The system by which organizations measure performance and the related “expenses and invested capital” that drive performance is archaic. It simply does not “account for” what value creates the results rather the accounting system simply keeps score of the results.
Business, markets, wall street, the entire economy are driven by results. News of any event that could influence the results, good or bad, immediately changes the short term economic behavior of an entire market or an individual company. Subsequently organizations are keen to insure that their media always has a positive spin on any of its organizational results.
Results Are Not Just Financial
The financial performance of an organization certainly creates value and interest to the marketplace but the real value of interest has shifted to the performance of an organizations intangible capital.
The Social Era has significantly raised the bar of awareness on how well and organization performs in terms of its relationship with the environment, with suppliers, buyers and employees. Marketing spin can no longer put “lipstick on the pig” of bad news, bad practices and management asleep at the wheel. The voice of the people has been empowered to hold organizations responsible for the things they say and the quality of what they do.
The Social Era celebrates the value of people; their voices, their ideas, their convictions, their value and their collective power. These intangible things represent real measurable value yet today’s financial systems are not equipped to “account” for that value.
Marjorie Kelly writes in her book, “The Divine Right of Capital“: In accounting terms, employees have no value. Money has value, objects have value, ideas (intellectual property) have value, even some airy thing called goodwill has value. Employees, by contrast, have a negative value: They appear on the income statement as an expense— and expenses are aimed always at a singular goal: to be reduced. If it’s the balance sheet that renders employees invisible, it’s the income statement that turns them into an enemy of the corporation. The reason is simple: every dollar paid out to employees is a dollar that doesn’t go to profits for stockholders. And common law (judge-made law) says public companies must maximize returns to shareholders.
Mary Adams, CEO of Smarter Companies and Author of Intangible Capital states: If we want to create more results then we have to understand and account for the elements that create the most value which ultimately creates the results. We call those elements ICounts. ICountants know how to measure, monitor and report on the intangibles while accountants know how to measure, monitor and report on the tangibles.
Human capital can now be recognized as a valuable asset to an organizations value creation abilities rather than an ongoing expense. It is time we measure what really counts.