Sunday, July 25, 2010

Accounting for A Change – Part 1 of 7

Unlike the movies where you don’t know whether there’s going to be a sequel until the final minutes when you groan as you see Sherlock and Watson get a clue for Moriarty’s next shenanigans, I’m telling you, there are going to be seven posts in a series. This gives you the convenience of reading it all in late September or gives you clarity on when this series of ideas will end. You’re welcome.

We’ve come to the end of balance sheet accounting. The high priests of divination (a.k.a. rating agencies) have just been put on notice of their obsolescence in the recent financial reform legislation signed into law by President Obama. Like any other dinosaur, these now dead behemoths will swing their mighty tails around and do a lot of damage but, the good news is that they will soon be fossilized into the mud of the greed and corruption they served. While they won’t serve the criminal penalties for the theft of wealth they aided, we’ll all be better for their extinction.

More importantly, we now have an opportunity to take out a clean sheet and see if we’ve ever gotten accounting right. Sure, some of the most forward thinking businesses and financial interests realized that social values should be “counted” leading to double bottom line reporting (a very good impulse). While there were those companies for whom this was a market charade, many creative people have developed great insights in quantifying dimensions of value.

For many years, we’ve been using a model called Integral Accounting for the enterprises that I’ve started. Each week for the next six weeks, I will be providing some details on the six core value sources that we measure, invest, and steward. These include:
- Commodity – elements present in communities which, through cultivation, production, or value-add, can be used to generate means of social or commercial engagement. These include those things that, like potential energy, can be used or transformed to add utility, value or exchange but in whose natural or unaltered state preserve equal capacity for use and value to anyone (think of them as the ingredients that can be assembled for supporting life, enterprise, and exchange);
- Custom & Culture – practices and expressions of individual or community held values and traditions which create a context for social interactions. This include expressions of social values, priorities and memes that may be shared or expressed in solitude, gatherings, inter-personal interactions, or communities and may take the form of art, music, literature, aesthetics, kinesthetics, or other modes;
- Knowledge – information and experiential awareness which can be transmitted through language, art, or other expressions. This includes the acquisition and transfer of information and awareness in a mode that can stimulate perpetuation or expansion of understanding and creativity;
- Money – a mode of transmitting and recognizing value exchange using physical or virtual surrogates including currency, systems of credit and barter and engaging any artifact constituting a consensus of recognized value exchange which, itself, is devoid of the value it represents;
- Technology – artifacts or schemes by which value-added experiences and production can be effectuated including any thing, action, or utility which allows for the manifestation of spatially and temporally defined tangible or intangible artifacts or events; and
- Well-being – the capacity for any person or ecosystem to function at their optimal level where conditions are suitable for a person to be at liberty to fully engage in any activity or social enterprise entirely of their choosing as and when they so choose.
In every enterprise interaction, we explicitly assess ecosystems for the existence of these value sources, seek to understand community values attendant thereto, and organize our endeavors to optimize all values for balanced value wealth recognition.

This preceding paragraph, even as I write it and re-read it, sounds interesting but seems locked in theory. So, let me try to give you this same information in a story.

My mother is the daughter of a woman who, among other things, was an avid naturalist. Trees, shrubs, and orchids weren’t anonymous plants, but were imbued with Latin names, were known by their seasonal flowering, and were cared for with an eye for optimizing their lives. So, not by accident, my mom loves, and instilled in us, her love of the natural world.

We love to take family trips to the beach (custom & culture). When we are at the beach, the sunrise often sees my mom walking down miles of sand (well-being) looking for the beautiful (knowledge) shells (commodity). As she walks along, her eyes are scanning the remnants of the night’s high tide (technology) for whatever washed ashore. If you watch from the balcony, you see her glancing out into the water and, for particularly valuable specimens (money), she’ll hike up her skirt or pants and wade into the frigid water to harvest a particularly remarkable find. When her walk has ended, she’ll line up her morning’s haul (wealth) and make sure that the grandchildren know about the difference between a right-handed or left-handed whelk (knowledge). [Note to the reader: I still haven’t figured out where whelks have hands but that’s because I’m not as smart as my mom!]

There are mornings, however, when the sea has been stingy. “There weren’t any shells out this morning,” she’ll report when coming back to the house. Ironically, armed with breakfast, I’ll walk out to the beach a few hours later and see millions of shells. I see abundance where my mom reported scarcity. Is it truly the case that she and I saw a different absolute condition? For a woman who could find ways to feed a multitude from what seemed to be quite little, did she not see abundance? Now, who has the correct assessment? Let’s explore this case a bit further to understand the importance of integral accounting.

My mom isn’t looking for shells (the housing artifact of a mollusk). She’s looking for shells that are peculiarly unique and rare. If we saw the beach littered with shells but heard her report of scarcity, we’d think she’s crazy. [Note to the reader: I’m reserving all rights on this point, but stay with me.] But our failure to communicate would be based on inadequate clarity of understanding value. My mom’s custom & culture, knowledge, and sense of value artifact (money) teaches her what has value in her context. Not unlike other human enterprise, something like this simple example illustrates a systemic failure in ecosystem and social stewardship based on a failure to overtly identify, acknowledge and be accountable for a complete situational analysis. As I reflect on the broader ecosystem of this example, it strikes me that a day without beautiful rare shells could actually be the BEST day for people like my mom. After all, if the shells aren’t on the shore, they’re doing what they’re made to do – namely housing the animal who is busily living and creating an artifact that one day will find its way to her mantle (get the biology joke here? – insert groan here).

The same beach on the same morning could represent a windfall for communities in Papua New Guinea who would love to use the abundant, small white shells which, when placed on a strand of reed, serve to represent honor exchanges at social rituals. Can you imagine an accounting of ecosystems where one would include a measurement of those things that could have no value to the observer but would be identified and reported for the benefit of those for whom value could be perceived? I can and we do.

Now I’ve started this series with a simple example but one that holds great complexity if you take it under serious reflection. While we have chosen the convention of six value sources, I would in no way suggest that our model is exhaustive. That said, I would welcome you to pick a life endeavor this week – business, social, or otherwise – and experiment with the process I used in this post. Reflect on what you’re doing (or have done) and start explicitly identifying all of the sources of value in your ecosystem. Beyond the creativity of thinking in a new way, the one thing I can guarantee is that you’ll feel a bit more wealthy when you see how much abundance surrounds you. And then, do it again, and again, and again….



  1. Hey, ive tried your method on one of my social sojourns...n it really worked...and i never thought a preety "mundane" thing like accounting(though its my subject of study) can take take sugh creative dimensions!

  2. Your emphasis on the fact that although we may not immediately see wealth in an object does not mean someone else will not see it either. For example, in Haiti some people have begun taking discarded newspaper, cardboard, and other paper objects (things we see as trash) and turning them into compounded disks that can be used as a charcoal substitute (in turn reducing the need to cut down trees for wood). Trash becoming fuel is indeed something I see as true innovation. Great article!


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave