You are probably familiar with the quote about the three classes of lies – “lies, damned lies and statistics.” But I recently had reason to question whether accounts might not constitute a fourth category (or at least a special subset of statistics.)
Why would I say that? After all it is a strange thing for an accountant to say and it certainly doesn’t come easy. My faith, however, has been called into question by some analysis I did.
Dabbling in that dangerous activity called thinking, I found myself unable to reconcile the current near-record levels of unemployment with the fact that:
- More people than ever before are in employment; and
- Stocks are trading higher than they were before the financial crisis, which means they are pretty close to, if not at, an all-time high.
You see these accounts showed that operating profits had grown by 1.487 billion currency units over the 10 years. Pretty impressive, I am sure you will agree. However, during this time – the same 10 years - the accounts showed that the staff costs had decreased by 2.014 billion currency units. That means the staff cost savings were 136% of the increased profits, due largely to average employee numbers being reduced by 110,000 people.
Of course you cannot blame the directors for this. Their role is to maximise profits and reducing costs is one of only 3 ways they can do this. Conventional wisdom thus makes it perfectly legitimate for reduced staff costs to be a valid investment criterion. Thus they are quite entitled to claim the credit for this phenomenon and attribute it to their sound investments. And the accounts are not wrong for disclosing it in this manner.
In fact accounts cannot lie any more than statistics. It is only the use to which they are put. As ever it is a matter of interpretation. I managed to complete this analysis using only what I could glean from the published, audited accounts and the accompanying notes and reports. However, it took some digging. So you have to ask if the accounts are wrong by omission for not including this kind of analysis?
Once again it boils down to the divide between commerce and economics. Commercial conventional wisdom says it is always right to minimise costs even if it is at the expense of people. But economically putting people out of work only transfers costs – it does not reduce them. Thus, ignoring the more conventional arguments about the demoralising, destabilising and depressing effects of laying off people, and the inevitable decline in productivity through reduced employee engagement as a result, one has to question the long-term wisdom of such decisions. It is an approach that jeopardises the sustainability of both the business and society.
This demands looking at both sides of the coin. The initial scenario is evidence of that. So as a society we have to change. We cannot continue in this manner. We have to think of new approaches to management and how we account for our people. Sustainability is about more than just “being green.” To be serious about sustainability we must think more economically and consider Corporate Social Responsibility (CSR) more widely.
And maybe accounting can actually lead the way!