The UK Coalition’s got a lot on its shared plate. Personal tragedy aside, which of course you sympathise with, the upcoming Spending Review is the defining moment for it, and us who will have to live with it. What is good is that as the Clegg speech this morning set out, the focus will be on the long-term. Nothing new I suppose. This is standard code for saying expect short-term pain, but one thing Nick said that struck was his anti-short-termism:
In firms and in the financial markets, the temptation to drive for short-term profits can sometimes undermine long-term prosperity. The hunt for annual or quarterly economic returns gives vitality of markets – but taken to excess, the focus on immediate returns can also result in instability and, perversely, to lower returns over a longer time-frame.
You can – if you like – read the full speech here: http://www.libdems.org.uk/latest_news_detail.aspx?title=Nick_Clegg_speech%3A_Horizon_shift&pPK=f8f7b543-d586-40e2-b4c9-e7be68970bf3
One way that the Government is looking at changing this situation, and this wasn’t mentioned in what was largely a scene setting rather than policy setting speech, is in their currently ongoing Future of Narrative Reporting consultation. As this is still open, I urge you to have your say directly or via independent think tank Accounting for People 2.0. http://www.accountingforpeople.org/ (we’ll report on it here).
At present, financial reporting is necessarily a reporting of past performance. Which till now has given a useful starting point in assessing the future performance of a business. True, but increasingly it has been strained by the very short-termism Clegg highlights. It’s being asked to do and say too much, and it’s failing us, businesses, markets, governments. So how do we make it forward looking? How do you complement a report of the past with a report of the future?
The answer – an answer I hope the consultation will consider – is to complement what are largely industrial revolution era (actually older) financial statements with knowledge economy reports – reports about the current and future potential of the people that really make up the business of today and whose knowledge, skills, ideas and abilities (human capital) can be used to point to the true long-term sustainability of the business.
Not easy of course. Easier to add a dash of CSR or garnish financial statements with marketing glossed visions of future growth – visions which are, unsurprisingly – and unhealthily – always rosy tinted. But people? Intangibles? Run.
But that’s precisely where we – and reporting – have to go for the long-term. Investment and business decisions based on short term historic financial results have led to the very speech Clegg just gave. (Another example – you ever wonder why so many mergers fail? The numbers may stack up, but a merger – like a coalition – is a merger of peoples not balance sheets). The long-term gain might encounter some short-term pain – accountants and marketeers are hardly going to enjoy seeing the importance and weight of their past glories overshadowed by what will probably be the domain and work of HR, but if Clegg is serious with his anti-short-termism, this is how the long-term reality – at least of the way people and businesses are assessed and reported and valued – has to be.
That’s assuming HR want – and are up to – the job? Or that the Government won’t make a short-term compromise. We’ve been here before, remember?