The MultiCapital Scorecard
By Martin Thomas and Mark McElroy
Chelsea Green Publishing, 237 pages, $67.50
Sustainability has invaded the business arena. Once viewed as an objective of political radicals that business had to resist, increasingly there is a recognition businesses have to include sustainability in their thinking, be it to thwart government and interests groups or out of an ethical conviction that it's a worthwhile goal.
But how to approach the issue is still tentative and uncertain. The notion of a triple bottom-line – social, ecological and financial – has been with us for two decades, but most executives have no sense of what it actually means and how to keep score, beyond the traditional profit-loss calculation. Consultants Martin Thomas and Mark McElroy have developed a format that provides a practical way to oversee such expansive sustainability. You choose what you wish to measure – what you feel is important – and even the weights you want to give to the various items. But they provide, thorough their MultiCapital Scorecard, a means for managing and evaluating that broader view of the organization.
It's an important book because when you fall short of sustainability – an unpalatable workplace, polluting the environment, or being unproductive and winding up in the financial red – you are eroding capital, be it societal or corporate, and that's destructive. And even if you find a multicapital approach wrongheaded or the authors' system too elaborate, the method may include useful ideas you can borrow for your own situation.
The MultiCapital Scorecard focuses on five types of vital capital:
Natural: Air, land, water, minerals, flora, fauna, ecosystems and other natural biophysical resources that humans and non-humans rely on for their well-being;
Human: Knowledge, skills, experience, health, values, attitudes and ethical duties;
Social and relationship: Teams, networks and hierarchies working together and their shared knowledge, skills, experience, health and values;
Constructed: Material objects, systems or ecosystems created by humans;
Economic: This can be internal or external. Internal financial capital refers to the pool of funds available to a company, including debt and equity finance. External financial capital consists of all funds available to parties outside an organization that your company can choose to access.
That's still very broad, of course, but a company narrows it down by looking at the main stakeholders concerned about its activities, from employees to neighbours to shareholders to governments and the specific areas of impact it should be concerned about. In an example they provide to explain the system, ABC Corp. defined nine areas of impact for its sustainability targets: Living wages for employees, workplace safety, innovative capacity, equity, debt, competitive practices, water supplies, solid wastes and the climate system.
The company will want targets in each area. For example, ABC has complied with local legal minimum wages but that only amounts to $20,000 annually and is below standards for a living wage. So the company intends to give a 30 per cent wage increase next year to all staff on minimum wage and to others close to it, creating a new corporate minimum wage. It also negotiates a three-year program of increases with the union to reach what it considers the logical sustainability norm.
"Given that most if not all organizations are currently performing in unsustainable ways, a core characteristic of a useful performance measurement system would be that it be able to guide organizations towards sustainability, while recognizing and rewarding along the way. Since change management efforts often span many years, progress against interim milestones, or trajectory targets, is an important component of performance measurement that the MultiCapital Scorecard offers," Mr. Thomas and Mr. McElroy write in The MultiCapital Scorecard.
Each item on the one-page scorecard is weighted in importance. There is also a scale from +3 to –3 that helps compare the quite different elements of the scorecard. So, for example, +3 is awarded for meeting or exceeding the sustainability norm for the year while +2 is for meeting or exceeding the trajectory target but falling short of the sustainability norm. At the other end, –3 refers to a three-year or longer regression in performance while not meeting the year's trajectory target. Multiplying the weight and the score helps determine an overall score.
The authors stress this only gives you an approximation of how you are faring and the process of implementing the idea will take many years. At the same time, they insist that, once you have developed the areas to focus on and the measures to capture, the formatting of data into the scorecard is a simple task.
"But the simplicity of design is essential to providing governors of organizations an overview of progression," they stress. Indeed, to help, the scorecard converts the year's performance to percentages and you can see at a glance where you fall short of 100 per cent and by how much.
Many international organizations are pushing for broader, integrated measurements of corporate performance rather than continuing to rely solely on the profit-and-loss statement. This format certainly responds to such pressures, providing a formula that the authors insist is the best currently available. The book is not easy reading – clunky, actually – but it does take you systematically and thoroughly through the issues.
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Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. E-mail Harvey Schachter