Income/expenses: what's missing?

The nation behaves well if it treats the natural resources as assets which it must turn over to the next generation increased, and not impaired, in value. Teddy Roosevelt

We spent a lot of time this week talking about income statements, and what should and should not go on one.  If something is clearly titled an expense (i.e. payroll expenses), put it on the income statement.  Cost of materials purchased?  Income statement.  Member dividends?  Hmm…not so clear, right?  Well, yes, it is technically an expense, but it’s cash dispersal, so it goes on the balance sheet.

What are we leaving out of our income and expense discussion?  We get a sneak peak (I know, I know, we’ll get there but we’re starting with the basics—which is a good thing) from Willard on page 32 of The New Sustainability Advantage, where he introduces the concept of incorporating sustainability benefits into the income statement (and goes into much further detail in chapter 5, in our reading for this week).  In the first example, we have the typical income statement, representing revenues, COGS, SG&A, taxes, and net income.  In the next example, we have the enhanced income statement, which includes everything from the first example but adds reduced energy/waste/material expenses (all very tangible and easy to measure) and increased employee productivity and reduced turnover expenses (a bit more nebulous and hard to quantify). 

How can you measure and quantify positive word of mouth as potential income?  A pissed off customer and bad PR as a business expense?  A dedicated employee that is passionate about the mission of the organization?  Not having to hire and train new employees on a regular basis?  There are some great resources in chapter 5 of Willard’s book that I won’t detail since we’ll all read them, but wanted to share some additional resources I came across recently. 

I spent the past 3 days in a beautiful fishing lodge on the banks of the Snake River in Idaho, at the UnCommon Sense workshop I run for the Yellowstone Business Partnership.  This program is one of my favorite parts of my job.  I get to work with a diverse and innovative group of businesses, teaching them how to implement sustainable practices in their operations: from energy and water efficiencies to greenwashing to social & community investment to the intricacies of a dumpster dive.  I get to inspire and be inspired.  I get to facilitate the networking and collaboration of businesses who on the outside have absolutely nothing in common with each other—school districts, cattle ranches, restaurants, banks, even a platinum and palladium mine.  And every single one of them comes out of there not only learning from each other, but also actively helping one another address their unique challenges with regard to sustainability. 

This workshop, one class was going through the Transportation Efficiencies and the Business Response to Climate Change modules, while the other class was in the Responsible Purchasing and Social & Community Investment (SCI) modules.  In SCI, we shared a fantastic video from RSA Animate called "Drive" (I LOVE this series! This is the same series with the video we watched at the first intensive), on what really motivates us as humans.  A group of researchers (financed by a “left-wing socialist bank” aka the Federal Reserve Bank) conducted studies to determine the effectiveness of financial incentives for completing certain tasks.  What they found was not what they expected.  "As long as the tasks involved only mechanical skill, the bonuses worked as expected.  The higher the pay, the better the performance.  But once the tasks called for even rudimentary cognitive skill, a larger reward led to poorer performance.  Poorer performance!  How can that be?” 

The fact of money as a motivator is a problem.  Money drives nearly every decision we make.  From Drive: "If you don't pay people enough, they won't be motivated...another paradox...the best use of money is to pay people enough to take the issue of money off the table.  Pay people enough so that they're not thinking about money, and they're thinking about the work."  

We don’t typically consider employee productivity as an income or an expense, but it unquestionably is.  A 2010 Gallup study on employee engagement discovered that on average in the U.S., only 33% of employees are considered to be “engaged” in their work.  49% are not engaged, and even more troubling, 18% are actively disengaged, which means their employers are paying them to play on Facebook or look for another job on their dollar.  Gallup says that a ratio of 1.5 to 1 is the average healthy company’s employee engagement.  And a ratio of 8:1 is a world-class company’s employee engagement ratio.  A ray of sunshine? “The world’s top-performing organizations understand that employee engagement is a force that drives business outcomes. Research shows that engaged employees are more productive employees. They are more profitable, more customer-focused, safer, and more likely to withstand temptations to leave the organization.”  You would think that all companies would value having engaged and committed employees.  And some do; it’s just not the majority of companies or the prime business motivator for many. 

As a non-profit organization, YBP is fortunate to have employees that work for the organization because we all believe in the mission and vision.  I can’t say that YBP’s P&Ls reflect employee engagement, or environmental or social considerations, but I can say that I feel valued and I feel empowered at my job, which makes me more productive and gives the organization a better return on its investment in me.  I have a flexible schedule, I have health insurance, I make a living wage. 

The harsh reality is that money does “make the world go ‘round” in our society, and if you don’t have money, you will have a difficult time surviving.  And this directly correlates not only to people’s engagement with their work but also their motivations to care about the environment and their impacts.  If people aren’t getting their basic needs met, that is, food, shelter, water, health, they can’t afford the luxury of being passionate about their work or concerned about the environment. 

Random closing thought: my favorite new definition of Sustainability, from Charles Hopkins in Education Canada (from the Willard book) is “Enough, for All, Forever.”