SWELLENDAM – The latest dismal GDP figure has certainly been something of a shocker. But have you noticed when you have a group of people lamenting their plight, how the mood changes when you get them to focus on doing something about it?
The reason is simple and has been captured in life lessons over the ages, including scripture and regular inspirational dictums before and after Peale, Ziglar, Covey, and Robbins. The truth is that we are more in control of what we give than what we get; of the contribution than of the reward. And if you want to live a life of agitation and disturbance, then focus mostly on reward.
One of the most puzzling things about economics is the inordinate, perhaps even exclusive emphasis placed on reward. None is more revealing than the way we account for the performance of enterprises – and then even only in the most narrow outcome of profit. That sets off a scramble by other role-players for maximum extraction, rather than contribution. Being the individual cell of the entire economic body, enterprise sets the tone for all economic behaviour at an individual and institutional level and makes finance minister, Pravin Gordhan’s call for unity against adversity difficult to achieve.
For many decades, this behaviour has been chipping away at economic wellbeing, the symptoms of which are too many to cover here, but the most profound and significant is the shift in behaviour from aspirations to expectations, to the point of entitlement. The destructive effects of a narrow, inward and reward-focused enterprise environment have seen the creation in recent decades of a plethora of counter measures aimed at ensuring good governance and sustainability. But all have missed an essential truth: the need to shift the strategic focus from reward to contribution. This can be achieved with one simple act; moving the key metric from profit to wealth creation, or value added. Value-added measures contribution. Profit is part of distribution. Value-added measures giving. Profit measures getting.
It was this thought that has led to the compilation of what I have called the Contribution Account©.
Let me say at the outset that I am not an accountant, and this is not a new accounting format, rather an operational process that guides behaviour towards maximum wealth creation and optimum distribution; towards contribution rather than reward, and most importantly towards growth rather than containment. It was the culmination of much intense discussion with many role-players in my consulting days, including accountants, senior executives, and organised labour representatives.
It was originally based on the value-added statement, and subsequently the cash value-added which moves depreciation and amortisation from “providers of capital” in wealth distribution to outside suppliers. Earlier, in an article in the prestigious accountant’s mouthpiece, Accountancy SA, I argued for the same thing to be done to interest. Both of these arguments have been detailed in previous articles and in my e-book: Common Purpose; Common Fate.
I think it could be taken a step further, by moving personal income tax from the employee section to the “state” row, which currently reflects only company tax and corporate social responsibility expenses. (My adjustment as well). There are many difficulties in accurately reflecting this amount for each company, but working on an average of 18% of personal income, the employee share of wealth creation would drop to 45% and the state’s share increase to 25%. This excludes the indirect taxes such as VAT and duties. It also excludes local government taxes on individuals.
The Contribution Account© is captured in the middle column of the illustration, and the five strategic pillars of maximum wealth creation and optimum distribution in the immediate left and right columns respectively. These can be exploded further into operational metrics shown in the outer columns and further still to reveal the magnificent tapestry that makes up the essence of wealth creation. Note how the standard accounts and shareholder metrics are captured as part of distribution: supporting an essential truth – all benefits accrue from wealth creation itself; from contribution before reward; from giving before getting.
I have sung the praises of this approach so many times in previous columns that they need not repeating. But even a superficial glance at the essence reflects simplicity, palatability, and far greater transparency than standard accounts do. And it is becoming far more relevant in a sluggish economic growth environment.
In one swoop, one captures most of what the prescriptions, regulations and volumes of new accounting requirements try to achieve: transparency, sustainability, sound governance, ethics and greater stakeholder focus. These are underpinned by all of the King Reports. But none of these measures challenge the supremacy, pervasiveness and inexorable drivers that are entrenched by the standard accounts. Indeed, in most cases they are seen to be a burden to them. The contribution approach is virtually guaranteed to shift the emphasis away from reluctant compliance to passionate common conviction; from restraint to growth and to role-player solidarity.
Attention and intention are circular and inextricably linked. If we need economic growth and greater stakeholder cohesion, then there is no better way of achieving it than reflection in the way we measure it.