Accounting for Business

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Traditional measures of economic performance have been heavily influenced by monetary GDP. Corporate accounting has evolved to provide information to assess its performance relative to others, in terms of contribution (sales or added value), and economic efficiency (return on resources at the disposal of the corporation). This is the basis for evaluating where scarce resources should be best applied for the overall wellbeing of the economy. The greater the perceived potential sales, added value and profits of an entity relative to its capital, the greater the resources it controls.

This works well where the objective of society is to maximise its monetary economic performance, at least in the short term or until fundamental mis-structuring become apparent.

Non-monetary measures of economic performance
New measures of economic performance are being developed. Generally, they focus on human wellbeing. We are only recently starting the process of developing appropriate measures of wellbeing. Although monetary measures have stolen a march on non monetary measures by a century or more, it is likely that the gap in sophistication will narrow quickly. Examples of evolving terminology to describe human wellbeing include happiness, wellbeing and quality of life. Examples of components of wellbeing include security, quality of relationships, personal fulfilment and trust.

Whereas monetary GDP has a direct link with corporate activity, wellbeing does not. An individual's overall wellbeing depends on a vast array of factors, from multiple experiences and sources, and are subject to irrational human interpretation. When non-monetary measures become a core objective for society, a key question arises. How can we modify our methods of accounting to achieve optimum allocation of resources. How do we ensure allocation capital is appropriately influenced by the non-monetary activities of corporations? The acute issue is that monetary capital is created by and allocated to individual entities, but social capital is created by triangulation of multiple entities.

It is unlikely we will ever find a non-monetary equivalent to sales or profits for which corporations can account.

Allocating resources within society
The continued use of monetary measures will continue to dominate investment decisions. It will continue to misdirect funds towards the elite and monopolistic, and ignore the impact of socially productive activities. For example, employers contribution to the stress levels of its employees has a direct impact on the social wellbeing of members of society. There is little point in reporting ths "cost" to society against the monetary contribution to GDP, because the wellbeing of so many other people are impacted by a corporation's activities, and so many other factors affect the wellbeing of employees, that this single factor is probably not significant in itself.

So it seems probable that we need to reframe our thinking on accounting for corporate input to society's wellbeing beyond traditional sales and profits.

Although it is a challenge, until we find alternative means to influence the decision on investment of capital, we will continue to allocate capital towards activities that maximise monetary GDP, and we will continue to ignore activities that maximise social wellbeing.

Contribution to the Efficiency of Society
One example of a method that measures contribution to social wellbeing is an individual entity's contribution to the efficiency of society.

This term should be explained in order to understand its rationale. If the objective of society is to maximise the aggregate quality of life of its members, and if society is the collaboration of people for mutual gain, striving to increase efficiency of society means striving to reduce the resources required by society to achieve optimum collaboration for mutual gain. This applies equally to working together (productive output), as to living together (social harmony). The effectiveness with which people collaborate might be termed the cohesiveness of society, its measure being referred to as a coefficient of cohesion. One of the core means by which we achieve cohesion is adoption of values that are conducive to mutuality (positive human values). One of the means by which we introduce friction into the cohesion of society is through limiting, entropic values.

So one possible method of assessing corporate impact on social wellbeing is to assess its contribution to cohesion, through assessing its values. An increasingly mature model for such measurement is the Barrett Centre's Values Assessment.

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