Lessons from the Great Recession of 08-09.
Many organizations like to say that their people are their most valuable asset. Yet in the real world, and from an accounting perspective, people are viewed as expenses rather than assets. This drives bust and boom cycles of hiring freezes, layoffs, unemployment, and then wasteful rehiring. The truth: you’re my most valuable asset until times are tough, and then you’re an expense to be shed.
Beyond being shortsighted, wasteful, and callous, simply getting rid of people when times are tough does little more than shifts costs from the corporations to all of us. While a big contributor to the current economic mess, it provides a great opportunity to practice what corporations preach about valuing their human capital.
Putting aside the corporate-speak of “employees-as-assets,” the accounting profession is the true guardian of how people are viewed. Generally Accepted Accounting Principles (GAAP) considers employees to be operating expenses that share the same accounting treatment as travel and entertainment spending, leases, and telephone bills. And when the Dow dips below 8,000, all of the above go on the chopping block.
GAAP beware: the rules need to change.
As my executive coaching colleague Frank Ball said to me recently, “As long as organizations stay in survival mode, thinking of their people not as their most valuable asset, but rather as an expense control item, we’ll end up in the same hole we’re in today.” The most recent bloodletting of layoffs, followed by the “expense” of paying unemployment, and then reversing it all during the next uptick, tells a tale of waste in the public and private sector. Let’s fix the accounting, and let it reflect the true value and contributions of our human resources.
What if we put employees and the expenses that go with them on the Balance Sheet—go ahead, just rip them from operating expense, and determine their value as assets?
Making the Case
Let’s look at the nature of what typically lands on a balance sheet. Items can be:
• An asset or a liability
• Thought to have a financial value to the organization
• Increased in value if “improved”
• Revalued over time to impact the company’s net worth
Hence, Jack the head of sales, who isn’t doing any selling in this grim market, is an asset whose value has declined, while Suzanne, who’s running three call centers with high customer satisfaction, is a strongly-performing asset. And, if you “improve” her (with training, coaching, good leadership, and other support) she can “appreciate,” as measured by her ability to run five call centers for roughly the same cost of her salary and benefits. As any other asset, Suzanne is clearly subject to capital improvement.
I challenge organizations to ask themselves a fundamental question: are Jack and Suzanne more like a phone charge, or a building that has value and relevance to the needs of the organization? Do they really belong with revenue and expenses on an Income Statement, or paired with capital assets on the Balance Sheet?
Believe me, working with organizations day in and day out, I see how people are assigned an implicit value by each other. Looking at employees as expenses is therefore an anomaly of accounting, one better left in the rear view mirror of lessons learned from the Great Recession of 08-09.
So let’s evolve this people-as-expenses paradigm into new rules and thinking that maximizes, rather than marginalizes our human capital.
David Peck
Principal and Senior Executive Coach
Goodstone Group, LLC
Special thanks to Frank Ball, Ray J. Kelly, and Amy Schilling for contributing to this article! -DP
