Accounting Standards and Real Value

I just reviewed here The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda by Stephen Davis, Jon Lukomnik and David Pitt-Watson. It’s a great book about how ownership of stocks is now dominated by funds (whose money comes from ordinary people). These players have different goals–they value stability of the system over success of an individual company.

But I didn’t talk about Chapter 7 which is of special interest to me. They say:

Conventional guideposts such as accounting standards have fallen badly out of date, making it tough for new capitalists and corporate executives alike to measure and manage real value. This chapter profiles the rise of innovative, civil economy metrics–and shows practical ways they are being used to align companies with the long-term interests of citizen investors.

This chapter pulls together a number of threads: sustainability reporting, the Coloplast experiment (which I wrote about here), and a sample value report from David Phillips at PWC (which I also wrote about here). It is clear that the mandate for better intangibles reporting is coming from many directions.

If you take the argument in this book to its logical conclusion, we should expect a movement among institutional shareholders to build in protections against the kind of systemic failures that let to our current deep recession.