Last Saturday, I sat with around 60,000 other fans at the so-called Tottenham Hotspur Stadium (we still call it White Hart Lane) and watched the most desultory performance I’ve ever seen over many years of supporting my beloved Spurs.
We booed, loudly. This may sound unsurprising, after all don’t impatient fans boo all the time. Well, not so much at Tottenham. We see ourselves as better than that, we revel in the Glory Game, we take pride that it’s not all about winning, at any cost, financed by oil money and Russian oligarchs.
Call it what you will: the last straw, a culmination of so many disappointments, the betrayal of what it means to be Spurs. A Covenant had been broken: so many years of being promised Glory once our amazing new stadium had been built, contrasted with the bitter reality of years of pitifully low levels of net spending on new players, often awful recruitment with what little money we did spend, all resulting in a team that literally doesn’t shoot on goal and has lost any sense of intensity or purpose.
Fast forward just three days: we’ve appointed one of the top five coaches in the world, Antonio Conte; we have promised him a significant transfer budget, reportedly £150 million, our talisman, Sir Harry Kane, ‘one of our own’, does an about turn, praises the club for its ambition and commits to our future.
Having left early (for the first time EVER), I bought a ticket for Conte’s first game for the meaningless, backwater, last place you would ever want to be, Europa Conference league game on Thursday to be there for the start for our rebirth.
But fear not: this isn’t only a story of heartbreak, betrayal and perhaps renewal.
It is also, believe it or not, a demonstration of the power of social norms – and thereby a tale of the power of normative accounting. Let me explain why before I go onto say why this matters so much.
Ignore Social Norms at your peril
Social norms express what a community of people find acceptable or unacceptable.
For that community to survive and thrive, the decisions that matter to that community need to be respected and contribute to the renewal of that community.
Yes, we may not ‘own’ Tottenham Hotspur. But the implosion of hope, belief, love and joy (yes, that’s what we feel for our team, as of course do fans of clubs the world over) finally shattered the delicate and already strained relationships of trust, mutual respect and shared purpose that define any community.
And when that happens, all bets are off. We sit in a stadium which is perhaps the best football stadium in the world. A one-billion-pound asset, which can host NFL, boxing and music – recognised for provision for disability access. But what is that asset worth, really, if it becomes toxic: a field of nightmares, not a field of dreams.
Accounting for Social Norms
Normative accounting reflects and demonstrates the value of that community in practice: translating the boos and the cheers, into pounds and pence, today and tomorrow. In theory an accounting grade asset is a resource ‘owned’ by the company (whether acquired or self-developed) from which future economic benefits (revenues, cost savings etc.) are expected. Translating those boos into cheers means real ‘future benefits’ in the accounting sense of the term - and behind all that there’s an asset you can take to the bank.
The thing about normative accounting is that it doesn’t just focus on costs and income over the short-term. It looks at the real worth of the business, now and into the future. Imagine assessing the liabilities of Tottenham Hotspur Football Club when the fans – as well as the players - had lost all hope and belief. A one billion asset isn’t worth much if it becomes a ghost town.
What normative accounting also does is it embraces what creates value in the modern economy: for Spurs, the fans who together believe that ‘we’ve got our Tottenham back’ (fingers crossed). Accountants call this kind of asset, intangible – the people, relationships, ideas and innovation, which drives successful businesses and economies.
Normative accounting challenges traditional accounting which has become mired in accounting for value focussed on the ‘things’ of the industrial age: the tangible assets of plant, machinery and equipment. There was a brief flirtation with accounting for intangibles in the 1990s, but the global institutions of accounting backed off in the face of the collapse in values of the dot.com boom. Normative accounting also challenges the assumption that these intangibles and the wider impacts of business can only be taken into account through non-financial information and reporting.
Why this matters so much
Young people and others of every generation are gathered in Glasgow in spirit if they are not actually there, in fear, trepidation, and protest.
What they care about is nothing short of the future of life on this planet – the lives of humans and of all species.
Accounting matters because – building on the Tottenham story – it can provide the currency of what we value: it can make the ‘things we value’ as a society valuable in the formal accounting sense; and it can do this for many more communities than followers of Spurs.
Currently, accounting reflects the social norms of the industrial age: its’ currency are the things of the factory era, largely ignoring the long-term costs and liabilities of the our industrial society: the reliance on fossil fuels pumping out greenhouse gases, the degradation of the environment, the collapse of ecosystems, culminating in the awful likelihood of temperatures rising to levels putting life at risk.
Accounting 2.0 – normative accounting - starts with different social norms, providing a fit for purpose methodology for reflecting all the current and future costs and liabilities of businesses. By taking these ‘externalities’ onto the balance sheet, they are shared between business with the communities of which they are part.
Normative accounting does something else that’s important. Spurs fans booing may be a liability, but we are also the Club’s biggest asset. The same applies to the economy, but we don’t see that because of the rules of ‘industrial era’ application of accounting.
This applies just as much to our relationship with the planet. We are humanity’s and the planet’s greatest liability but we are also its greatest asset.
It is people – our relationships, creativity, capacity for innovation – working with and restoring nature who are the greatest source of future value. The good news is, by adopting normative accounting standards, the financial incentives attributable to achieving net-zero (for instance) can be totally reversed, turning what is presently a penalty for making green investments into a reward that increases profitability, value and equity.
What we all need is a way of counting for what we value which, at one and the same time:
· Recognises all sources of value
· Identifies assets which already exist but don’t count according to current rules
· Aligns public and private interest
· Values future generations and other species as much as we value ourselves today
· Incentivises (rather than blocking) the transition to net aero.
Normative accounting achieves all of this.
Don’t let anyone tell you it has to be this way
Mindsets matter. Mindsets shape assumptions, which may no longer be valid.
The mindset which dominates how we do things is based on what has worked in the industrial age. But, as they say, past performance is no guarantee of future outcomes. The economy is transforming, so it follows that now we need new ways of accounting for value which start from today’s and tomorrow’s social norms.
Rules based on yesterday’s norms are a guarantee of failure – the rules which shape our economy will only endure if they are based on social norms that will endure. This cannot be a social norm which accepts the end of life on earth.
It must be – and it can be – a social norm which values all life, now and in the future.
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The economy has clearly changed. Intangibles dominate the global economy but accounting practice hasn’t kept up. As a result financial statements don’t show what is actually creating value (intangible assets) or those things that could lose value (intangible liabilities, such as climate risk).
As Alfred (Michael Caine) says to Batman (Christian Bale) in The Dark Knight: 'Some men aren’t looking for anything logical, like money. They can't be bought, bullied, reasoned or negotiated with. Some men just want to watch the world burn.'
Ultimately the fact that there is a gender pay gap is the result of decisions made, no doubt by men, based on a belief that motherhood isn’t as valuable as earnings for the company. And balancing gender pay (over time) is similarly a decision, able to be made, by men, who are choosing not to make it. Call it a conscious decision not to make a decision. Now that the gender gap has been exposed, how can the decision to balance it be enabled?
Economists were underprepared to deal with the pandemic shutdown. Neoclassical theory is no longer relevant. Normative Theory links capitalism to social norms. Normative Economics and Normative Accounting more closely align capitalism with the realities of the 21st Century.