Episode Transcript
Speaker 0 00:00:07 Welcome everyone to another episode of why it matters. My name is Tracy Cron, Zach, I'm the director of innovation here at now. It matters. And I am joined as always by my stalwart companion, Tim. Hey, how's it going? Hi, Gracey, Tim. Didn't get that. That was the George Burns joke. At one point, I get that and I think you've said it before and I was also thrown off because I actually don't know what the word stalwart means every time. And I'm still okay. I mean, it's got the word work in it, which is not like, I'm just saying like, anyway, so thank you. I am your stalwart companion then steadfast, you know, works and all is fine. I can think like, you know, think like, you know, like in Dungeons and dragons you have like elves, you have humans and you have dwarves and then you have a bunch of other things like humans are kind of like the chaos machines in our model.
Speaker 0 00:01:08 Yeah. Elves are sort of the very elegant sort of prince and princess race. And then dwarves stores are very stalwart. They're always there. They perform handily and they're kind of blocky. They're great at a sprint too. Yeah, I'll totally. There you go. I love it. Thanks for that. Thanks for the word lesson. I love that. You're like just nodding, like, you know what you're talking about, which I hope you do. Um, I would love to introduce our guests. I have been looking forward to this conversation for some time. Uh, Kate, I would love to have you just say who you are, where are you from? And a little bit about your background and story, because I think we're at a moment in our world where a lot of the things that you care about are things that are going to be incredibly important for the nonprofit ecosystem in the next 10 years.
Speaker 1 00:02:00 Thank you. My name is Kate Ruff. I am an assistant professor of accounting at the Sprott school of business at Carleton university and Ottawa Canada. And there I lead a project called the common approach to impact measurement that is principally funded by the government of Canada. I have been recently learning a lot about Dungeons and dragons because of my son and I always choose the character of the dwarf.
Speaker 0 00:02:25 Right. Cause they're killer. That's amazing. Okay.
Speaker 1 00:02:31 Um, so there's a few answers to how I got into this space. Um, I will start with how I ended up with a PhD in accounting as an accounting professor, whether it would having ever been an accountant. So this will start the story after I have a deep interest in understanding impact measurement and how to improve it, that interest is already fostered. Uh, I've been working in impact measurement doing consulting around impact measurement, thinking a lot about standards and hearing all the problems about why we can never have a standard for impact measurement, including companies or charities and not-for-profits and social purpose organizations are too diverse. It's too subjective. It would favor some organizations over others, these problems. And then I was reading the economist I've long since forgotten everything, except the phrase before there were income statements. And I would like, oh, we invented this a, I had often imagined the world before electricity. I love these like, um, living museum type places where you can go and watch people forge iron and, uh, people in costumes, selling quaint things like, you know, we created villages. I love
Speaker 2 00:03:44 Unfair down here in the states.
Speaker 1 00:03:47 I, this will be my retirement career. I am going to be in full costume living in one of these villages. Uh, but I,
Speaker 2 00:03:55 And so is that as a blacksmith, I mean, we're, I know we're going to get questions about it.
Speaker 1 00:04:01 I'm actually hoping that can be like the impact measurement accountant person in that village. But I haven't figured that piece out. So maybe just the shopkeeper, I will see this
Speaker 2 00:04:11 Impact crier.
Speaker 1 00:04:14 I don't think it's realistic. We're going to lose some realism there. Uh, but I had never considered that humans invented accounting. And so after, you know, mid career already done sort of my master's work, I got really fascinated by how accounting got created and how, um, accounting became a global standard. And as I studied this, I ended up as a hobby five basements down at Harvard university. I was living in Boston, outside Boston at the time, reading transcripts from the house of commons in the UK and the 1840s and listening to business man after business, man, because indeed they were men talking about all the reasons you could never standardize financial accounting because companies were too diverse because it was too subjective because it would favor some companies over other companies. And then what I learned in that process is that we never actually solved those problems. We just got better at mitigating them and we also got more comfortable with it. And so I started on an obsession of this concept of a flexible standard for impact measurement, which was very different than what I'd seen in the past.
Speaker 2 00:05:33 Do you pause right there or, um, I am suddenly completely interested in that. I remember, uh, in an econ class, maybe it was, I don't remember anyway, um, learning about when they started double entry bookkeeping, which was centuries before that and the power of that. And so just connecting, like all of that work to, uh, to income statements was, do you feel like that is a flexible standard?
Speaker 1 00:06:05 Yes. So very much people who study accounting understand the power of accounting is what we call it. Plus to city. Plasticity is a word that can be used in biology. It explains how a butterfly, a single butterfly lays different eggs in different temperatures. The eggs are objectively different, but they are still the eggs of a particular species of butterfly or a particular tree. An Oak tree will grow leaves that are thicker and greener and larger in particular wind sun rain conditions. And that same tree will go slightly different leaves in a different setting, uh, objectively different, but also the same. So plasticity is this notion that things can be different, but the same in physics, it means something as plastic. It means it bends without breaking. So again, you've got this notion of different, but not separate. And we, so we use this word plasticity and accounting to talk about how accounting standards have been so successful because of their ability to be different in different industries, different companies, different countries.
Speaker 1 00:07:09 So when you look at IRS, IRS manifests slightly different in different countries. Um, and you can even get things like very technical terms around the costing of a particular product. And they've done studies about how the concept is the same, but the, the, the technical application will vary a little bit. And we have strategies to deal with this, including what I like to call the big collective shrug, where, you know, you measure inventory this way, you measure inventory that way we've got auditors and training to assume you're choosing a reasonable strategy that you're not picking up nefarious method and it's different methods and it's reasonable for your context. Okay. Moving on inventory, and we're going to call it the same. And so we do this,
Speaker 2 00:07:55 It's interesting because even inside of inventory, like if you're doing five Five-O or what is it like? Oh, um,
Speaker 1 00:08:02 Weighted average would be a good example. Yeah,
Speaker 2 00:08:04 Yeah, exactly. All of those actually are examples of plasticity because like, there is a standard around how it's done different, but that is really interesting.
Speaker 1 00:08:15 And you can really weasel deep in that. Like even within Bifo, you can go deep into a particular manufacturing organization, like how they calculate the cost of product that's in progress and product that's made and how they estimate net realizable value with, like, there are many places where the particular calculation will change from entity to entity, all reasonable, right? We're assuming this is not nefarious. This is not about like cheating the system.
Speaker 0 00:08:45 I'm going to say, what I wanted to ask is this isn't about rigging the books. This is about conforming everyday operations to a accountability standard that creates a uniform perspective on what the heck's going on in the economy.
Speaker 1 00:09:01 Yeah. So if you want more history of accounting, uh, when accounts, so there was a time accounting, historians, historians describe how everyone was doing double entry, bookkeeping. Like you said, Tim, but you couldn't compare a company to company at the same time or even a single company for a number of years. Right? So it was very slightly and investor said, if the problem is too much variation, what we need is rigidity. And they try to make everything uniform. And what they learned is that information wasn't useful because if you impose a particular way of measuring inventory on every company, the number that comes out is a risk medically consistent, but meaningfully odd. Right? So there
Speaker 0 00:09:48 We talk about this in statistics a little bit.
Speaker 1 00:09:51 Tell me Tracy.
Speaker 0 00:09:52 Well, no, I was going to say when I studied statistics, it's the difference between something being like statistically significant versus actually meaningful. And there's two ways of looking at data. And I can't remember the example. They used any more from class, cause that was X number of years ago, but it was like, oh, we've correlated this person, group behavior to this weird little thing over here. And it matches 95% of the time. It is statistically significant. But in fact, what you're doing is finding statistical significance between two unrelated sets of actions. You know, that's kind of how that translates over to something that I can drop. Cause that, that, that I basically just said everything I know about economics and numbers right there,
Speaker 1 00:10:47 Just going to see if I can,
Speaker 0 00:10:52 I wanted to ask Kate while you're pulling up what you're pulling up. Um, something that fascinates me about everything that you just said is that one term that has always stuck with me from my semi rudimentary economics education, a true story. My economics professor was a Nobel Laureate. Uh, and she looked at me and basically called me unteachable and economics. Like she was like, Tracy, you're just not going to get this. And I'm like, oh, okay, thank you professor. Um, she came from a long line of economic professors, by the way, I was like, wow, that's kind of cool. Um, but uh, what I wanted to ask was the term that sticks with me always is inefficiency or economic inefficiency. And what this creates is a binary choice between the things that fit the economic system and those things that are called externalities or inefficiencies to the system. And those things are always written off. They're not solved for, to, to what you were talking about. It's like we don't solve for externalities. We don't solve for an inefficiencies. We accept them. And the journey of 2020 has been saying, Hey, actually, these inefficiencies are things that needed solving for in the first place and never did to exactly your point. I mean, is that how you're looking at it?
Speaker 1 00:12:21 I mean, I love this question. So I wear two hats as I introduced myself, there's the common approach to impact measurement. And then there's me as a researcher and the common approach doesn't really play in that space that you just described. But I get obsessed and excited as a researcher about that space. So, um, sociologists that study economics. So that's not economists studying economics, it's sociologists, econ economics. Talk about how that externality is socially constructed and they prefer the word overflow and the word overflow highlights two things. One is we need a boundary somewhere or we will break. Our calculation cannot work. If we try to include everything that is impossible, everything is connected. At some point you got to draw your line and be like, this is in, and this is out. And so by calling it an overflow, it's highlighting that we've chosen these moments to spill out of our box, but we had to create a box somewhere.
Speaker 1 00:13:20 So one of the research papers I'm working on right now actually is looking to understand how as we are pushing in financial accounting, as we are pushing that overflow line from financial accounting, into the environmental social governance moments, we are bumping up against new overflows and the new overflows that I think we're bumping up against it's who gets to decide who and what matters. So we're, we're coming to this world where, Hey, you should include social environmental governance metrics in your annual reporting gear company. And there seems to be a shift in zeitgeists that I would say most people would agree with this now that these are relevant pieces of information, if not for the good of the world, they actually help you inform your financial understanding of the company. Right? So I think there's consensus that yes, we should be expanding our understanding and measures of corporations from just financial to this environmental, social governance piece of data.
Speaker 1 00:14:20 But now, which measures are we going to pay attention to? And that's where, when you look carefully at what's being pulled into the box, we are hearing the opinions of financial markets and not the opinions of people whose lives are most affected. So a new overflow is being created. That is, will be, I think, the new battleground or the new socially construct attention of what makes a good and complete account. So yes, I love this question of externalized and I love the idea that it playing with the idea that we, as a society choose it, which also invites the question. This is a place for activists and social movements to change it, right? Like it's not something we have to live with and take as given it's something we get to play with
Speaker 0 00:15:05 The sort of mind palace that you just created on this, where, you know, looking at what we consider to be hard, objective things, economics as a social construct. I don't know if I've ever heard anyone quite articulate the aid of beyond that, the way that you just did. Uh, it opens up so many questions in my own head around. Well, if we look at economics as a social construct, um, I'm going to connect this to something that you literally just said. And that is that therefore means the power and privilege of our society gets to define these objective measurements. And therefore, if the journey of our lives as activism, activists has been unpicking power and privilege, then what we're actually seeing is a collision between activism and economy. That isn't what we think it is, right? It isn't this binary debate of like capitalism versus socialism or like democracy versus totalitarianism, which was by the way, that's the grid down here in the United States. I mean
Speaker 1 00:16:29 My, my expertise, but I'm enjoying the conversation well.
Speaker 0 00:16:33 And so therefore, you know, what breaks through that mold? What, what, what makes something that is overflow profitable in a way that a corporation can digest it and not have to look at a group of folks and be like, that's a lovely thing for you to agitate about, but we actually are beholden to shareholders.
Speaker 1 00:17:02 Okay. So we are really in very fun areas. So we're talking now about corporations and profit and the role that environmental social governance could play in shaping profit. And again, we can come back to accounting, being a something society created and already there are all sorts of things that are morally repugnant that you can not do. And you, we, you can not make a profit on these things and some of them are law and some of them are not law, but held to be true. And so another thing that a colleague and I have talked about was how activists have shaped what is possible to make a profit from through highlighting relations in accounting. So, so these are activists like mid-season on frontier ducts that borders, um, people interested in, um, regulation around the seal hunt, for example, or going back to the 18 hundreds, understanding slavery and the sugar trade.
Speaker 1 00:18:09 And in all these cases, these activists used accounting and numbers to try and show relationships between the price of things, the consumer, the, um, supply chain to connect the consumer to the, the morally repugnant thing that was being done. And they actually changed what company, but reg regulation that changes what companies can make a profit from. So to me, where does measurement come into this measurement is part of a transparency that allows others to create what we call counter accounts of what's happening in the company. And those counter accounts can be part of activism to help mobilize society around that moral outrage, the insights action, and that action then changes norms in society about what companies do. And these have changed over time about what is acceptable and unacceptable, and I hope they will continue to change. And so that's not really changing the calculation of profits so much as the milieu in which people are free to act within the social contract and shifting that social contract of good and evil over time. I think it's slow work, but I know it's slow work. Uh, but I have hoped that we are moving in a trajectory that is shaping things positively.
Speaker 2 00:19:34 That's interesting. You're raising that. Um, when I was studying development economics, um, I mean, this is where I talk about power and privilege deciding for the world what's happening, you know, in the sixties, fifties and sixties, IMF world bank was very instrumental in deciding what social norms needed to adjust in order for, uh, in order for development to happen. And in fairly reckless ways, I was quick to point out to my professor who was, uh, a, a typical, uh, economist and was like, oh, I don't care about that. I just here's what happened. And here's the numbers behind it, like just straight, straight up like that. Um, super interesting guy actually. But all that to say, when I saw like, okay, one of the things that, you know, a developed world was saying to the developed world is things like, until you're able to keep your own wealth and not share it with your tribe or family, we will not see development happen in your, you know, in, in a developing country.
Speaker 2 00:20:39 And so, you know, the breakdown of familial ties and trust and, and taking care of each other was considered a positive step towards development for an economy. Um, and so like that, that was just very surprising to me to just see all like, just that starkly, like this is what happens and, and, you know, was largely successful at creating some of those things, which I have a lot of questions about how positive that actually was. I hear you relating that kind of a moment to the moment that we're in now and saying like we're in a decisive moment where these things are getting decided just like, you know, standards around income. Um, I think I have not framed it quite that way before, but that, that creates some excitement and some fear around what this moment can be about. Um, am I on the right track? Is that how you think of it? Does that make sense? Um, so how you described the moment?
Speaker 1 00:21:43 Yeah. When I think about, um, how we understand corporate behavior. So that's, I think what we're talking about now, which is a bit different than understanding, well, we can shift into sort of the kind of stuff that common approach does later. But when we think about corporate, how we understand corporate behavior, a few metrics are bubbling up as the key metrics. And by and large, the people that have decided that I believe are well-intended. I believe they are working on their best knowledge. I believe they, they want the world to be better. And, but the key is, is that it's a certain group of people that is not very diverse and what they decide is going to be sedimented into our systems that decide what matters. And you can take quite a complex history of measurement. And then it comes down to these 40 indicators that companies are going to measure.
Speaker 1 00:22:38 And then an analyst who I'm not going to name, but there are several large stock market analysts are going to take those 40 indicators and crunch them to an algorithm that weights them, that either they're all equally important, or that environment is more important than labor rights or labor rights and more important environment, whatever. There's going to be some waiting to distill this down to a five star rating or a score out of three. Yep. And at this point you have very few people where we've got the valuation of a company's social and environmental performance tied in closely to a set of moral values that is being chosen from a very narrow and small group of people without participation, or even a front door of like, how, who would I talk to if I object to this and want to change it? Like it's not, there's no process, there's no electorate, there's no democracy.
Speaker 1 00:23:31 There's no. So I do think that at this moment, we want to celebrate that the world is expanding past financial metrics hold onto that. That is good and pay very careful attention to our systems that are setting these standards to ensure there's a good community around them that is accountable, or has mechanisms of communication to a broad set of people. Slip. These accounts are not set by such a narrow group of people. And I'm going to introduce one more idea. I'm going to, well, the idea I want to do is poly vocal accounts, which is the power of accounts to tell multiple conflicting stories. And I think there is another really key idea we want to bubble up. I don't know if anyone really knows how to produce a polyvocal account right now. What I, what I
Speaker 2 00:24:28 Was known as a dual bottom line,
Speaker 1 00:24:31 No, actually says, here's your social number, your environment number and your financial number, right? So you get three things. This is the truth, social truth. This is your environmental truth, and this is your governance truth. And here's your financial truth, right? You got it. But if I, and then overall, but, um, social encompasses a lot of things. It encompasses me as a worker in Canada, but it might also encompass the experience of a worker in the supply chain, in another country distant from here. And we might have very different relationships with this company. I might be experiencing, um, a great positive LBGTQ environment and fabulous paid parental leave. And this other person through the supply chain might be experiencing very horrendous conditions. Both of those truths are truths, and it is very difficult to objectively distill that down to four out of 10, eight out of 10.
Speaker 1 00:25:30 So a polyvocal account would allow conflicting stories of social progress or environmental progress to be made. So you would hear both those accounts in a, in a complex, rich way, without trying to build down to a single consensus view on what is the social performance of this company, you would allow that mix to exist. And I don't yet. I don't think anyone knows how to do that. I do notice a lot of people thinking that that has been next step in properly understanding properly limiting it. So that are more one person's moral values don't produce the ex the numeric value.
Speaker 2 00:26:07 I was about to say, you know, wall street is essentially trying to get one number right. To look at. But then when I think about it, actually, they like, they've solved this in, on the financials by having a whole lot of different measurements. Some that tell like the difference between like a quick ratio and an asset test ratio, for example, like, I can't tell you the difference because they seem so similar. And I don't think it's what you're thinking about. Uh, and so I, I wonder like, um, that, that's an interesting, essentially what you're saying is you can aggregate those up, but you have to see, you have to have a ways of actually telling more in-depth stories. Um, and that, that is a challenge, right? Like how do you balance aggregation the top line story with all of the conflicting information to go into that aggregation down below that. And that's actually not different than what already happens in accounting to your point about flexibility.
Speaker 0 00:27:17 This is also about priority though, right? Like, so what you've just articulated is a very cogent connection between some of the arguments that are coming, you know, onto the altar of corporate America, corporate life around like who is in the room and how right. And what you've just articulated is saying, like, it's not just about diversity of thought, which is something we already know. It's about participation in reprioritization of what we consider to be norms. And you know, how I'm putting that together is I'm saying this is beautiful, but ah, Kate, at the end of the day, if you want to create a polyvocal account, doesn't that like make my marketing department want to pull their hair out, because if you look at something what's going on right now, and today at the time of recording, there is a unionizing effort happening by line employees in Georgia, at Amazon, at a company that is widely considered to be one of the best quote unquote companies to work for in technology. These are two truths that are happening at the same time near, as I saw on the news, Amazon just shut down the unionizing effort and put a beautiful spin on it. Like this is a win for all our employees. How do we break that? Like, like, cause marketing always wins, you know?
Speaker 1 00:28:55 Yeah. I think that's above my pay grade. It's a good question.
Speaker 2 00:29:01 I mean, it doesn't always win. Here's what I, here's what I want to say back to that one. And this connects to you common approach, which is that, uh, I was so excited Kate, when I first met you and we had our first conversation to realize that your w the way that you approach this question of impact, uh, comes with a, an accounting background, not a marketing background, because the storytelling that we need to make from this is important. And I'm growing in my awareness of how important, so absolutely does need to happen, but it has, it can't just recreate the, uh, corporate social responsibility model. That was really based on kind of a marketing, like a marketing model. It needs to actually be based on the numbers and to the point on marketing, it doesn't always win because when you start looking at how people purchase stock, it is much more about the financials and the marketing.
Speaker 2 00:30:03 Now you can market financials and, and there's a version of that, but at the end of the day, a really good analysts are looking at core numbers to make those decisions. Um, and I think that that's important to understand, um, one, one other thought on that as, as we start to shift towards common approach, um, is what, what you said, I think would be easy to miss. And I think there's actually a question, um, when the income statements were getting codified, um, and you know, all, all of that what's happening there is what worked in the long run was not just a rigid, here's how it has to be. I'm guessing underneath that. What was going on is that until it actually helped individuals, companies understand their own selves, it wasn't useful. And so they wouldn't participate. And so until it helped them accomplish their goals, it wasn't useful enough to adopt when it became useful, because it told them their story their way, then it became something you could aggregate. Is that the, is that what happened next in that story?
Speaker 1 00:31:19 So that's a really good question that I think, I don't think there's been a sort of enough body of research on that particular point to say for sure. Yes. Or for sure. No, but if I draw on the research, I've read companies were actually getting a lot of value out of the way they were doing accounting for their own purposes, and they didn't have much need to harmonize with other people. It was the analyst in the stock market that wanted more consistency. And so my hypothesis based on the research I've read is that it was the emergence of an analyst profession that enabled accounting to become more complex. And now this there's a group of people who can study this and debate what it means. And so accounting doesn't have to be simple enough to give an answer to the investor, right? So the investor doesn't look at the financial statement and have a binary.
Speaker 1 00:32:15 I invest I sell, or I don't invest, which is actually what we want of our impact measurement. Right? We want our impact measurement to be so obvious that we can look at these numbers and be like good or bad. Whereas if an accounting, if we, if the accounting was so straightforward, that you could look at those numbers and know exactly what to do with your financial investments, there's an, a whole industry that would collapse, interpreting financial statements into knowledge, takes a lot of people a lot of time. And so I think for impact measurement co corporate and charitable, we're going to need to see an emergence of analysts who are willing to spend the time to read complex statements and distill that for people taking making decisions. And then the people making decisions are going to have to find the analysts they trust and believe in, or who have, um, a value set that resonates with them. Uh, I think that's so, and, and I think with financial accounting, it was the emergence of the CFA as a profession that really catalyzed, um, a different kind of accounting strategy.
Speaker 0 00:33:16 Yeah. I love that concept of professionalizing, a new type of analysis that said, Jim, I'm going to make a snarky comment in response to you, and it's going to be a marketing comment. And that is, I don't know, that sounds like just a bunch of socialism and meet him. It's a socialism socialism, it's socialism. America's not socialists. We're not social it's like that. Um, but I want to actually use that as a pivot to something that is more profound in my mind. And that is so part of my background many years ago, when I was in college, was studying the transition of Eastern European states, both economically and politically, and making these kinds of shifts, Kane, everything you're talking about is an organic emergence, right? The emergence of a new type of professional, the emergence of new types of standards. But what I also know to be true is there were a number of experiments, both politically and economically that were essentially running in real time in Eastern Europe, in that period.
Speaker 0 00:34:18 And man, the outcomes were everything from like, yay, this is super successful. And now we're a member of the European union to, you know, this radically tanked our economy, put our people through like a serious amount of poverty and ultimately made us into an authoritarians state. Like that's the gamut of outcomes from that time in, in, in our global history. So making this kind of shift, my question is, what's your estimate on that kind of transition time that it's going to realistically take for this to crystallize in a manner that won't produce one of those extremes. And that is something that you've both alluded to, and that is, oh God, we're just going to tank everything that's here and that's going to create its own chaos.
Speaker 1 00:35:16 Okay. So let me understand, first of all, Tracy, what a cool background, uh, I would like to really now interview you after this is done and learn all about that. That sounds amazing. Uh, I think the question is how long is it going to take before there is a more just and complete accounting, corporate performance.
Speaker 0 00:35:39 Yeah. That also doesn't produce sort of falling off a cliff. Right. And I think that's critical to a lot of corporations is even if there's a values alignment, there is a fear that there's going to be an economic failure before there will be an economic success in pursuit of these.
Speaker 1 00:36:03 Yeah. I don't know the answer to that question and I'm, I don't have any kind of special knowledge that would make me a good person to participate on it. But my gut says, um, the people in power are pretty good at making sure that it's not a financial tanking. Like
Speaker 1 00:36:24 They can't get themselves, but I don't imagine, um, I think it's just going to be a long two steps forward. One step back, three steps back one step forward, five steps back six steps or whatever it is. I think it's going to be a long journey. I'm not sure we'll ever know. We reached our destination. Many would say that with the shift toward ESG accounting, what's emerging now that this was the goal that many people set out to in the 1970s, 50 years later we've arrived, but new problems present themselves. So now we don't, it doesn't feel good enough to me and maybe to others. So I don't know if I don't know if we'll ever arrive and I, I kind of doubt that will be a spectacular moment of utopia or dystopia or sort of economy tanking or economy thriving as a result of this.
Speaker 2 00:37:18 It's just, I don't see in the range of outcomes, I don't see this being in line with what you're talking about historically, um, that way, because it doesn't, it's an additive, like it's not messing with the entire economy. What is doing is it's adding another layer that is, if anything, taking into account that scarcity of climate and scarcity of resources is now being affected by climate change in a way that is so obvious to everybody now that we need a way to account for it. And businesses are recognizing that there is now a price premium related to the market alignment that they have on either, like, where are they aligned politically, where they align on environment. And so there's a, an actual price outcome of over 25%, I think, where people will pay up to you. Like, I think it's between 25 and 30% more for an item that aligns with where a brand aligns with their, on what they think should happen with the world. So like that creates actual business objectives for being additive and adding, adding these measures on, I don't like, you know, if, if this whole idea went dark, although it happened is that we would go back to profitability as the only metric and, you know, for investors and maximizing shareholder value would be the, like the way that they best understood that. Uh, does that, is that your assessment as well? Kate.
Speaker 1 00:39:07 Okay.
Speaker 0 00:39:08 And in a way, your response is super helpful because you know, what you actually said is what I personally believe to be true in that is, you know, this is an organic, ongoing process. It's not a something where you could look at an executive and be like, here's going to be a discrete outcome in three years, here's going to be a discrete outcome in five years. Uh, that was one of the tactical mistakes that was made in transitionary states. Um, so yeah, I, I actually think your answer is a great answer. I wanted to get that answer because I think it's important to understand that there's an immediacy in the corporate context that this isn't connected to, you know,
Speaker 2 00:39:57 Um, I want to, uh, I think it's, I'm really glad that we're surfacing, like here, what's the range, like where, where, where do we place this decision? You know? Um, and so I think that's helpful, the history, the connection that you're making Kate between what happened in the 18 hundreds around, um, income statements and, uh, what's happening around, uh, impact measurements. Uh, I would, I I'm wondering what, what happened next to you in the story is that you either joined or started or became part of common approach and, um, what, what was that transition? Why is that important to you? Why is that where you landed maxed, uh, and what is common approach? I realized that we haven't even like said here's what common approaches. So,
Speaker 0 00:40:47 Um, great pivot, Tim. Thank you.
Speaker 2 00:40:49 Yeah, a lot, lots of runway there for you to pick an angle, um, and, and talk nice. So,
Speaker 1 00:40:55 Okay. So the common approach is a project that I run funded by the government of Canada, uh, that arose out of extensive stakeholder consultations with Canadians about how to sort out impact measurement for social purpose organizations, social purpose organizations, as a term we use to include charities, not for profits and social PR for profit social mission businesses that might include B Corp's or, um, some for-profit cooperatives. Uh, yes, and our target. We work for social purpose organizations that make a difference difference by what they do in the world. And technically like founded private foundations are also social purpose organizations cause they're charities, but they make a difference in the world by how they move money around. And so that's not really who we're trying to serve with the common approach to impact measurement. The main thing that the common approach to impact measurement is trying to create is a flexible standard for taking dissimilar, highly relevant measures of impact bespoke created relevant by each social purpose organization.
Speaker 1 00:42:12 And roll those up to some kind of collective story that can be used to talk about what a sector is doing, what a network is doing or what a funders portfolio is doing. And the, the thesis is this. The thesis is that when impact measurement is highly relevant, it reflects the voice to people whose lives are most effected, which is a moral position that I, and my team hold dear to my heart. That that is the true way we want to understand impact is impacts through the eyes of people whose lives are being affected. And it will also make it easier for organizations to have measures that help them improve and learn. So that measurement becomes less bureaucratic, less of an exercise let's done for somebody else and more of informing their own work. Tim, this goes back to a thesis you had earlier about income statements, and I think there's a lot of truth there that when it's relevant, it's more useful and better for learning and innovation and research supports that highly relevant measures is better for innovation and learning part of our thesis.
Speaker 1 00:43:17 Is that the reason social purpose organizations haven't really embraced relevant measures is that they're kind of useless after awhile that you get a number like six and six is relevant. If you've got a trajectory that last year was five and then force four or last year, it was eight, but mostly you're left a little bit. Like what do I do with this number? Is this a good number? How do I know if this is a good number? Uh, so there's that problem. Also, there is a myth in a lot of the impact measurement techniques that are out there that advise social purpose organizations on how to do their impact measurement. They will often say, start with your theory of change, craft something that's exactly specific to you and what you need. So I give that a two thumbs up as where we want to be, but the reality is, is networks have multiple partners.
Speaker 1 00:44:11 Uh, each project has multiple partner. Each organization is in multiple networks. They have multiple funders and it's, unless you give organizations a tool to take this very bespoke product and connect it to their network, which all has different measurement tool obligations. You're actually not giving them tools to have a bespoke, highly relevant measurement system. So what we're trying to do is create this flexible framework that allows dissimilar indicators to aggregate so that you can talk to the network, the partners, the organization, the funders with these bespoke metrics and the thesis of their gain is that accounting can be a template for us. We've extrapolated from that plasticity of accounting, what we call construct based equivalents. So this is this idea that inventory is inventory. And now we do a collective shrug. I would argue that in the past, when people have tried to bring a standard to the impact measurement world, they've used what I would call measurement based equivalents.
Speaker 1 00:45:10 It's the same. If it's exactly, I'm going to take you to exploitive the same, where's the partner's decision. It can be different and still be the same, right? Like we all understand that we're basically in the same ballpark here. So you start this construct based equivalence. What are the key constructs and how do you understand when indicators are the same enough to group within a construct and even be added up together? We are using the SDGs as our framework for constructs. Uh, in theory, this process could be used for any set of constructs. Like we also have a Canadian index of well-being that has a different set of constructs. And, um, some of our tools, people are using our technology to do have just like click of a button. Here's this portfolio represented by STGs here. This portfolio represented by the Canadian index of well-being rates. You can map to different constructs,
Speaker 2 00:45:59 Sorry to interrupt. My mind is completely distracted.
Speaker 1 00:46:02 I'm going to give you one more sentence and then you can interrupt him over time. You create bounded flexibility. So you create limits on when things are the same and when things are not the same. And you can imagine like a box in which things are the same and the goal, the work of the standard is to play with that box. Now I'm done.
Speaker 2 00:46:19 Got it. Um, I go, Tim, my mind is wow. In, in the, um, are you making these comparisons to like in accounting to literal accounting, equivalencies, like, you know, in impact measurements, there's something like assets and something like liabilities, and then there are long-term and short term. And so you're like actually trying to build, is that the construct or is the construct more like, um, if you're doing mentoring, then mentoring will be different in different areas and the ages of mentors, like if you're mentoring adults, that's a completely different thing than if you're mentoring kids. And so like, which of which equivalency are you moving towards? Does that question make sense?
Speaker 1 00:47:10 You know what you said, but one of our sites where we're working is looking to finance our food future. There really cool company that's using impact investing and grantmaking to create a sustainable food economy. And one of the, so what is a sustainable food economy? So that has some composite elements such as, um, affordable food and appropriate food, appropriate food, which is affordable food, culturally relevant food, accessible food and
Speaker 0 00:47:37 Food banks before. That's fantastic.
Speaker 1 00:47:40 And then affordable food means different things in different contexts and quality food, you know, affordable quality food quality means different things in different contexts. So you can have a community garden that is going to have ways of understanding how they're contributing to affordable food. And you have a food bank. That's going to have ways of contributing to affordable food. And those measures are going to be different, but you can actually add up and aggregate changes in affordability or the journey toward affordability that this whole portfolio is creating. Even though they don't have the same metros of affordability.
Speaker 0 00:48:17 Got it. That's helpful. Yep. That makes a ton of political sense to me. And I'm going to connect it to a quote that you gave us, um, on one of our previous conversations that I have since recycled in many, many places with attribution to you, and that is standards, our communities not documents. Um, and there's a lot implied in what you said, because at some point when we get to that end product, we actually still have to measure food distribution. But the means by which we get to that measurement need to have those communities participating in what that standard means. Um, unfortunately my other takeaway is, is math real. Uh, but that aside, I really want to dig into that because one of the conversations we've been on at now, it matters has been this extended dialogue about what does it mean to have standards and own your own community's data as inserted into those standards?
Speaker 0 00:49:32 Uh, we touched on a little bit of this with one of our previous guests, Amy sample ward, who's the end, uh, CEO of end 10. And, you know, Amy's point was very much aligned to yours where she said, look, something like the common data model or common approaches to measuring things. Don't always mean we're dictating how you do your work. What we're trying to do is find a liberation front in all of this, so that as you do your work things that you've ordinarily considered somebody else's property, such as your data, its migration, your framework it's application can become community property and also become shared property and shared ownership and not tied up into the very entities that we just spent. The first half of this call discussing didn't have the right inputs in the first place to create the standards that we now consider immutable. That's a huge point. K.
Speaker 1 00:50:43 This is something I care very, very deeply about, uh, that the quality of a standard is CRE increased by increasing the quality of the community. And that means, and it's a reflection of the quality of the community. And by quality, I don't necessarily mean like better, worse. I mean, who is there? How big is it? How well do they participate? How much do they feel they belong? How much do they, um, how interconnected are they? So I'm talking about the, the attributes of that community. And the more there is, um, a diverse, engaged, empowered set of people that care about how to do impact measurement together. The more the standard is going to be a high quality standard. Then a small group of people in the room who master would they, if you, you know, six, I would say in the history of attempts to create standards for impact measurement for the charitable sector.
Speaker 1 00:51:42 So I'm shifting from corporate to charity. The main idea has been to pull together a network, 10 people, 15 people, 30 people in a room work super hard for like three months produce a document funding, ends documents now on the internet or published if we're pre 1990, of which there are many examples as if that was going to be the lowest standard. And what happens is it's out of date and the wink of an eye because the world changes when it gets out to the real world, all of these. Yeah. But moments come up. Yeah. But you don't mean I do it this way in this context, do you, and there's no means to keep it relevant and connected or the yeah. But you totally missed my perspective. I am. Um, you know, we talk a lot in Canada about, uh, reconciliation and we're Detroit.
Speaker 1 00:52:40 We're trying very hard. It's a Canadian conversation right now, uh, to decolonize a lot of our assumptions and impact measurement can be a very colonial list approach if you don't actively decolonize it. And so there's another place where a lot of the work that's been done in the past, you get this. Yeah. But from, um, an indigenous first nation saying, yeah, but this does not make sense in my world. So you really need that rich community committed. And your first draft of your standard, you assumed this is not done. This is your, your, your first failure. It's more like software iteration. And it's going to just change and change and change and change and change. It's a hundred year never ending journey. Uh, financial accounting has never done it changes year, any ISO standard, you pick up updates every 2, 3, 5 years
Speaker 2 00:53:30 ISO standards are good. Are good example in this framework.
Speaker 1 00:53:35 Yeah. So, uh, so the quality of the community really is something that I care deeply about. And I didn't quite touch on your data ownership piece, but, uh, we can go back to that. But the quality of the community is to me, what will make a standard successful, both in terms of its adoption in Durance and authenticity, like living up to its values.
Speaker 2 00:53:57 Did you know that when you first engaged common approach or has this been something that you've learned in the process of creating, uh, the current approach community?
Speaker 1 00:54:10 Uh, I knew that as a design principle entering it, so that is, I am, I am actually paraphrasing a ton of sociologists study standards. Uh, and I did a research paper on attempts to create standards for the turtle sector, with the question of why different, why is it going to be different this time? Let's assume they were all smart. And well-intended why do we not have a standard right now? And to me, I think the issue has been this idea of published is the end of the standard, as opposed to the beginning of the community.
Speaker 2 00:54:42 Does any of that relate to methodology of distribution? In other words, like it was on paper before, that means that you're like physically mailing it to somebody. And someone is like having to like open the envelope and, you know, um, how much does it, how, how much less work or more efficiency is there in creating that community with kind of, you know, uh, internet infrastructure as the underpinning of it,
Speaker 1 00:55:13 I'm going to answer your questions slightly differently. And I'll get us back to Tracy's point about data, which is really cool. So financial accounting standards emerged in the era of the printing press and a typical financial statement to this day has four state financial statements. And then like 150 pages of notes. You're getting you get a fat document of which three or four are the summary pages that most people pay attention to. And the rest is the fine print. We are now in a digital era where the CA the impact measurement standards we create, don't have to follow that template. So that that template takes a lot of expertise. And I think one of the reasons, a lot of standards didn't take off is that need to have that fine print is closely connected to the plasticity. If you don't want to have all the fine print, you got to make it more rigid, right.
Speaker 1 00:56:04 And producing that fine print is expensive, and no one cared to learn it. And it's a pain in the butt, but with data, we've got, um, software, a whole bunch of charities, and not-for-profits becoming more digital. Thank you. COVID thank you. Cost declining software, a whole bunch. Can you guys know this even better than do of software impact management, software's emerging to help organizations track and manage the impact they're having in a way that did not exist 10 or 15 years ago. And then with these data models that are emerging, we're starting to have the ability to exchange or link that data, which gives us this power to rule up and tell a collective story without amassing PDFs or PowerPoints, or thank goodness, not paper. Right. So I think you're right, that there is a digital story that is enabling this moment that didn't exist 10, 15 years ago.
Speaker 0 00:57:01 Well, also, I mean, can't what I would say. I have personally been on a, you know, sort of soapbox for the better part of a year or more around non-profits. Do you own your own data? And what does that ownership look like? And what are the conditions of ownership? And, and by the way, what are the conditions under which you will be satisfied owning your data? I am no longer satisfied with nonprofits spending a ton of money on data migrations. That's ridiculous to me, but actually what you have added to that kind of personal soapbox, Surrey is the notion that data ownership is a hallmark of strong community. And then it doesn't necessarily become about, you know, my model, your model, this thing, that thing it becomes about how do we create the most durable community? That's a participant in this model. Um, I love that that's, that's a gift that I'm really gonna ruminate on. So thank you for talking about it as community standards, because I think a lot of the conversation in this world right now, because we're all it pillow it people because we're all geeks is, is rooted in the technical. And unfortunately that technical bolt directly into the corporate, because we're all beholden to somebody in the corporate world. Um,
Speaker 1 00:58:35 This is going to defend my first. I want to just give credit the way you said that data ownership is part of a strong community. I'm quoting you on that one. I had not gotten there in my head yet. That is, you've just given that to me. You attributed it to me, but when you said it was the first time that that will happen. So, uh, that's, that's yours and I will use that. I have. That's good. Thank you.
Speaker 0 00:58:57 Thank you. That's touching I, man, this conversation is, uh, ticking all the right boxes for the old policy analyst in me because, you know, the way that I was trained was there were two models there, sort of like that Saul Alinsky community organizing model, right? And then there's the outcomes driven policy analysis where it's not really actually about what is written in the, of the policy. It's about the actual effects and outcomes that policy is driving. So don't measure the policy, measure the Delta and measure the outcome that you're trying to achieve. Uh, and if you're not achieving the outcome, then you go back and adjust the policy, regardless of how well you think that policy is written. Uh, and that's still a hypothesis that I think applies to this meta discussion that we're having around like, you know, accounting and for what are we accounting. Uh, so thank you. That's really, truly insightful. Thank you,
Speaker 2 00:59:56 Kate. I want to ask what are the questions we're not asking, but you feel like you're like, you're dancing around this, but really what it is is this thing over here. Um,
Speaker 1 01:00:17 Well, we haven't said it, but let's just, I don't. And I think it's not that you even asked the question. It just hasn't come up, but how closely empowering a community of social purpose organizations to own their own impact measurement standard to sort of own it as in like engage with participate, not as in like I have the certificate of ownership, um, is connected to delivering and better understanding impact. And that that relevance piece is connected to making people's lives better. And I really am not a fan of impact measurement for the point of impact measurement. And that is something I think we need to keep really central, that, that the whole point of making it relevant is to make it useful. And if it's not useful, none of us should be doing this. And then maybe I just connect this to the first half of our conversation, which is the urgency.
Speaker 1 01:01:17 I believe in creating a standard for particularly charitable and very social purpose for profit businesses is that this sector, the social purpose sector doesn't come to the table with something credible soon. I think there is a risk that they will be invited to use what the for-profit world has created. So the for-profit world is moving at a rapid pace that is standardizing measures of social, environmental, and governance around certain indicators. And they, many of those people look to the charitable world as a dog's breakfast of measurement that just can't get its act together. And there is some risk that the solution that some policy maker or some coalition decides upon is look at we've got it in ifrifrst, they've moved on to a sustainable accounting standards board, and they've found these 140 things that relevant dear nonprofit sector. This is now part of your nine 90. Did I get the form right for the IRS?
Speaker 2 01:02:26 Yep.
Speaker 1 01:02:27 Yep. Now it's part of your nine 90. You will all report on these metrics off you go. And to me, that tells me, okay, that could happen. And if the charitable sector doesn't come up with a strong way to account for impact that's relevant and has the voice that people's lives are most effected, one possible result will be that we end up using the corporate solution for the, not for the social purpose world
Speaker 2 01:02:55 As an economist. What's so scary about that is that the underpinnings of those two markets are completely inversed. So one is doing as little as you can for as much as you can charge. And the other is like doing as much as you can with as few as you like with the smallest dollar possible. And, and the for-profit world has chronically just assumed a business way of doing things. And, you know, with their model in mind with which the whole point of it is to create margins so that you can like invest in those other changes, which is not the only margin that exists is asking more from your staff and the opportunity costs of staff just inflating hours, because they care about the mission. And, you know, so it is, it is, I am very concerned about what you're saying, because I think that is a possible outcome.
Speaker 2 01:04:04 And that outcome feels like that could be 12 months away, 18 months away, 36 months away. And like, once it's there, like if it's done right, like there, you know, um, and so part of me wants to just say like, what's important it's to aligning to SDGs because what we actually need is for businesses to align to SDG is because all the program work, all of the USAID work that we're doing all over the world, which is not being recorded adequately on the global scoreboard of SDGs is, is nothing compared to the effect of the corporate world. That, you know, if they started measuring ESGs in a way that could roll up to SDGs, we actually get a sense of like, Hey, we're actually moving the needle. And to your point about communities like these become symbols and communities, rally behind symbols, we've got 17 that we could rally behind.
Speaker 2 01:05:03 And so you, you know, if it ends up in the tax document section, instead of the global scoreboard of 17 things that could make the world better, and we don't have to argue about, uh, that's just like the opportunity costs on that is so enormous and completely invisible to everybody except like 30 of us or something like I should get through it's so concerning. Like who's got their eyes on this even understands what we're talking about, um, is just really, uh, that's. I mean, obviously it's, you know, thousands of it's not 30, but it is just not a collective conscious because the people that, to your point, the people that this is relevant to are the program directors that are out there creating that impact. And the last thing they want to do is slow it down to measure something and, and that's right. Like we should be supporting that 100% like your system. We need this to help you do your job. And an outcome is data that we can use, uh, or that you can use. And that will roll up to my point about incentivizing behind, like this being useful information. So there's my soap box. There's no question. I'm just going to put soapbox away now and okay.
Speaker 0 01:06:18 No, I mean, obviously Tim and I have a lot of opinions about this stuff. I think, you know, that's a good thing because the more people that have an opinion about this mean that there are more people who are paying attention to the argument as Tim's pointed out. I think I have that existential dread as well. And it was rooted in my very first semester in my master's program in grad school, when, you know, the raging debate in policy analysis was should nonprofits behave more like corporations? And I think, you know, I was like, I mean, it's like, should apples behave more like oranges? Maybe? I mean, but like, you know, the commonality here is there fruit, that's it? Right. So like, I have a question and I've asked this to every expert that I've been able to touch in the past year. What is, uh, Tim's talking about the SDGs, we're talking about a variety of global and systemic models of impact measurement and community participation. We're talking also about standards and the entities that hold these standards, you know, um, you had mentioned, uh, God, the one that starts with an eye that just went right out of my head. I was that
Speaker 1 01:07:36 Ifrifrst that financial standards or Iris the,
Speaker 0 01:07:40 Like the, the little iterative, like not, not I Tripoli standards, but the other ones. Okay. I, so I, so thank you. You had mentioned ISO standards. You know, my question is for a lot of reasons, the United nations, when it comes to the SDGs, sometimes actually in sometimes perceptually, isn't really the entity in my mind, that's gonna like rally us those standards. But the question I have is, is there an organization or a entity or an academic entity or a standards entity that either should be leveraged or created to hold this in a space where all of us who are beholden to something can act,
Speaker 1 01:08:41 Yes, there is an entity that should be created and possibly some that already exist. And I don't know what they are, but yes, I really think that for the SDGs to serve as something that can be updated. So already you, you, I'm sure you're aware of the critiques on the STGs. I know you've heard these, right. So I'm not going to go into them now, but what those critiques could be summarized as please do more. You haven't yet done enough. Right? And so you've got a whole bunch of people saying we can't possibly achieve the SDGs and you've got the other people saying, please do more. And what that speaks to is you need something that's going to evolve and try and stay. I don't know what that of the 70 percentile of possibility where 30 people say it's not enough. And 20 people say, you know, you've got to kind of find your spot and they are, they're going to need to evolve. And so I do agree that if there was an entity that could do that, that would be amazing. Uh,
Speaker 0 01:09:35 Because really what we're talking about, what we're talking about is a global collaboration we're talking about. I mean, I'm a huge scifi nerd, right? So like, you look at the movie Pacific rim, what did everybody do? They got together and they build giant robots to fight the monsters. Right. Sorry, Tim. I'm so glad that's where we're at right now. But like, that's the kind of like actual entity that needs to get formed. And, and I, and I do think that the level of academic participation in this, as well as the level of political and corporate participation in this needs to be assigned governed and pulled together, uh, and the, and the new information that I've been really tracking in the past month or so has been around like the necessity of academic participation in this for all of the reasons that are rooted in this discussion today. Um, and, and that's new because I've always looked at it as sort of a corporate nonprofit partnership kind of thing. Uh, but those never succeed, never succeed because they're not grounded in anything other than what advances that very cynical comment I made around marketing. Right. So, yeah. Thank you. That's, it's validating and it's new information. So thank you
Speaker 2 01:11:06 With, um, just a couple minutes to go, um, and case, thank you for, thank you for just rolling with this conversation, which has just gone everywhere and is, yeah, very much.
Speaker 0 01:11:18 It should be a Ted talk, a university lecture and replayed as like a here, you know, freshman year collegiate people learn some things about some things, you know, conversation. I really don't see how this should be positioned.
Speaker 2 01:11:34 Yes. I think your voice needs to be out there so much more saying this because you tie in, uh, real, real things. Um, and so, yeah, I, I think that, that, I think that's really important, uh, in your historical perspective and the rigor at which you are saying this needs to be approached, uh, which I think is missing from philanthropy platforms, partners, technology, like, um, we do need that voice of rigor in there. What's what is left from you that you want to make sure parting words that stated here.
Speaker 1 01:12:06 It's been very fun. You're very kind as a researcher. We put a lot of value on the question more than the answer. So thank you for your insightful questions and asking them and posing them and that's keep asking imposing my, I think it's awesome. So thank you.
Speaker 0 01:12:23 Thank you so very much. Thank you.
Speaker 2 01:12:28 I'm Tim lucky. I am Tracy.
Speaker 0 01:12:30 Crohn's Zack, and you've been listening to why it matters.
Speaker 2 01:12:34 Why it matters is a thought leadership project of now it matters a strategic services from offering, advising and guiding to nonprofit and social impact organizations.
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