Praying Mantis

suc·cess

noun

1. the favorable or prosperous termination of attempts or endeavors; the accomplishment of one's goals.
2. the attainment of wealth, position, honors, or the like.
3.  a performance or achievement that is marked by success, as by the attainment of honor.
4. a person or thing that has had success, as measured by attainment of goals, wealth, etc.

growth

noun 

1. the act or process, or a manner of growing; development; gradual increase.
2. size or stage of development: It hasn't yet reached its full growth.
3. completed development
4. development from a simpler to a more complex stage: the growth of ritual forms.
5. development from another but related form or stage: the growth of the nation state.

Historically, I always thought that my happiness was tied to my success in life.  I thought that by nailing a good job right after college, climbing the corporate ladder, buying a house, and seeing my 401K balance steadily increase would make me happy.   Sure those things add something to my life but there’s more to happiness than just success.

Similarly, there’s more to success for businesses than growth.   Can a business truly be considered successful if it’s making a profit but has miserable employees in unhealthy working conditions or paying them anything but a living wage?  Can it be considered successful by making a profit while spewing toxins into the environment?  A lot of people would say yes – a business can be successful in these circumstances.  All too often our society marks a business as successful as long as it’s increasing shareholder value. 

Growth in earnings; growth in populations served; and growth in the number of brick and mortar stores are all viewed as success.  If a business has growth, it’s got to be successful right? At least that’s what a majority of Wall Street thinks.   I fundamentally disagree with this.  Business is about more than just the numbers.   It’s also about people and the planet.  Business cannot exist without people and the planet.  So why do we tie the importance of success and growth together?  Infinite resources are not at the disposal of business.  It’s hard to find examples of profit being maximized while the well-being of employees and decreased reliance on the planet are also being maximized. 

Imagine the following scenario –

A corporation releases its quarterly earnings.  Profits are down 20% from the prior quarter but executive management views this as the most successful quarter yet.  Carbon emissions are down by 15% just in one quarter; employee turnover rates have decreased by almost 50% from the prior year; employee expenses are up 10% due to increases in wages and benefits from the prior quarter; and all facilities are now zero waste facilities. 

In today’s environment the fact that profits are down from the prior quarter would send Wall Street into a panic.  The company’s stock price may plummet and some shareholders may cash out.  Analysts may signal the company may be losing control over its projections and this company may prove to be too risky to invest in.  Why?  Because profit declined and there was no growth.  This is the only thing that MOST press releases will pick up on.  This company was very successful in several areas but that could be overlooked because of the decline in profit. 

What would it look and feel like if today’s market focused more on the triple bottom line?  I myself have a hard time imagining such a thing.  It’s so ingrained in us that growth equals success.  How can declines in values equate to success?  It takes a fundamental shift in valuing everything that’s important to us to see beyond the good in growth.     

What does a donkey and a co-op have in common? Democracy!

Lately I've had a bit of an obsession with cooperatives (aka co-ops).  Mainly this fascination has to do with seamless movement of a group of people moving in step with one another.  So how do co-ops work exactly? Well they’re more than just that place we buy fruits and veggies from.  In fact, they are much more complex then I had initially thought.   

The International Co-operative Alliance defines a co-op as “businesses owned and run by and for their members. Whether the members are the customers, employees or residents they have an equal say in what the business does and a share in the profits.”  What these businesses set out to do is operate based off of a set of shared core values rather than strictly just profit motives.  Any surplus revenues (profits) earned by the co-op are reinvested in the business and/or returned to members based on how much business they conducted with the co-op that year. Many co-ops are obligated to return a portion of their “surplus revenues” to members each year.  Members also share in any losses the organization might incur. 

Co-operatives also create and maintain employment for the communities they serve.  In the United States, 30,000 co-ops provide more than 2 million jobs.  In France, 3.5% of the active working population is employed by a co-op.  Co-operatives also provide large economic benefits to national economies.  For instance, Japan’s agricultural co-operatives produce $90 billion worth of goods and 91% of farmers have membership within those co-ops.  In New Zealand, 3% of GDP is generated by co-ops and co-ops make up 95% of the dairy market. 

As a business based off of a model that emphasizes ethical values and principles and whose goal it is to provide for the needs of its members, co-operatives play a pivotal role in responding to local community needs and objectives.  In fact, the United Nations Conference on Sustainable Development (Rio+20) acknowledged the role of co-operatives in "contributing to social inclusion and poverty reduction, in particular in developing countries.”  Instead of looking at short-term goals of maximizing profits, co-operatives have a long-term objective of maintaining sustainable economic growth, social development and environmental responsibility.

So what other advantages exist with co-operatives?

• Less Taxes!  Cooperatives that are incorporated normally are not taxed on surplus earnings refunded to members.  Instead members of a cooperative are only taxed once on their income from the cooperative and not on both the individual and the cooperative level.

• Funding! There are a variety of government-sponsored grant programs to help cooperatives start. For example, the USDA Rural Development program offers grants to those establishing and operating new and existing rural development cooperatives.

• Economies of scale!  Cooperatives may be able obtain discounts on supplies and other materials and services.  Suppliers are more likely to give better products and services because they are working with a substantial customer base.  This allows members to turn their focus improving products and services.

• Perpetual Existence!   Unlike other business structures, members in a cooperative can routinely join or leave the business without causing it to have to reincorporate.

• Democracy!  The inherit structure of a cooperative ensures that it serves its members' needs.  The "one member-one vote" philosophy is appealing to smaller investors because they have as much say in the organization as does a larger investor.

Co-operatives benefit our society in many ways.  Whether you are part of a co-op or not, I hope you've gained new perspective on this alternative business structure and are eager to take part in new ways. 

How much is that doggy in the window? Woof Woof!

In traditional finance, one uses enterprise value or equity value to price a business.  Think of it as the takeover price.  In a buyout, the purchaser would not only take on the company’s cash but also its debt.  Enterprise value is one of the more conservative valuations because it takes into account the entire balance sheet.  Other valuations focus only on share price or more limited aspects of the financial statements.

Many businesses were allowed to adopt fair value accounting standards in 2006.  The purpose of adopting this standard was to convey to financial statement users a price that could be received between a knowledgeable buy and seller.  What was known as Statement on Financial Accounting Standard 157 (SFAS 157) at the time, allowed for companies to measure assets and liabilities on their balance sheets at “market price.”  Determining a market price can be subjective, and incredibly difficult, when you can't easily observe an asset or liability being actively traded in a market place.  

In trying to understand the current financial crisis, the spotlight has turned to fair value accounting and financial institutions.  Shortly after the Financial Accounting Standards Board (FASB) issued SFAS 157, the problems related to the subprime mortgage market began to surface.  Many began to question whether or not the current distress in financial institutions is related to the new accounting standard.  Did the new standard exacerbate the problems or merely illuminate them?  Many are still debating this six years later. 

In October 2008, then-President George W. Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA), the so-called bailout bill. Under section 132 of the EESA, Congress gave the SEC the authority to suspend the use of fair value accounting under SFAS 157.  Section 133 requires the SEC to conduct a study of the fair value accounting as stipulated in SFAS 157.  Note that in Section 133, Congress even calls on the SEC to "review the process used by the Financial Accounting Standards Board in developing accounting standards."  This is a much broader mandate than just studying a single accounting standard.

Has the value we placed on numbers outlived its purpose?  Despite the down falls accounting and finance figures may have, we still need them.  They give us a baseline and can provide us with a lot of insight into an entity’s operations.  If you were valuing a business using fair value accounting back in 2008, you may have grossly overestimated (or maybe underestimated) the takeover price of the business.  Hindsight is always 20/20 but what writing was on the wall that we may have turned a blind eye to in order to avoid seeing what we didn't want to see?

What I would caution people to do is to not stop at the numbers.  Go beyond that.  What external factors affect the business?  How is the economy doing?  What is the morale of the workforce?  How quickly is this business able to pivot as this world evolves?  How important is strategic planning to the organization?

What all of these valuations fail to do is take into account the triple bottom line.  Perhaps that’s because it’s not easy to place values on the earth and its people (and perhaps doing so would further damage our world).  In order for us all to be part of the paradigm shirt this world needs, the value of the health of our people and planet must be valued the same, if not more than, as our traditional monetary measurements.