Social Capital: An Accounting View of New Media

What value is measurement of value? What’s really the point of measuring anything? Quick-to-the-chase answer: decision-making. If a measurement can’t help you to decide, it’s probably irrelevant.

We all know that not everything of value can be measured and not everything that can be measured is valuable. Social Capital has value – either positive or negative. Can it be quantified? That’s debatable, but let’s take a look at the value of understanding Capital in the age of mass connection via new media.

COST ACCOUNTING FOR VAGUE QUALITIES

Cost Accountants can be cleaver about capturing the quantification of relatively vague qualities: e.g., how to allocate fixed overhead to the cost of goods sold (there’s latitude in determining methods of allocation).

Of all qualitative objects to measure, social activities and relationships are perhaps the most difficult to quantify in any meaningful way. Nevertheless, they do play a substantial, if not primary, role in the financial capital ecosystem.

We’re not going to muddle with the nuances of Cost or Financial Accounting and how to develop Social Capital Income Statements and Balance Sheets. But we can analogize and correlate segments of financial statements with Social Capital Accounting.

COMPONENTS OF SOCIAL CAPITAL ACCOUNTING

From an accounting perspective, the key components of a business’s financial statements follow this basic flow: Revenues are generated from Assests; Expenses are generated from Liabilities and the realization of asset-use. The net of Revenues and Expenses flows into Equity. And ultimately, it is Equity which is the home of Capital Accumulation (and ultimately of Social Capital).

FINANCIAL EQUITY IS A MANIFESTATION OF SOCIAL RELATIONS
Financial Equity is the result of social relations. How? Let’s breakdown the financial statements into the above components:

  1. Revenues arise out of the social relationships between a business and its customers.
  2. Expenses arise out of the social relationships among a business and its vendors, employees, governmental agencies and other stakeholders. Contracts, laws, regulations, property rights, distribution, production, labor: all processes and products of social relations.
  3. Equity, therefore, represents the manifestation of all social relations among a business and its entire ecosystem.

A business’s’ financial health depends on its mastery of social relations. The very source of currency valuation is social: where else does the price of a good arise? Money – for good or ill – is a social extraction – and monetary value is the basis for all financial accounting. Although excellence in social relations doesn’t guarantee success, poor social relations almost guarantee failure, or at least poor economic health.

CAPITAL IN ALL ITS FORMS

Businesses are wise, then, to pay close attention to social relations. In particular they must posses a profound understanding of the deep and complex interconnections among Financial Capital, Social Relations and Social Capital.

Investing isn’t the goal of a business: it’s a vehicle towards capital accumulation. The pervasive discussions of social media’s business values continue to roll through C-wing – and it’s fundamental that executives have a framework to guide them.

The ROI of social media, therefore, is a measurement that can only have meaning in the context of Capital, especially Social Capital (read Dennis Howlett’s provoking guest post on Chris Brogan – peruse the plush treasury of comments too). It isn’t the number by itself, stupid: it’s the decision.

The proper study of any accounting is Capital in all of its forms. This is harder than it sounds.

You must understand media in all its forms, especially the social kind.

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Accounting Matters

The Funeral of Percy Bysshe Shelley, by Louis ...

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Or does it? I’m tempted to question whether the accounting profession matters. (I know that it does, but I’m entitled to some sarcasm.) Why bother with all the work when it all goes to pot in the end? Has accounting theory and practice, hammered about by political compromise, become so convoluted that even the brightest accountants and auditors risk doing their profession a disservice? If accounting matters, why?

WHAT’S THE PURPOSE OF ACCOUNTING?

There’s a fairly simple purpose to accountancy: to ensure trusted (and timely) reporting of relevant information for actionable and reasonable decision-making. Auditing assures that the meaning of what’s accounted for matches the veracity of what’s stated (at least as close as possible).

Accounting and auditing are rooted in these two straightforward premises. Although simple in premise, each can be enormously complex in practice. Furthermore, the theories which articulate the foundation that supports expertise in reporting can themselves be complex. Theory in accountancy is just as critical as it is in physics or chemistry or mathematics. Science, not superstition, is the basement of a sane economy.

OK, BUT WHAT’S ACCOUNTING GOT TO DO WITH ME?

But accounting is more than a theory or a practice: it’s a language.

In order for us to have any conversation about economics or finance or treasury matters, we need our language to be clear and free of corruption. A language, once muddled or corrupted, will corrupt the speakers. It will corrupt the community. So when the language of accounting breaks down, stutters, mumbles and slowly but eventually conveys poetic lies, an entire economic system begins its erosion: what was once a civilization transforms into a dysfunctional family.

Accounting has everything to do with you.

DO WE CARE?

I don’t fully understand the details of the mortgage-back securities travesty crime blunder. I’m guilty of being focused on my corner of the world. Still, I suspect that if we want to understand what went wrong then we’ll need to figure out where along the way the language of accounting, once convoluted or corrupted, generated confused speakers and disoriented listeners.

The purpose of any language is simple: to convey meaning among ourselves. The loss of a language is the loss of an important part of meaning. It’s the loss of culture. Everyday, languages around the world die and we don’t care. The language of the governing brain of our culture is accounting. What do we lose when that language is lost? Do we care? I guess that’s the question facing us today: do we care?

Accounting matters. Language matters. Meaning matters. If we don’t know how to speak in a trustworthy language, how do we expect to send and receive the right signals? How do we know the difference between the right signals and the wrong signals? Signals, of course, mean nothing without interpreters. And that’s why accountants and auditors matter: they are interpreters.

Accountants are the unacknowledged interpreters of the economic world.

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