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Integrated reporting as a part of
organisational memetics
Andrej Drapal
www.andrejdrapal.com
Email address:
ad@andrejdrapal.com
Written: August 2021
Abstract: Integrated reporting (IR) is not only a revolutionary reporting system but even
more a thinking tool to understand organisations as holistic entities whose sustainability
depends on the balanced development of all six capitals. Its core concept is integrated
thinking transgresses traditional mechanistic comprehension of individuals, organisations and
societies. IR thus opens a wide range of new challenges to organisations sciences.
Keywords: Reporting, Branding, Values, Capitals, Risk, Integration, Management
1. Introduction
Integrated reporting is a global initiative whose aim is to enable organisations to report their
value better.
From the perspective of traditional reporting, IR goals are challenging to understand. Or
rather, they could be understood, but those who are only familiar with financial reporting and
are already suspicious of environmental or CSR reporting consider them too vague and
unattainable.
My simple explanation of the goals of IR is a bit more direct than the one mentioned on the
Value Reporting site. I would put it more like this:
The goal of IR is to make a story out of numbers and to extract numbers from stories.
To understand this statement, one should understand some biases that traditional accountants
and corporate reporters do not see as crucial to the companies they run:
(1) Organisations (companies, non-governmental organisations, governmental institutions,
public companies, communities, states...) are memetic entities. The only difference between
humans and other known organisations (physical, biological...) is that they sometimes
produce physical results and use physical resources. Still, their value creation takes place
exclusively at the memetic level. Birds use forests for their protection, while humans use
forests both for protection and memetic value exchange.
(2) The value of a commodity to humans is not its physicality but its memetic value. The
same piece of wood is worth almost nothing if its memetic value is "a log", but if it is a
5,200-year-old wooden wheel from Slovenia, its value is enormous. Manufactured artefacts
have memetic level values. Organisations are manufactured artefacts. Therefore, the book
value of a company says very little about the actual value of such a company. Book value can
be understood as the "log value" of said wheel, while the incomparably more significant
value of such an enterprise lies in its memetic value.
(3) Traditional accounting has indeed tried to decipher "real value" through concepts such as
"goodwill" or "intangibles", but "intangibles" in particular give us a completely false
impression of something that cannot be expressed in words. On the contrary, intangibles are
exclusively in the realm of words and images (memes). What else could we expect from
traditional accountants but that they lead us to a dead-end? It is a genuinely intangible book
value that IR needs to make tangible (memetic), while so-called goodwill as a story needs to
find a solid (integrated) financial expression. There is a book value and a memetic value of
any human artefact.
(4) The success of any biological creature is based on its reporting system. Each phenotype
(which emerged from its genotype) receives a vast number of messages (reports) from
outside and inside: about temperature, predator threat, and mating opportunities from outside,
and zillions of internal feedbacks from one cell to another and from one organ to another.
Every biological organisation has a sophisticated integrated reporting system at the genetic
(biological) level. A biological messaging system that was not integrated would not be
successful.
(5) Humans have evolved a parallel system to the genetic (biological) system: the memetic.
Memes are second replicators that "produce" stories as memotypes, just as genes produce
phenotypes. (The two systems differ, but this fact is not essential for this chapter). So every
human instinctively integrates both reporting systems. We integrate physical feedback when
our head hits a wall with memetic feedback, such as false stories that the physical world
exists only in our imagination. A widely known but not well enough understood statement is,
"Perception is reality." This statement tells us everything about our memetic nature. Human
perception has the additional dimension of being expressed in memes and stories, not just
perceptions as in all animals. Humans instinctively integrate reports from both systems.
(6) Organisations as manufactured entities (artefacts) live only on the memetic plane. They
exist on the physical plane, but they do not live on the physical plane. They are not biological
entities that could live on the physical plane. They cannot reproduce on the genetic level, but
they reproduce vigorously on the memetic level. For this reason, they follow all the rules that
evolutionary biology has declared to be prerequisites for life. Organisations are alive at the
memetic level. They reproduce at this level. Organisations are memotypes. Memes use them
(and us) for their reproduction. Memes reproduce themselves through organisations.
It was essential to state the above predispositions because they teach us to understand the
reality we must express in their reporting system. We cannot report on something we do not
understand. Traditional accounting not only fails to understand organisational reality, it
actually misleads us.
The concept of 6 capitals introduced by the IIRC is a good step towards integrating the
different value creation mechanisms and eventually reporting them. But until they are
understood as the results of a memetic activity, a memetic value chain, the gap between
numbers and words will not be bridged. It is not easy for accountants to understand that the
number (value) results from memetic value creation. They understand trademarks but not
brands. It is a task for the IR community to focus on memetic value creation first.
One could even say that financial data is only a part of financial capital. And why?
Financial data is something that belongs to the objective, scientific, known and past data. For
this reason, until integrated reporting, it was understood as reporting on the past. It is easy to
value what is known, the past. But it is something else that creates future value: non-objective
behaviours, myths, stories, and morals. We do not know how to report on such non-objective
entities. But at the same time, we know that our success evolutionarily depends on morals,
myths, and stories. Later are triggers for success, while the objectively defined past reflected
in numbers, as a story, plays no role in our future success.
The interpretation of the financial data is the story that puts the financial data in the
perspective of the "futures" that creates financial capital out of mere numbers. The myth
behind the numbers is the only connection from the objectively known (left brain) to action
(right brain). Stories valorise things into experiences.
2. Integration of capitals
Capital has many properties we could talk about, but one is often overlooked: A liability, a
debt to the owner. And this property is essential for microeconomics and the morality of
homonism.
That capital is a liability is a truism to some, but it is unacceptable to others who blame
capitalism and private property for everything terrible in the world.
Let us look at one of the six capitals, human capital, to understand this truism better.
Everyone builds their value from birth through informal and formal education and, most
importantly, through experience. Over time, each of us increases (or decreases) the value of
our personal brand, thereby increasing the value of our personal capital, which is available in
various markets. We can either capitalise on it in the labour market or squander it, e.g.,
through moral failures that lower our reputation and thus our personal capital. Lower capital
(lower reputation) not only means that we earn less in the labour market, but we also lose
value in all other markets. Friends and family, for example, value us less, so we have a
weaker standing with them as well.
Let's look at the active side of human capital. We can see that human capital is wasted only
by some problems with reputation, while on the other hand, human capital increases by every
transaction in the labour market. When we "sell ourselves" to a company, we do not lose even
a trace of our personal capital—quite the contrary. Not only do we add value to our employer
(which is the primary goal of any employer), and not only do we gain some financial capital
in the form of a salary, but we also increase our human capital through the experience,
knowledge, and reputation we gain through this exchange in the labour market.
The collectivists who blame the labour market for the alleged robbery of workers for the
benefit of the owners of financial capital fail to see that human capital behaves like any other
capital, regardless of the individual owner's ideology or moral stance. Human capital, for
example, like any other capital, has the function of a resource, an asset. And like any other
asset, it has alternative uses. My personal capital can be used to produce steel or to produce a
high-end, high-tech machine tool. In the early 20th century, Carnegie made steel production
highly profitable. At that time, employment in the steel industry was a good alternative for
the use of my human capital; this is much less the case today, as it is not only fierce global
competition depressing the value-added in steel production but also many new materials are
replacing steel in many production lines. I may have a lot of personal human capital, but I
cannot leverage it as much in the steel industry as I can in, say, specialised machine tool
production. But that very specialised machine tool production may soon be endangered. Then
it would make sense to find another use for my personal capital if it can be put to better use
with higher personal capital gains.
But there is another commonality among the various capitals in the passive part of each
capital with which I began this chapter.
As much as capital is a potential for capital gains, it is also a liability and a debt for the
owner. How does this fact affect human capital? We feel it every day. We only do not call it
in the terminology of markets and capital. The more you know, the more there is that you do
not know. The more you accomplish, the more is expected of you. You won a 100-metre race
at the EU level; now, you need to increase your running capital to win a world level race. If
you were not good at chemistry 20 years ago, you would not have gotten such a high research
position in a pharmaceutical company. But since you have that position and want to go even
higher, and since chemistry has evolved tremendously in the last 20 years, you need to
increase your personal capital in that regard. Those who have not run as fast, have not
mastered chemistry, and have not otherwise acquired distinctive personal capital have much
less debt in the form of personal capital. Capital is simultaneously a means to wealth and a
burden. Collectivists, by definition, talk a lot about the gains that capital brings, while the
burdens of capital are in their blind spot.
The critical thing for homonism is that all capitals behave the same. Financial, natural,
intellectual, social, manufactured, and human capital have different owners and agents, but
the rules they are governed by are the same for all. These rules are simple natural rules, rules
of nature. Memes and memetic evolution are a part of natural evolution, parallel to genetic
evolution. Since much of the capital mentioned is in the memetic realm, meme evolution
plays a vital role in capital evolution.
This is an excellent time to address the long-simmering dispute over the value of human
capital, or in other words, how much a worker should earn for their labour and what
measurement tool is most equitable in this regard. Among the many theories of fair pay, one
has been particularly persistent and seems to be the fairest. Meritocracy.
Let me explain why meritocracy is a red herring of the collectivists. Having given up (not
seriously, of course) that everyone should be compensated according to his needs, they have
victoriously embraced the meritocratic doctrine. Everyone should be compensated according
to their merits. That sounds so good if only they did not imply that those merits should be
objectively defined. Meritocracy assumes an objective standard outside the system itself. It
does not accept the possibility that "merit" is anything other than a value agreed upon in the
non-compulsory labour market. Merit sounds good, but in reality, it only distracts us from the
terror of individual freedom, the terror at least for collectivists.
Merit can be gotten from the president, but value can only be gotten in exchange for personal
human capital in the labour market.
3. Branding as integration vehicle for IR
Integrated reporting is based on two premises:
1. that organisations behave like living beings (biological premise);
2. that living beings exist holistically (holistic premise).
Taken together, these two premises limit the scope of organisational philosophy, explanation,
design, management, monitoring, risk management, and reporting.
In Brandlife (Drapal, 2016), I devoted a lot of space to managing organisations as living
beings. Successful managers sense (know) when they have a firm grip on leadership and need
to loosen their grip. Power only comes when the grip of management is loosened. All golfers
know that only the loosest possible grip leads to long shots. You have to set strict rules to
lose management control, to "let it go", as explained in the said book.
One could find similar examples in risk management. Risk management is the best example
of the loose grip theory. If one can theoretically manage with a tight grip and underperform
for that reason, it is even theoretically impossible to manage crises that way. An event is only
a crisis if it happens so quickly that you can no longer control it. If you have the situation
under control, it is not a crisis event. So when a crisis occurs, no manager is in control of the
situation. It is up to everyone involved to react "intuitively" according to the plans previously
implanted in our "muscle brains" (crisis plans developed from risk assessment). The crisis is
the definitive proof that the organisation is alive as a memetic entity and is alive precisely
because it is no longer in the manager's hands. Every cell becomes the unconscious memetic
manager, just as every cell in our body is the ultimate manager for us humans.
But then we have to ask ourselves the question of reporting. Reporting is a management
activity, but it is also a written result. With that, I pointed out the double meaning of
integrated reporting (actually, there is nothing else like integrated reporting!). Reporting is:
1. the management activity (complex, dynamic, fluid, holistic, integrated, analogue);
2. the result of reporting (one-dimensional, static, frozen, digital).
As a management activity, it is part of memetic organisational creation, re-creation and
reproduction. As a result of reporting, it is part of the internal feedback system and external
relations with stakeholders by providing them with information for their actions.
The attentive reader will notice here that IR thus picks up on a dual nature of our lives, which
is also advocated in brand theory. There, one speaks of brands (complex, analogue) on the
one hand and trademarks (frozen, digital) on the other.
It is therefore not surprising that brand theory provides tools for integrated reporting.
The existing theory on integrated reporting is relatively weak in terms of the degree of
integration. The IR Framework points to the need for integration and the drivers of integrated
thinking in companies. Still, no one explains how integration can be achieved in practice and
the tools for such integration. Fortunately, the answer is quite simple: organisational
integration is based on the principles of branding and branding as explained in Standard
Branding Model ©, which provides managers with tools for corporate integration processes.
The Standard Branding Model provides a blueprint for actions that need to be taken to
achieve the first step in IR, which is integrated thinking. As explained in many places, the
brand is also an integral (core) part of the business model. And the business model not only
explains the value creation engine and provides an index (digitisation) of the integrated report
that freezes the second part of IR. This index can be further broken down into KPI's.
The story of IR seems complicated but becomes completely transparent the moment we begin
to understand organisations as living memetic entities. Brands are the agents that integrate
organisations, and thus branding only provides tools for integrated thinking within Integrated
Reporting.
4. Risk Management and Integrated Reporting
In terms of organisational risk assessment, financial risk (and management of financial risks )
comes first, followed by occupational injury prevention and physical security risk assessment
and management, especially for properties and facilities more vulnerable to crime or terrorist
attacks.
Of these three groups, only the financial risks are really integrated into the business plans,
models and reports. At the same time, the other two are only present in the financial plans on
the profit and loss side and are sometimes mentioned but not integrated into the balance sheet
reports.
Although there may be some exceptions to the general situation briefly outlined above, most
organisations deal with risks at the assessment and prevention level, so the costs of assessing
and preventing various risks are reported on the income statement (P&L) but not on the
balance sheet. Risks are evaluated as costs but not explicitly as capital values or liabilities.
Let us look in Investopedia under liabilities where the valuation of risks is/should be found:
Current liability accounts can be:
• Current portion of long-term debt
• Bank debt
• Interest payable
• Rent, taxes, utilities
• Wages payable
• Customer prepayments
• Dividends payable and other
Long-term liabilities may include:
• Long-term debt: Interest and principal on bonds issued
• Pension fund liabilities: the money a company is required to pay into its employees'
retirement accounts
• Deferred tax liabilities: Taxes that have been accrued but will not be paid until
another year; in addition to timing, this figure adjusts for differences between
financial reporting requirements and how taxes are measured, such as when
depreciation is calculated
And that's it! One finds only liabilities related to financial capital and financial liabilities
related to the financial part of the workforce, without even a hint of the other two areas of
risks and liabilities related to risks already mentioned.
Before we take a step toward the apparent conclusion that organisations should find a way to
value liabilities, let us update a list of possible risks and liabilities. We already know that any
rational investor intuitively, if not rationally, evaluates all liabilities, not just financial ones,
when buying stock or entering into any other transaction with an organisation. We all
evaluate organisations holistically and try to consider all possible risks at all possible levels. I
can not mention them all as there are too many. The following section lists links to various
resources and conferences that I have compiled in 10 minutes. All of them deal with one
group of risks only.
International Conference on Risk Assessment (in Health). Toxicology and Risk Assessment
Conference. Trust and Reputation Risks. Defence &HSL Conference. Cybersecurity.
Workforce Legal Risks. Intellectual Property at Risk. Machine Safety Risk Assessments.
Safety Leadership Conference. Etc. etc.
My intention was not to provide an exhaustive list, but to point out many other possible risks,
thus making liabilities tangible. While some are industry-specific, many of them affect every
possible organisation, even if their manifestation varies from one organisation to another
following each organisation's business model.
I want to point out that risks at all levels should be assessed as costs and liabilities, expressed
in words and figures in the balance sheets previously designed as part of integrated reporting.
In dealing with such an integrated reporting system and an integrated balance sheet report, we
face two types of challenges:
1. identifying specific threats/risks/liabilities for each key business model mechanism
that runs values in addition to each of the six capitals;
2. to take into account that each of the considered mechanisms does not act on its own
but depends on the results of all other mechanisms of the business model.
The first task is easier to accomplish. One should start by examining each business model
process and determining the critical points (KPIs) that contribute most to the success of that
specific process and thus to the business model as a whole.
There is no extrinsic rule on selecting the most critical points, as there is no general rule for
this, just as there is no general business model. Each business model is unique, just as each
person is unique, even though most have two legs, lungs, and brains. There is no outside help
to define a model by which each develops as a human being. The practice and theory of
integrated reporting only point to the most common places where KPIs can be found, but
each capital uniquely exercises its values. The six predefined capitals are to help us define the
overall value of the capital. But there is no extrinsic rule for the number of capitals either.
One could easily find more capitals by finding smaller units of capital that exist within the six
capitals defined by IR.
So, for now, we know that not only financial, but also industrial, intellectual, human, social,
and natural capitals should be defined by business model mechanisms so that each
mechanism tackles at least one of the six capitals, and that in the end every capital is defined
or included in at least one business model mechanism.
Let me emphasise that I firmly believe that business modelling should not be viewed as
mechanistically as explained above. An organisation is much more than the sum of individual
processes that can be described digitally. But for the sake of risk assessment and risk
management, one should at least pretend to have mechanical control over each process. The
critical point is to transform risk management, presented as a cost, into a liability, presented
as a value on balance sheets. This transformation simultaneously transforms the
digital/mechanistic view of the organisation into analogue integrated thinking of
organisations as holistic organisms.
The transformation from cost to value, from the income statement to balance sheet, from
digital to analogue view, happens through mechanisms tackled by the second task: to
understand and describe (as much as possible) the interdependence of all critical points.
Let me give you an example: The physical safety of a nuclear power plant depends on:
• The human and technical skills of the safety personnel.
• Quality of the products integrated into the safety systems.
• Added value (profit) created by a plant and allocated to the safety systems.
• Relationships with the local community are the first external shield for the safety of a
nuclear power plant.
• Appreciation of natural resources, such as the water that cools the nuclear power
plant's reactor.
• A number of experts produced by the educational system are available to nuclear
power plants.
• And so on.
Each of the mentioned values/risks/capitals depends on all other mentioned and not
mentioned capitals. The number of interdependencies is so great that it (the number)
produces rationally unexpected results, emergencies. Emergencies are a necessary outcome
of any complex system such as a human or an organisation, an outcome of many
interdependencies. An example of such an emergency at the organisational level is the
balance sheet report.
It should now be clear that the main challenge in integrated reporting is not only to identify
the risks associated with the value creation of each capital but to report on the risks in a way
that considers the complexity of the relationships that ultimately lead to the balance sheet
reports.
This also results in the need for the organisation not to separate the identification and
assessment of the various risks. While specialists must manage risks, identification and
assessment should be understood holistically. I want to be assessed by a holistic doctor,
treated by a highly specialised surgeon and then assessed again by a holistic doctor at the end.
The management of a nuclear reactor should involve highly specialised safety personnel who
do not have much time to think because they must act quickly and reliably. But the task of
assessing the complexity of the risks associated with nuclear reactor safety and evaluating the
results should be undertaken by experts in holistic, integrated thinking who understand
emergencies that occur by default in complex systems.
5 The integrated model for societal exchange
Integrated reporting is not o much about reporting (the past) but even more about the creation
(the future). Let us check this thesis from two perspectives.
The first comes from the straw man argument against capitalism as a system that assumes
humans are homo economicus. Later I will show that homo economicus and its rationality
can be embedded in a broader, integral view of social value exchange.
The second is the apparent inability of Integrated Reporting theorists and practitioners to
design and produce integrated reports for cities, communities, or states; for non-corporate
civic entities. The intention is thus to recapitulate various references to IR methodology and
memetics into a broader view of IR as holistic management of life.
Let me get straight to the point. Value creation for people, businesses and other social
structures is like cellular respiration, ATP production and energy exchange for the biosphere.
Just as energy exchange is now clearly explained for plants, animals and the biosphere as a
whole (ecology), value exchange in the human memetic environment should not be such a
difficult task. Companies are using the Integrated Reporting guidelines with increasing
precision to explain their value chain and the added values (plural!) created for themselves
and their stakeholders. However, it is time to outline initial blueprints for non-corporate civic
structures.
The task for at least the first steps is much easier than it seems. We do not have to follow the
model of IR, especially the concept of 6 capitals. So let me suggest what is at stake for a
society in relation to each of its capitals. What are the elements of each of the six capitals at
the societal level, and how are they exchanged in principle. Therefore, I will attempt to
sketch a holistic model of societal exchange in the following few paragraphs.
Financial Capital
This one is simple. It is that into which homo economicus integrates himself. It is composed
of financial assets, financial shares and debts as stocks represented by balance sheets. On the
financial value added reporting side, we find income statements and cash flow statements. At
the national level, we monitor financial value-added with GDP and other financial KPIs.
There is a direct link between corporate financial value exchange and individual financial
value exchange to national GDP.
But since we all know that GDP does not measure the overall national sustainability, just as
financial reports do not represent the overall health of a company, there is a clear need to
show non-financial assets, stocks and debts along with the flow chart of how such stocks are
exchanged and the value addition are what their flow is.
Bhutan GNP Digression
I was fortunate to tour Bhutan shortly after its former king Jigme Singye Wangchuck
introduced Gross National Happiness KPI in 2008. Though its methodology is not transparent
enough for practical use, it expresses the need to explain what is essential, materially in IR
terminology, to a nation's sustenance. My experience in Bhutan was that people were proud
of their king and lived sustainably even if they did not understand it. They live sustainability,
not because of the king's concept but because western intellectuals and Harvard professors (in
the terminology of N.N.Taleb) have not corrupted their embedded circular economy model
with monetarist, globalist and other non-liberal foolishness.
Therefore, let me outline another five capitals and their elements that play an essential role in
the national value chain.
Intellectual Capital
I will not start with social capital because it appears to be the most important, but it is much
more subtle in reality than it seems. Therefore, intellectual capital should come first.
The most prominent intellectual capital element is civilisation, with all the past inventions
and knowledge accumulated from one generation to another. Civilisation is an asset and a
capital that we care about. We are accountable for it, so we need to invest in preservation, not
just innovation. It takes some financial and human resources to maintain it. But when
civilisation as social capital is put into productive human machinery with all the other five
capitals, we gain much more than we invest in it.
But there is another aspect of civilisation, a set of nurtured elements in the past but no longer
are, at least not in Western societies: traditions, myths, religions, and morals. They provide
the glue for other intellectual capital elements and a business model of all six capitals of a
society. A society that does not take care of its traditions falls apart. Such decay due to lack
of investment (attention) in traditions is evident in contemporary Western cultures. Therefore,
other capitals still function there but are no longer sustainable.
Human Capital
This one should be simple. Owners of human capital are individuals who identify with the
traditions of a particular community. They identify with families, local communities, and
nations, to name a few, other than corporations. They own their capital, but only if they are
economically free. If a coercive force, such as a state, takes away some of their equity, they
are not free to exchange their assets. The value chain is broken - as it is in any welfare state.
This is another reason why the sustainability of contemporary Western societies is in
jeopardy.
Individuals usually act on their responsibility for their wealth. They learn, acquire know-how
and other assets, and freely exchange on markets with other individuals, companies, and non-
entrepreneurial social units. They invest in themselves to be able to create more value in the
social product. When part of their investment is stolen, they feel cheated.
Let me be precise. When we talk about the exchange, we discuss the exchange between
individual, corporate and non-corporate social structures. The nation is the largest of these
structures, made up of all the individuals who identify with it. But suppose we are talking
about a state redistributing equity owned by individuals. In that case, it is straightforward to
get into a situation where a coercive force, a state, takes all personal equity (material,
intellectual...) for redistribution. Internal and external protection is clearly something that the
state can only handle; anything else is not. A charity is a charity if it is based on my decision
to redistribute my equity, not if some anonymous bureaucrats who have no stake in the game
decide it.
Productive capital
Productive capital is all material goods produced as the end products of a user who uses them
to produce surplus value or leisure. We can think of productive capital as material artefacts of
our civilisation. When owned, it is an equity (balance sheet) and an asset that is further used
for surplus value production (income statement). The owner must maintain equity by
allocating financial and other resources to it.
Natural Capital
I have not looked too much into natural capital; it offered a buzzword in the 20th century to a
buzzword. The negative buzzword for it implanted the idea that we owe it more than we
actually do. My point here is that the current political corrective regarding natural capital
prevents us from valuing our surplus value and measuring only what we take from nature.
The distinctive feature of natural capital indeed is that its equity does not belong to anyone.
For this reason, it is often difficult to decide who has the individual responsibility to maintain
its value. But it isn't easy to decide only for intellectuals who want to impose a top-down
distribution of responsibility. For a human being, i.e. a traditional farmer living with natural
capital and not yet invaded by intellectuals (which is quite impossible nowadays), the
question of reinvestment in natural capital was not an issue. It was not only part of the
tradition and sacred (intellectual capital) but the common sense of its integral circular
economy model.
But is today's society capable of reproducing such people with common sense and intuitive
responsibility towards natural capital, even if they are not as closely connected to nature as
previous generations were? The answer is a resounding yes. And the path to such a yes is the
philosophy of integrated reporting and integrating its values into any personal business
model.
Social capital
Let's finish with perhaps the most fascinating point, social capital. It is fascinating because it
seems that society is based only on social capital. However, such a notion is entirely false. As
we have already seen, all the previously mentioned capitals make up society's total capital,
not just social capital. If financial assets form financial capital, social capital is defined by
reputation. Social reputation is the sum of all individual reputations of all individuals,
companies and non-entrepreneurial social units of a society.
Stakeholders measure reputation. Material stakeholders have more weight in the overall
evaluation than non-material ones. But not only do they have more weight in valuation, but
they are also "more expensive" in social exchange. All other capitals weigh more when
exchanged by a social institution or individual with a higher reputation. Reputation is a
measure of social capital. You have to invest in reputation like any other capital. And one
puts reputation in the marketplace in value exchange and one or more other capitals in
exchange.
It is not so difficult to see that the higher the exchange rate of (positive) reputations between
different social units (stakeholders), the higher the value of that society's total social capital.
Consequently, we can see that if negatively valued reputations are mainly exchanged, we get
a society with an overall negative reputation.
The value and the price
Let us conclude with the most visible difference between financial transactions of finance
capital and non-financial transactions of other capitals within a society. The surplus value of
financial capital is exchanged based on the agreed price, while other capitals are exchanged
based on value. This is a catallactic exchange based on Ludwig von Mises' concept. As you
can see, I expand on his concept somehow, as IR offers us a more advanced assessment of
how value is created and exchanged within all six capitals. Von Mises used catallactics only
for money exchange. Had he been aware of all six capitals' power, he would have applied this
powerful tool much more broadly. But that is already a topic for a next article.
References
International Integrated Reporting Framework
Investopedia
Blackmore, S., (1999) The Meme Machine, Oxford University Press, New York, NY
Dawkins, R., (1976) The Selfish Gene, Oxford University Press, New York, NY
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