The foundations of successfully accounting for people

Journal of Human Resource Costing & Accounting

ISSN: 1401-338X

Article publication date: 23 February 2009



Roslender, R. (2009), "The foundations of successfully accounting for people", Journal of Human Resource Costing & Accounting, Vol. 13 No. 1.



Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

The foundations of successfully accounting for people

Article Type: Editorial From: Journal of Human Resource Costing & Accounting, Volume 13, Issue 1

Human resource costing and accounting (HRCA) is concept initially developed in the Swedish context some 30 years ago. It has subsequently been most influential within Scandinavia where it continues to evolve. In 1998 two of its principal architects, the late Jan-Erik Grojer and Ulf Johanson, introduced HRCA to the worldwide accounting research community in their seminal paper published in the Accounting, Auditing & Accountability Journal, also linking it with the then recently emerged intellectual capital concept, which was itself benefiting from the attention of growing number of Swedish and Scandinavian academics.

Like so many of the most insightful concepts, it is very difficult to define HRCA with any certitude. Over time I have come to understand it as being the marriage of human resource accounting (HRA) and utility analysis. By the later 1970s, HRA was beginning to lose its allure as a highly promising accounting development following a decade of intensive research activity spearheaded by the dominant figure in the field, Eric Flamholtz. From the outset Flamholtz had positioned HRA as managerial accounting development, firmly eschewing the challenge of putting people on the balance sheet in favour of providing management with accounting information about their human resources, for mutual benefit. This latter observation was and remains crucial to any credible attempt to account for people – it must offer benefits for both employees and employers, together with the broader range of stakeholders outside of the organisation. This commitment to a progressive accounting for people is no better articulated than in Flamholtz’s own third function of HRA: “it can motivate line management to adopt a human resource perspective in decisions involving people”.

For the greatest part of the past half century the Swedish social settlement has been highly people oriented. Consequently, in retrospect it comes as little surprise to observe that as the mainstream of accounting research, i.e. North America, became less inclined to persevere with HRA, not least because of its failure to provide readily usable applications, it had begun attract the attention of researchers such as Grojer and Johanson. Their decision to combine the often unrecognised humanistic underpinnings of HRA with an alternative positivistic paradigm, which had originated in occupational psychology and labour economics as opposed to in accounting, is intriguing. Instead of “hard number” accounting data, HRCA entailed using similarly objective economic data as an element of the information set to be provided to organisational management to assist in their efforts to promote a more enlightened social organisation of work and employment. Again in retrospect it is possible to represent HRCA as an early attempt to furnish relevant accounting information to management, an attribute that was to characterise the new management accounting from the later 1980s. Equally, more detailed scrutiny of some HRCA developments also suggest that despite such good intentions, like HRA before it, it ultimately struggled to break free of the shackles of an omnipresent financial accounting and reporting paradigm.

It was the same social settlement that provided the environment from which two of the most influential early developments in intellectual capital measurement and reporting, or intellectual capital accounting (ICA) emerged in the middle 1990s. Edvinsson’s work with Skandia AFS informed the Skandia Navigator framework while Sveiby’s Intangible Assets monitor was associated with the activities of Celemi. In contrast to HRCA, both avoided the limitations imposed by financial accounting and reporting, substituting instead the necessity to develop organisation specific sets of performance metrics, which were reported using scoreboards. The clear overlap with the Balanced Scorecard model, subsequently identified by Kaplan and Norton as a means of reporting on intangible assets, affirms the link with managerial accounting, in which category Lev’s later Value Chain Scoreboard can also be included. Passing quickly over the many ICA contributors who continue to search for a robust valuation methodology, the emergence of narrative based ICA approaches such as the Danish Intellectual Capital Statement or the Meritum Project’s Intellectual Capital Report, not to overlook more recent excursions into the formulation of Health Statements, with Scandinavia again in the vanguard, strongly suggests that accounting for people, i.e. human capital, or as some prefer to designate it, primary intellectual capital, has finally shaken off the constraints of (ac)counting.

These paragraphs might be read as saying that ICA is the “new” HRCA, at least to the extent that ICA necessarily encompasses an accounting for people element. The logical corollary of this observation is that by positioning the Journal of Human Resource Costing & Accounting in this way, it would seem to be claiming a very narrow, specialist field as own. Given the existence of several more general intellectual capital and knowledge management journals, as well as a growing willingness on the part of accounting journals to publish ICA contributions, does this make much sense?

Like HRCA before it, ICA is a multifaceted topic. As a further approach to the challenge of accounting for people, it cannot expect to be otherwise. Consequently, as the journal that focuses on the many aspects of accounting for people, the Journal of Human Resource Costing & Accounting encompasses a very broad portfolio of knowledges, some elements of which will now be outlined.

To date the history of accounting for people has passed through a number of phases. Prior to HRA there was a brief period of intense interest in human asset accounting, which also coincided with and reflected a growing interest exploring the theoretical underside of accounting. Also in the 1970s and early 1980s some working in the broader social accounting field explored the potential of both Employee and Employment Reporting, invariably as an important element of a more comprehensive corporate reporting model of financial reporting. HRCA was not the only attempt to revisit HRA. Human worth accounting, with its emphasis on retention values, was briefly canvassed in the early 1990s. All of these developments merit re-evaluation within the pages of the journal lest previous advocates have missed something of value that may be amended in the light of subsequent developments.

Although normally associated with the canon of accounting thought, Flamholtz’s HRA perspective might equally well be regarded as a contribution to human resource management, the 1980s successor to the traditions of personnel management. Both HRCA and the broader intellectual capital field exhibit a significant overlap with human resource management. For this reason it seems appropriate that as the journal moves forward it does so in part by providing an alternative outlet for work that presently appears in human resource management and related organisation studies journals. Of particular interest are contributions focusing on those occupations that have become more numerous in the knowledge economy or information society, terms that have become closely associated with intellectual capital. To the extent that all occupations now encompass much larger extents of knowledge or information attributes, none is explicitly ruled out. Nevertheless, intellectual labour rather than manual labour is the defining feature of the contemporary occupational structure, with the result that these are the types of workers that human resource managers increasingly find themselves called upon to interact with. The designation intellectual labour also embraces many who are themselves employed in managerial and administrative roles throughout the organisation, and whose varied contributions to it require to be “grown” by their own managers in the pursuit of continuous improvement in organisational performance.

As the business and management disciplines have achieved greater credibility within the academy, those working within them have recognised the important role that theory plays in this process. By theory I mean the development of explanations or understandings of the way things are. This is very much a social scientific view of theory, one which does not place such a premium on the identification of hypotheses and their subsequent testing by means of some form of experiment or similar empirical enquiry. The belief that by substantiating a single hypothesis or a set of hypotheses is tantamount to proving a theory has long since been rejected in the philosophy of science. Yet all too often researchers seem content to cursorily rehearse current thinking across a subject area then state a hypothesis or hypotheses, which is subsequently tested, and regard this as the limit of the act of theorising. Without wishing to denigrate the value of empirical inquiry across the sciences, or the rigour that must accompany even the most limited of such exercises, it is important not to over privilege the generation of data. In a relatively new field such as accounting for people it is important that the necessary balance between theoretical deliberations and empirical findings is maintained. Consequently, in future issues the intention is to include a larger number of theoretical contributions than was usually the case in the past. This said, such contributions will be required to demonstrate the same levels of rigour as those of a more empirical character.

Throughout the history of the journal there has been an attempt to ensure that, wherever possible, contributions incorporating a measure of practical and/or policy implications are included. Returning once again to Flamholtz’s founding thoughts on the purposes of HRA, any journal that sets out to promote the rigorous study of how it might be possible to account for people, from either (or both) a theoretical or an empirical perspective has the opportunity to furnish knowledge that has important practical or policy insights. In recent years the emergence of the postmodern tradition of business and management studies has provided a wealth of insights seemingly intentionally devoid of any attempt to consider whether these may be used for more practical purposes. Many working in this tradition are personally in favour of the promotion of social change while at the same time apparently unconcerned that there might be virtue in being more explicit in how knowledge and change can be combined. The latter nexus is equated with the so-called modernist project, with its axiom that progress is a real possibility, at an individual, local and societal (even global) level. Knowledge for its own sake, and the feelings of superiority that sometimes accompany it, have little to commend them in a world that remains flawed in so many ways.

One of the most important developments in accounting research during the past 30 years has been the establishment and dissemination of the critical accounting project. Unlike mainstream accounting research, critical accounting research is largely unconcerned with the formulation of a superior accounting science, with researchers focusing their attention on the accounting/society interface. One way of understanding what critical accounting entails is to see it as being concerned with the conditions and consequences of accounting practice, i.e. where it comes from and what its outcomes have been. Most of its key protagonists have been deeply sceptical about the value of accounting for society, questioning its contribution to social betterment. Some have been persuaded that it is unlikely that accounting can somehow be reformulated in order to better serve society, contenting themselves with serially providing evidence of the negativities that can be laid at accounting’s doorstep. Others are less pessimistic, however, and have argued for the creation of an enabling accounting emphasis that seeks to identify and proselytise alternative accountings. An enabling accounting would seem to offer a means of combining a variety of theoretical insights and practical/policy implications in a way that complements an accounting for people that ultimately will have the consequence of improving the work experiences of those recognised to be the key to successful value creation and delivery.

This latter position is, I would contend, very little different from the one that motivated the founders of HRCA, and in due course this journal, as well as Flamholtz before them. The passage of time will always allow us to identify more pieces of the jigsaw that we seek to piece together. Developments and insights originating in other, sometimes seemingly quite distinct fields commend themselves for inclusion in the evolving body of knowledge, whilst others are recognised to offer little of value in this connection, despite retaining their purchase elsewhere. A twenty-first century accounting for people must focus as much on people as on accounting, incorporate insights from the whole range of the social sciences, particularly those of a theoretical nature and constantly seek to counterpose what “might be” (even ought to be) with what “is”.

The journal’s Editorial Advisory Board is now in transition, with new members who have the requisite expertise and interest in the moving the journal in the direction outlined above joining the board. Included among them are several younger Scandinavian colleagues who represent a second generation of HRCA scholars. Others represent the human resource management disciplines, a mix of younger and more experienced researchers who testify to the growing social scientisation of their different fields. There are also new members whose expertise largely, although definitely not solely, resides within the critical accounting project. While welcoming these individuals to the board, it is also appropriate to thank those who have served on previous editorial boards for their contributions in advancing the status of the journal over the years and to wish them luck in their various future projects, whether within the accounting for people field or beyond it.

I am again fortunate to have been in the position to draw on the pipeline I inherited from the previous editor, Birgitta Olsson, to include two papers in this issue. Kamath’s paper provides a content analysis of intellectual capital disclosures in 30 knowledge intensive Indian businesses. Van der Zahn, Singh and Singh examine the association between a number of human resource attributes of audit committee members and IPO underpricing in Singapore over a ten year period to 2006. The paper by Marks and Huzzard is a qualitative study of the work experiences of employees in the IT sector. Finally, using a combination of actor network theory and ethnomethodology, Bukh and Kjaergaard offer an account of the enactment of the intellectual capital statement approach to reporting in three Danish organisations.

Robin Roslender