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CR May-June 2013

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Deep Reporting report their financial performance (i.e., capital- and context- duties and obligations to have impact on a different mix of based measurement models), and are also following the same vital capitals in order to ensure the well-being of its own rules for how to use them, all of their otherwise very different set of stakeholders in no way precludes cross-organizational financial transactions—and policies for how much to spend comparisons. Rather, it enables them precisely because of the on one thing versus another—can be recorded in a way that common underlying framework all organizations could use, makes cross-organizational comparisons possible. It is like saying consisting of the process of setting non-financial standards of in financial reporting that organizations are free to spend as performance that are stakeholder-driven and capital-based, much or as little as they like on resources required to run their against which actual performance can be measured and business (e.g., employees, office equipment, rent, etc.), as long reported as such. as they categorize such transactions as expenses and report them accordingly in their income statements. 3. In terms of rules, what is required is that each organization defines its own unique set of non-financial standards of Thus, no standardization is required on the issue of whether performance; that they are liable to be different from or not, and if so by how much, an organization should spend any other's is no more preclusive of cross-organizational on such things, since all individual spending decisions can be comparisons than different revenues and expenses are in the converted to a common currency (i.e., money, an artificial proxy case of financial reporting. No need for standardization at for value that we use in commerce). Thus, as long as we can the level of specific duties and obligations in non-financial compare the monetary value of revenue with the monetary value reporting exists, either—only that stakeholder-driven of costs, cross-organizational comparisons of profitability can standards for impacts on vital capitals be determined in a be performed, despite the fact that no two organizations are consistent fashion by all organizations, recognizing that the incurring costs alike, receiving revenue alike, etc. specifics of what follows for two or more organizations will What, then, are the conceptual frameworks and associated rules for making non-financial measurement and reporting possible, in ways that might facilitate cross-organizational comparisons? In future issues, we will discuss the details of these frameworks and rules further, but for now we can summarize our answer to this question as follows: 1. Non-financial performance is a function of how well an organization meets its obligations to its stakeholders to have impact on vital capitals of importance to their (its stakeholders') well-being. The first step in creating comparability in reporting, therefore, is for each organization to identify its own stakeholder groups. That they might be different between and among organizations imposes no impediment to cross-organizational analysis; rather, it is their shared grounding in stakeholder well-being that has exactly the opposite effect, just as the shared grounding in shareholder well-being makes cross-organizational financial reporting possible; be just as varied as they are on the financial side of things. It is consistency in the measurement and reporting frameworks and the rules for applying them that makes crossorganizational comparisons possible in the case of both financial and non-financial measurement and reporting. To the extent that cross-organizational comparisons of performance are just as desirable for non-financial assessments as they are for financial assessments, it should be clear from the above that they are indeed possible to perform under the context-based approach to sustainability. Further, we can see that objections to such comparisons as not being possible because of the absence of commonly-held standards of performance for impacts on vital capitals are unfounded. Not only does CBS make meaningful measurement and reporting possible at the level of individual organizations, it makes comparisons between them possible as well, thanks entirely to the use of common conceptual frameworks, and rules for applying them, that allow different organizations to communicate their variable performance in consistent terms. 2. Next comes the identification of duties and obligations to have impact on vital capital resources of importance to stakeholder well-being. This is expressed in terms of impacts on four specific capitals, or some subset of them, as the case may be. It is up to each organization to determine what its obligations are to each group, and to manage its performance accordingly. That different organizations will have different Mark W. McElroy, Ph.D. is the founder and executive director at the Center for Sustainable Organizations in Thetford Center, Vermont. Jo van Engelen, Ph.D. is a full professor at the University of Groningen in The Netherlands, and also serves as chair of Integrated Sustainable Solutions at Delft University of Technology. MAY/JUNE 2013 | www.thecro.com [19]

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