chances are that the CEO’s firm will receive much more media attention than will other firms
with similar problems. [2]
There are also personal benefits and risks associated with celebrity for the CEO. Celebrity CEOs tend to
receive higher compensation and job perks than their colleagues. Celebrity CEOs are likely to enjoy
increased prestige power, which facilitates invitations to serve on the boards of directors of other firms
and creates opportunities to network with other “managerial elites.” Celebrity also can provide CEOs with
a “benefit of the doubt” effect that protects against quick sanctions for downturns in firm performance
and stock price. However, celebrity also creates potential costs for individuals. Celebrity CEOs face larger
and more lasting reputation erosion if their job performance and behavior is inconsistent with their
celebrity image. Celebrity CEOs face increased personal media scrutiny, and their friends and family must
often endure increased attention into their personal and public lives. Accordingly, wise CEOs will attempt
to understand and manage their celebrity status. [3]
Types of CEOs
Icons are CEOs possessing both fame and strong reputations. The icon CEO combines style and substance
in the execution of his or her job responsibilities. Mary Kay Ash, Richard Branson, Bill Gates, and Warren
Buffett are good examples of icons. The late Mary Kay Ash founded Mary Kay Cosmetics Corporation. The
firm’s great success and Ash’s unconventional motivational methods, such as rewarding sales
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representatives with pink Cadillacs, made her famous. Partly because she emphasized helping other
women succeed and ethical business practices, Mary Kay Ash also had a very positive reputation. Richard
Branson has created an empire with more than four hundred companies, including Virgin Atlantic
Airways and Virgin Records. Branson’s celebrity status led him to star in his own reality-based show. He
has also appeared on television series such as Baywatch and Friends, in addition to several cameo
appearances in major motion pictures. Bill Gates, founder and former CEO of Microsoft, also has fame
and a largely positive reputation. Gates is a proverbial “household name” in the tradition of Ford,
Rockefeller, and Vanderbilt. He also is routinely listed among Time magazine’s “100 Most Influential
People” and has received “rock star” receptions in India and Vietnam in recent years.
Former Microsoft CEO Bill Gates exemplifies a CEO who has reached icon
status.
Image courtesy of World Economic Forum,
http://en.wikipedia.org/wiki/File:Bill_Gates_in_WEF_,2007.jpg.
Warren Buffett is perhaps the best-known executive in the United States. As CEO of Berkshire Hathaway,
he has accumulated wealth estimated at $62 billion and was the richest person in the world as of March
- Buffett’s business insights command a level of respect that is perhaps unrivaled. Many in the
investment and policymaking communities pay careful attention to his investment choices and his
commentary on economic conditions. Despite Buffett’s immense wealth and success, his reputation
centers on humility and generosity. Buffett avoids the glitz of Wall Street and has lived for fifty years in a
house he bought in Omaha, Nebraska, for $31,000. Meanwhile, his 2006 donation of approximately $30
billion to the Bill and Melinda Gates Foundation was the largest charitable gift in history.
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CEOs who display high levels of relative fame but low levels of reputation are in the group called
scoundrels. These CEOs are well known but vilified. The late Leona Helmsley was a prototypical
scoundrel. Leona Helmsley’s life was a classic rags-to-riches story. Born to immigrant parents, Helmsley
became a billionaire through her work as the head of an extensive hotel and real estate empire. While
certainly famous, her reputation was anything but positive, as reflected by her nickname: the Queen of
Mean. During Helmsley’s trial for tax fraud, her housekeeper quoted her as proclaiming, “We don’t pay
taxes. Only the little people pay taxes.” Following twenty-one months in jail, Helmsley was required to
perform 750 hours of community service. One hundred fifty hours were added to this sentence after it was
discovered that employees had performed some of her service hours. Helmsley’s apparent arrogance,
combined with her cruelty to employees and her reputation as the ultimate workplace bully, cemented her
position as a scoundrel.
The corporate governance scandals of the early 2000s revealed several CEOs as scoundrels. Perhaps the
best known were Kenneth Lay and Dennis Kozlowski. Both men rose to prominence as their firms’ success
and stock prices soared but were undone by dubious activities. Lay was once revered as the son of a poor
minister who founded Enron and built it into a giant in the energy business. In 2001, however, he became
the face of corporate abuses in the United States after Enron’s collapse led to scenes, captured on
television, of employees left jobless and with retirement accounts full of worthless Enron stock. Lay was
convicted of fraud in 2006 but died before sentencing.
Also born to a poor family, Kozlowski started at Tyco as an accountant and worked his way up to the
executive suite. In May 2001, a BusinessWeek cover story lauded Kozlowski as “the most aggressive CEO”
in the country and detailed his strategy for building Tyco into the next General Electric by using
acquisitions to gain the first or second position in all the industries in which it competed. By 2002,
Kozlowski’s reputation was in jeopardy. He was indicted for avoiding more than $1 million in sales taxes
on art purchases. Media stories described in detail a $2 million birthday party Kozlowski threw for his
wife (billing half of it to Tyco as a company function), a $19 million apartment Tyco purchased for him,
and $11 million worth of furnishings for the apartment (including an infamous $6,000 shower curtain).
Accusations that Kozlowski and another Tyco executive stole hundreds of millions of dollars from the firm
ultimately led to a prison sentence of eight to twenty-five years.
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Hidden gems are CEOs who lack fame but possess positive reputations. These CEOs toil in relative
obscurity while leading their firms to success. Their skill as executives is known mainly by those in their
own firm and by their competitors. In many cases, the firm has some renown due to its success, but the
CEO stays unknown. For example, consider the case of Anne Mulcahy. Mulcahy, CEO of Xerox, started
her career at Xerox as a copier salesperson. Despite building an excellent reputation by rescuing Xerox
from near bankruptcy, Mulcahy eschews fame and publicity. While being known for successfully leading
Xerox by example and being willing to fly anywhere to meet a customer, she avoids stock analysts and
reporters.
Silent killers are the fourth and final group of CEOs. These CEOs are overlooked and ignored sources of
harm to their firms. While scoundrels are closely monitored and scrutinized by the media, it may be too
late before the poor ethics or incompetence of the silent killers is detected. In this sense, silent killers are
sometimes worse than scoundrels. One example of a silent killer is Harding Lawrence, former CEO of
defunct Braniff International. Lawrence initiated a massive expansion of the airline following industry
deregulation in the late 1970s. The result was a bloated firm, ill-equipped to survive the extremely
competitive setting that evolved in the early 1980s. Howard Putnam, the CEO of a small regional carrier
named Southwest Airlines, was hired in a failed effort to save the company. By the time Braniff went
bankrupt, Putnam was left to explain its demise, and the name of the main culprit was all but forgotten.
Ironically, had Putnam declined the opportunity to try to save Braniff, perhaps he and not Herb Kelleher
would have become an icon at the helm of Southwest.
Strategy at the Movies
Iron Man
Has Tony Stark gone crazy? This was the question that many stakeholders of Stark Industries were asking
themselves in the 2008 blockbuster Iron Man. Tony Stark, CEO of Stark Industries, stunned his
shareholders, employees, and the world when he announced that he was changing Stark Industries’
mission from being one of the world’s leading weapons manufacturers to being a socially responsible,
clean energy producer. Following his announcement, Stark faced fierce opposition from his board of
directors, employees, the media, and clients such as the US military. The changes at Stark Industries
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attracted tremendous attention in part because of the glamorous Stark’s status as a celebrity CEO.
Initially, Stark is seen by the public as a scoundrel that pays little attention to the social impact his
company makes. After shifting the direction of Stark Industries, however, Stark is viewed as an icon that
is just as attentive to the social performance of the company as he is to its financial performance. Iron
Man illustrates that while changing elements such as firm mission and CEO status is difficult, it is not
impossible.
Iron Man: The Greatest Creation of Fictional Celebrity CEO Tony Stark
Image courtesy of Pop Culture Geek, http://www.flickr.com/photos/popculturegeek/4858995531.
Celebrity Rehabilitation
Anything I say or do is now at risk of showing up on the front page of a national daily newspaper and
therefore, I need to be much more conscious about the implications of everything that I say or do in all
situations.
John Mackey, CEO of Whole Foods Market
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Achieving the level of success that brings about celebrity is seldom a completely smooth process. Even
well-regarded celebrity CEOs seldom have totally untarnished reputations. Bill Gates has been portrayed
as a ruthless and devious genius, for example, while General Electric CEO Jack Welch was attacked in
media outlets for an extramarital affair.
One of the more interesting recent cases of a tarnished reputation centers on John Mackey, founder and
CEO of Whole Foods Market. His strategy of offering organic food and high levels of service allowed
Whole Foods to carve out a profitable and growing niche in an industry whose overall margins have been
squeezed as Walmart’s Supercenters have gained market share. Under Mackey’s leadership, Whole Food’s
stock price tripled from 2001 to 2006. Mackey’s efforts to make food supplies healthier and his teamwork-
centered management approach attracted publicity, and he appeared headed for icon status.
But in 2007 Mackey and Whole Foods were embarrassed by the revelation that Mackey had been
anonymously posting negative information about a rival, Wild Oats, online. Through his online persona
“rahodeb” (a scrambling of his wife’s name), Mackey asserted that Wild Oats’ stock was overpriced and
that the firm was headed toward bankruptcy. This was viewed by some observers as a possible effort to
manipulate Wild Oats’ stock price prior to a proposed acquisition by Whole Foods. Meanwhile, in e-mails
to other Whole Foods executives, Mackey noted that the acquisition of Wild Oats could allow them to
avoid “nasty price wars.” This caught the eye of Federal Trade Commission (FTC) regulators who were
concerned about the antitrust implications of the acquisition.
Whole Foods CEO John Mackey’s celebrity status was amplified when it was revealed that he had posted negative
information online about competitor Wild Oats.
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Image courtesy of Joe M500, http://en.wikipedia.org/wiki/File:John_Mackey,_of_Whole_Foods_in_2009.jpg.
What should a CEO do when his or her reputation takes a hit? As the old saying goes, honesty is the best
policy. An example is offered by David Neeleman, founder and CEO of JetBlue. The reputations of JetBlue
and Neeleman took a severe blow after a widely reported February 2007 debacle in which travelers were
stranded in airplanes for excessive periods of time during a busy holiday weekend. Neeleman took a giant
step toward restoring both his and JetBlue’s reputation by issuing a public, heartfelt apology. He not only
issued a written apology to customers but also bought full-page advertisements in newspapers, posted a
video apology online, and created a new “bill of rights” for JetBlue customers.
Mackey apologized for his actions via his blog in 2008. As part of this apology, Mackey acknowledged that
he had failed to recognize how expectations change when one becomes a celebrity. Mackey noted that
when Whole Foods was a smaller company, “I was seldom interviewed and few people knew or cared who
I was. I wasn’t a public figure and had no desire to become one.” As his company grew, however, Mackey
became subject to more scrutiny. As Mackey put it, “At some point in the past 10 years I went from being a
relatively unknown person to becoming a public figure. I regret not having the wisdom to recognize this
fact until very recently.”[4] A big part of managing celebrity status is realizing that one is in fact a celebrity.
K E Y T A K E A W A Y
The media exposure common to modern CEOs provides the opportunity for such top executives to reach
celebrity status. While this status can provide positive benefits to their firms such as increased
performance, CEOs should be aware of and manage the potential for increased scrutiny associated with
this status.
E X E R C I S E S
Can you identify another example of a celebrity CEO, such as Cornelius Vanderbilt, that existed prior to
the 1900s?
Identify examples of icons, scoundrels, hidden gems, and silent killers other than the examples offered in
this section.
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Would you enjoy the media attention associated with CEO celebrity, or would you prefer to hide from the
limelight? Does your answer have implications for your future career choices?
[1] This section of the chapter is adapted from Ketchen, D., Adams, G., & Shook, C. 2008. Understanding and
managing CEO celebrity. Business Horizons, 51(6), 529–534.
[2] Ranft, A. L., Zinko, R., Ferris, G. R., & Buckley, M. R. 2006. Marketing the image of management: The costs and
benefits of CEO reputation. Organizational Dynamics, 35(3), 279–290.
[3] Wade, J. B., Porac, J. F., Pollock, T. G., & Graffin, S. D. 2008. Star CEOs: Benefit or burden? Organizational
Dynamics, 37(2), 203–210.
[4] John Mackey’s blog. 2008, May 21. Re: Apology. Retrieved
fromhttp://www2.wholefoodsmarket.com/blogs/jmackey/2008/05/21/back-to-blogging/#more-26.
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Entrepreneurial Orientation L E A R N I N G O B J E C T I V E S
Understand how thinking and acting entrepreneurially can help organizations and individuals.
List and define the five dimensions of an entrepreneurial orientation.
The Value of Thinking and Acting Entrepreneurially
When asked to think of an entrepreneur, people typically offer examples such as Howard Schultz, Estée
Lauder, and Michael Dell—individuals who have started their own successful businesses from the bottom
up that generated a lasting impact on society. But entrepreneurial thinking and doing are not limited to
those who begin in their garage with a new idea, financed by family members or personal savings. Some
people in large organizations are filled with passion for a new idea, spend their time championing a new
product or service, work with key players in the organization to build a constituency, and then find ways
to acquire the needed resources to bring the idea to fruition. Thinking and behaving entrepreneurially can
help a person’s career too. Some enterprising individuals successfully navigate through the environments
of their respective organizations and maximize their own career prospects by identifying and seizing new
opportunities.[1]
As a college student, Michael Dell demonstrated an entrepreneurial
orientation by starting a computer-upgrading business in his dorm room.
He later founded Dell Inc.
Image courtesy of Ilan Costica,
http://en.wikipedia.org/wiki/File:Michael_Dell_at_Oracle_OpenWorld.J
PG.
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In the 1730s, Richard Cantillon used the French term entrepreneur, or literally “undertaker,” to refer to
those who undertake self-employment while also accepting an uncertain return. In subsequent years,
entrepreneurs have also been referred to as innovators of new ideas (Thomas Edison), individuals who
find and promote new combinations of factors of production (Bill Gates’ bundling of Microsoft’s
products), and those who exploit opportunistic ideas to expand small enterprises (Mark Zuckerberg at
Facebook). The common elements of these conceptions of entrepreneurs are that they do something new
and that some individuals can make something out of opportunities that others cannot.
Entrepreneurial orientation (EO) is a key concept when executives are crafting strategies in the hopes of
doing something new and exploiting opportunities that other organizations cannot exploit. EO refers to
the processes, practices, and decision-making styles of organizations that act entrepreneurially. [2] Any
organization’s level of EO can be understood by examining how it stacks up relative to five dimensions: (1)
autonomy, (2) competitive aggressiveness, (3) innovativeness, (4) proactiveness, (5) and risk taking.
These dimensions are also relevant to individuals.
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