How a Common Accounting Rule Leads to More Layoffs and Less Job Training

livemint.com:

Financial accounting isn’t always the easiest topic to get fired up about. But that’s a mistake, especially these days. Accounting rules increasingly are driving companies to make bad decisions about how they hire, fire and develop their workforce.

And it is time to rethink those rules. The problem stems from the assumption in financial accounting that only things that can be owned have value—like machines and real estate. Obviously, you can’t own employees—so, under this logic, they can’t have value.

That is true even if all the value in a company lies in the abilities of its key employees, and those employees are locked in with contracts, noncompete agreements, long-term incentives and so forth. As somebody who has studied the workplace for four decades, I have seen this assumption wreak havoc on companies and employees alike. That’s because if employees don’t have value in accounting terms, it means they can’t be assets—in other words, things that have value for the company.

They can only be costs that a company must pay. If that is the case, laying off employees saves money; companies are just getting rid of costs, after all, not anything of real value. To carry the logic even further: Because it is only possible to invest in assets, and employees aren’t assets, the money spent to train and develop them can’t be an investment.

Those are current and administrative expenses lumped in with coffee and office supplies. This flawed picture of workers is set down in Generally Accepted Accounting Principles created by the Financial Accounting Standards Board. The rules, no doubt, made much more sense when they were formulated more than half a century ago, when manufacturing was a much bigger part of the economy, and holdings