Lies, damned lies, statistics … and accounts?

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.

What on earth does that tell us? Perhaps it is an
indication that there are too many people: that the world is over-populated. Yet even if the answer is as simple as that –
and I don’t think for a moment it is – it is not a problem that is going to go
away overnight. In any case I wanted to probe a little deeper. So I took the
annual accounts of one of the world’s largest companies and started to analyse
them over a 10 year period. And that is where my misgivings started.

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!