Basic explanation of the rift between financial accounting vs. how we directly track those things in life that (health, trust, etc.). Introduces Intangible Assets and gives a hint of what's going on currently in this area.

1. Measuring Life

2. Cat's Cradle
In Kurt Vonnegut's book Cat's Cradle, there's a great quote: "No wonder kids grow up crazy. A cat's cradle is nothing but a bunch of X's between somebody's hands, and little kids look and look and
look at all those X's...""And?""No damn cat, and no damn cradle."
A cat. And a cradle.
This lead kids to think of Comfort and safety, and they're disappointed when they expect to find it, but instead see something else.
As adults we also want comfort and security.
We're taught that if our economy is doing well, and we work hard, we'll be able to achieve comfort and security if we want it.
So we measure our economy, and the "health" economy is given to us as GDP, Gross Domestic Product.
But "GDP" excludes things we need to actually BE safe and secure.
It doesn't include taking care of a sick kid, unless you buy medicine or pay a doctor.
It doesn't include taking care of elderly parents, unless you pay someone else to do it.
It doesn't include trees, unless you cut down the trees and make something, and sell that.
It doesn't count what's in the ground, unless you take it out and make something and sell that.
It doesn't include clean air or clean water, unless we make it dirty and spend money to clean it up again.
This is THE PROBLEM: We pay attention to things we measure. And we aren't measuring those things that make us feel safe and secure. /

3. So how did we get to this place where we pay a HUGE attention to money, but not directly to the things we value in our lives?
Interesting story!
A man named Simon Kuznets created the forerunner to GDP in order to track production in advance of our going into World War 2.
He immediately said not to use it as a measure for welfare.
He gave several reasons for this, but notably, he pointed out that GDP excludes what's done in the household - a substantive part of the economy - and what's done in the community as relief or charity
work.

4. Community Financial
Family
So we have this fragmented measurement. And we've been looking at and tweaking the financial part of it for the past 75 years!
We know a lot about the health of our financial lives
But what do we know about the health of families and communities?

5. Part of the community is organized into non-profits, and these groups do measure outcomes, and sometimes even impact on a community.
When they measure outcomes, they're typically specific to the mission of the group or the goal of the project.
They might measure:
pounds of clothing collected
number of kids who show up at a health clinic
the amount of food distributed at a food shelf, and the number of families they've served
the miles of beach cleaned up during a cleanup effort.
To the extent a community knows what its needs are and it knows how well these needs are met, it can judge to some degree how "healthy" it is, but this is still very
Imprecise.
Separate from financial measurements.

6. Community Financial
Family
We pay attention to what we measure.
And we have had one of the most powerful economies in the world
But we also as a country have one of the worst homicide rates in the world, and we are 49th in the world in terms of mothers dying in childbirth.
I could go on - China has a booming economy and also a booming pollution problem - but the issue is that we've built up a world where we measure one thing - "the economy"... and a separate thing - the
community... and somethings not at all.
It's very difficult to SEE how health the world is, or what to do to improve it because it's divided up into different realms.
But I'm in a family, and I'm part of a community, and I produce things at work! It's all of one fabric.
We are just looking at each part separately and we can't see the connection.

7. Traditionally, the way we've been thinking about this in the past, is that businesses are filling market needs, and these needs exist because a community or a person needs to buy a good or a service.
A person may need
Good tires in order to get around safely
Food services
Clothes
bicycles
It's important to realize that traditional financial people -- not greedy criminals -- really do feel protective about the health of the financial world and are as devoted to this type of health.
There are two major problems with the idea that the market solves all problems:
First, there's a delay in recognizing a need and creating a good or service to fill it (think: alternative energy)
Second, companies are most profitable serving a lot of people with nearly the same need, and the companies of course need to recognize the need. If you are not part of the mainstream, or if you don't have
much money, it's clear that companies would have less interest in developing goods and services for you, let's say they'll get to you last. Well, it's
quite possible, to be "gotten to last" so often that the
goods and services just aren't there.

8. On the other side, Non-profits doing work in communities do get tax breaks, as do people with dependents.
But there's a limit to how well business and community are FORMALLY tied together.

9. Community
Financial Community Family
But as we know, these areas of life aren't separate pillars; they're just groups that have developed different measurement systems.
It's important to remember that we're focused on one piece.
So, for example when we hear "Recession" that's only part of the story.
Our communities might actually benefit. Maybe people take time to focus on their individual health, help each other do things around the house, tutor kids in school, refresh their skills on their own...
Maybe the do, maybe they don't. But the problem is we don't know.

10. However! I have Good news.
People have been working on ways to see the whole picture for a decade or more.
You know about Corporate Social Responsibility, but what you may not know is that companies follow emerging standards, for example those at GRI or the Carbon Disclosure Project.
That information now goes to the very largest financial data providers, such as Bloomberg and Reuters, via Asset4.
Then Investors look at this data if they want to, and many have their own mechanism for analyzing this new type of data, which can range from child labor to water usage. For example, HIP Investor.
There are also new types of business structures, such as B Labs
Then there are groups bringing these communities to life, such as Social Capital Markets and Skoll Foundation.
And news agencies that help people keep abreast of what's going on, such as Responsible Investor.
And finally, an increasing number of schools that teach this new type of perspective on business.

11. All these different mechanisms are looking for the common threads of
health, trust, love, happiness, process, influence, creativity.
: security and comfort

12. "The More the Merrier!"
Intangible Assets
Baruch Lev
NYU - Stern School
There is actually a technical term for those things, called "intangible assets"
There are a few things to know about Intangible Assets.
First, like trust, Intangible assets are the things for which you can imagine "the more the better" (network effects).
Second, also, thinking of trust, Intangibles are not a pie - I don't have to divide it up! If I have one friend I trust, and then I get a new friend and begin to trust that person, I don't have to lessen the amount I
trust the first person.
Now another thing about Intangibles that is important: you cannot write a contract that fully describes them. This is not a failure of creativity, this is just their nature. But because you can't completely define
them, there's no way to exchange them on the financial markets.
Knowledge is intangible - I might think something's interesting, then I explore a bit and learn some more, and then one of the things I learn might be that there's a need in the community, so I might
investigate further... and think some more about it... and finally I get to the point where I can start thinking about a product, and maybe I try to build that or pull together a patent. But until it's a product or
patent, it's intangible, and the part that's "monetizeable" in terms of putting it into a knowledge base is very far along in that process.
Think about this when you hear the work "monetize". Not all intangible assets can be monetized, not because of lack of cleverness but because they're not ready yet.

13. We can think of Health, trust, knowledge, compassion as the building blocks of our lives.
If we feel secure and comfortable it's because we are healthy, have trusting relationships, and have the knowledge we need to be productive and fulfilled.
In fact, we need intangibles to make any product or service
Think of it this way: you have five people in a room. They get along well, they have some knowledge, maybe access to more knowledge through their relationships, they're healthy enough to be productive. You
ask them to solve a problem, and they very well might do so. But if you take away any of those things: they can't stand each other; or maybe they're so sick they just want to sleep; or they're not very
knowledgeable or skilled and don't know how to learn - then there's no way the problem will be solved.
In fact, if a product or service is made, or a problem solved, you KNOW there were intangible assets that had been built up first!
That's crucial: the existence of products and services depends on the existence of intangibles.

14. And what's also very important: Intangible assets are everywhere in our lives. They're built up (or torn down) in our families, communities, and businesses
Maybe it's obvious that families and communities pay attention to things like compassion, health, trust, and learning. But businesses have people, and those people trust each other -- or don't. They have good
processes - or not. They're physically healthy and emotionally whole - or not.
Those things deeply affect the success of the business. So businesses WANT to track intangibles in order to be able to manage their own productivity.

15. There's another reason why businesses need to pay attention to intangibles, and it's a bit more subtle:
If you're INSIDE the company, you know how motivated people are, whether they tend to be healthy or sick a lot, how much people respect and trust leadership.
But in general, investors DON'T know that - and that's a problem. It means when investors make investments, they don't have the full sense of what's going on.
That gap between what insiders know and what investors know is an "uncertainty," and uncertainty typically pushes down stock prices and makes them more volatile.
So businesses who have investors have the incentive not only to manage their intangibles well, but to report on their status as transparently as they do their financial status, and for the same reasons.

16. What I hope I've conveyed clearly to you at this point is the inevitability of moving towards measuring and reporting intangible assets and incorporating that in our sense of how healthy our world is.
Everyone gains by looking at intangibles and being clear about what builds them and what degrades them.

17. Financial Community Family
innovation
This inevitability means that, as a society, we're innovating.
In fact, we're innovating around the mechanisms and systems that are at the core of our society. This is complicated.
For example: We use the word "sustainability" or "thrivability" but these are not objects or goals. We don't attain sustainability... it's much more complex than that.
To get an idea of how that works, imagine: I should get a full night's sleep - it's important for my health. But my friends are getting married, and I want to share this event, build trusting relationships, feel
compassion. Or maybe I want to get some work done - there are many reasons I might trade some of my health for something else like social relationships, or knowledge or to just be more productive. But I
have an intuitive sense of what works.... or if I don't yet, I'll get sick after awhile if I push my health too far, and then I won't even have the choice of trading off a social event for my health, because I'll be in bed!
As society - though - we don't. We don't understand these tradeoffs at all, and sometimes they are necessary. There is definitely some great research, but these results aren't included in our overall economic
point of view.
So we're innovating.

18. innovation
And to learn, we have to experiment.
and then we have to communicate both what DOES work, and what DOESN'T work.
This is going to be a bit scary, as we push aside production as the measure of comfort and security and instead understand how these things we can't even completely define -- intangible assets -- are the core
building blocks of our economy.
Specifically, we need to be aware that the people whose livelihoods have been about preserving financial health are going to be challenged in letting go of something very well studied for something that is
new and evolving.

19. Financial Community Family
Luckily, as I showed in my earlier slide, this has been under way for quite a while, so the original "out on a limb" experimentation is already under our collective belts.
There is a lot of work to be done here:
- focus on producing goods and services for community health
- focusing on measuring the impact in communities and homes
- being a good experimentalist - staying objective, trying new models, and publicly saying what is working and what isn't.
It will take some time, but eventually we will have a model that can show us the status of our lives. It will be focused on an individual as they move from one role to another: whether they are focused on their
family, their role in the community, or their jobs or businesses.
We won't be under the illusion that if we have a strong financial economy we'll be safe and secure, only to be put on an emotional rollercoaster with each change in the GDP.
An example of this is the climatological model. It wasn't all that long ago when we had to look out our window and think: hm. Cloudy, November; I'm going to bring an umbrella. Now we know if the Pacific
Ocean warms up, that's going to affect next year's weather in London in a fairly well-understood way.

20. Measure See Life
Then some day, though it will take a while, we will clearly understand tradoffs
make much more sound decisions
build our communities productivity and resilience,
and directly measure our comfort and security
and in that way, step by step build the precursors to peace.

21. Jessica Margolin
@ kitode
Jessica Margolin
email: jessica@margolin-consulting.com
Twitter: @kitode
LinkedIn.com/in/margolin
Photo credits:
Clothing drop box: http://www.flickr.com/photos/daquellamanera/1695280377
Michelin Tire ad: http://newagemarketing.wordpress.com/2010/07/31/neuro-marketing/
Heart-cloud: http://www.flickr.com/photos/lel4nd/4277978437/
Team working: http://www.flickr.com/photos/hackny/5685655056/
Lego bricks: http://www.flickr.com/photos/hackny/5685655056/
Lego city: http://www.flickr.com/photos/enerva/5481390314/
Cubicle-land: http://www.flickr.com/photos/ste3ve/521083416/
Paintball-art: http://www.flickr.com/photos/roens/2479987272/