Intro to Moral Accounting for Philosophers

Philosophers, especially moral philosophers, play a crucial role in moral accounting, so I’m hoping to find some who are willing to comment or collaborate.  In this post, I lay out what philosophers need to know about moral accounting (not too much!), as background for this and other posts that lay out specific questions and challenges.  Most of my points summarize or elaborate on my draft monograph,  The MAP:  Moral Accounting Principles for Moral Accounting Engagements.

So you know where we are headed, here is my first question for moral philosophers:

Moral accounting treats everyone as a steward acting on behalf of society, with moral assets that are perfectly balanced by moral obligations.  Does this treatment rule out any moral philosophies?

What is Moral Accounting?

To understand moral accounting, let’s start with a definition of traditional accounting.  Traditional accounting is a craft (in Aristotle’s sense): the making of things with a practical goal, based on articulable skills.  The things accountants make are accountability systems–webs of reports, incentives and controls that shape behavior toward some code of conduct.  The practical goal is to improve performance relative to that code of conduct.  And of course there are lots of articulable skills of how to design and operate these systems.

Moral accounting sets two aspirations for traditional accounting.

1. A moral code:  The code of conduct is not just any code, but a moral code–the system encourages people to do more moral good and less moral bad.
2. In a moral way: The system holds people accountable in a moral way.

In just about any society, a crime boss who uses incentives to encourage theft and murder is falling short on the first aspiration, because.  A government that discourages littering might be living up to the first aspiration, but if they do so by threatening to kill an innocent child every week there is too much litter on the streets, they are falling short of the second aspiration, because they are holding the wrong party accountable.

This post focuses on the first aspiration.

The Division of Labor Between Moral Philosophers and Accountants.

What do accountants know about morality? More than you might think, but not enough.

A good deal of accounting (typically called managerial accounting) is devoted to the question “how do we get people to work hard?”.  We usually think of hard work as a business imperative, but it can also be a moral imperative (e.g., the Protestant work ethic).  But whether we call it a business or moral imperative doesn’t change the we use accountability systems to encourage hard work.  So accountants actually know a lot about how to hold people accountable for their moral performance.

But accountants don’t have any special insight into what performance is morally good and morally bad.  A key principle of moral accounting is that, rather than imposing our own inexpert and uninformed views, accountants must rely on moral philosophers and other experts on ethical matters to give us moral codes to work with.

Social Stewardship & Moral Bookkeeping

While accountants are not experts in what is moral, we do need to impose some structure on morality so that it is amenable to accountability.   A key part of this structure is the concept of social stewardship:

• Moral accounting treats everyone as a steward acting on behalf of society.  

Social stewardship allows accountants to create moral books that are analogous to financial books, which in turn allows us to evaluate moral performance by asking the same questions we would of financial performance:  Did the steward use their assets wisely?  Did they fulfill their obligations?  At what cost?  Is their performance sustainable?

To avoiding treading on others’ turf, accountants don’t determine who has what assets and obligations.  However, we do impose structure to describe the types of assets and obligations.  While this can be refined in all sorts of ways, here’s the broad outline.

As spelled out in my MAP paper linked above, moral assets include all of a stewards’ powers recognized by society. These include (but are not limited to):

• Civil and property rights that give them the power to use the financial, tangible and intangible assets recognized in traditional accounting;
• Physical, mental and other personal capacities that give them the power to perform;
• Decision-making authorities in individual, social and organizational settings that give them the power to direct activities; and
• Influence, such as respect, prestige, fame, social position and other factors that give them the power to shape others’ activities.

Here it’s helpful to understand the accounting term recognition.  An asset is recognized if it is recorded in the books.  There are many things that exist, but not recognized in financial books, such as a CEOs health, brilliance or social connections.  Moral accounting is far more expansive, however, and the moral books are intended to recognize all assets that society deems appropriate.  This expansiveness is crucial, because the fundamental rule of bookkeeping is that assets are always exactly equal to claims.  In the context of morality, this creates a version of what might be called the Spider-Man principle “with great(er) power comes great(er) responsibility”.  To hold people morally accountable for their full obligations, we must capture all of their powers in the books.

Again, accountants don’t decide what obligations to recognize (that’s society’s job–or really, the job of moral philosophers to figure out what society recognizes).  But we do impose structure, as always.

• Specific liabilities are obligations to perform in certain ways.  Liabilities can arise from making promises, or simply from having an asset.  For example, if you have a farm, every animal is an asset but also comes with obligations to feed and care for them.
• Restrictions are obligations not to use assets in certain ways.  For example, the ability to unmute and speak up in a Zoom meeting is an asset, but it comes with an obligation to avoid interrupting, speaking too long, derailing the meeting, etc.
• Social debts are obligations imposed by society.  These might reflect penalties for past behavior–for example, the requirement to submit to incarceration, pay a fine, perform community service, or simply apologize. They might reflect a form of enforced gratitude, such as caring for the parents who raised you.  (These may or may not be specific liabilities, depending on how specific they are.  For example, “care for your ailing parents” is not a specific liability before the parents are ailing, even though it is an obligation looming out there.  But if they need a ride to the doctor, or if you promise to bring them groceries on Tuesday, it becomes a specific liability.)
• General obligations are obligations that make the books balance.  If someone lacks the assets to fulfil the obligations above, there are no general obligations, and indeed the lowest-priority obligations need to be “written off” so that assets = obligations, and no one can demand that they be fulfilled.  This is the flipside to the Spider-Man principle–one can’t demand the impossible.  But more often assets are more than enough to fulfil obligations.  The remaining assets (typically called net assets) are balanced by a general obligation to support society.

General obligations are worth a little elaboration, because they conflict sharply with the common sentiment that “it’s my money and I can do what I want with it.”  This is typically valid as a legal claim (subject to restrictions like “you can’t hire a hitman”), and for-profit accounting captures it by balancing net assets with an equity account that is distributed to investors to spend as they wish.  But stewards are best accounted for as not-for-profit organizations, which balance net assets with a general obligation to pursue the organization’s mission.  In moral accounting, the steward’s mission is to benefit society.

This doesn’t mean that people have no freedom to benefit from their net assets.  In most societies, people are allowed and even obliged to look after their own health, happiness, and general flourishing.  But that doesn’t mean society views it as moral for someone to buy lifesaving medicine and burn it in a parking lot.

Accommodating moral philosophies.

As far as I can tell, there is one moral philosophy that moral accounting clearly does not accommodate, which often goes by the name “pure moral subjectivism.”  As I write in the MAP paper:

Purely subjective moral philosophies claim that everyone must determine good and bad for themselves, and no one can impose their own moral views on others. It follows directly that no one could ever be held morally accountable in a moral way, because by definition the accountability system would be shaping one party’s behavior toward adherence to another party’s moral code.

However, excluding pure moral subjectivism from moral accounting does not infringe much on moralists’ turf, because almost no one seems to hold this view. As British philosopher Mary Midgley notes, any public proponent of these views violates them by the very act of arguing that their audience should follow them (Midgley 1993). More often, she argues, they are simply objecting to the particular moral standards society imposes on them, because otherwise they would be massively understating “the sheer size of morality”, unaware that pure subjectivism condemns them to “a state where, although intelligence can still function, there is no sense of community with others, no shared wishes, principles, aspirations or ideals, no mutual trust or fellowship outside, no preferred set of concepts, nothing agreed on as important”. (Midgley 1993, p. 10).

Beyond that, though, I am not seeing many philosophies that can’t be accommodated in this framework:

Moral accounting accommodates the most common forms of social contract theory, because it shares their common view that all parties to the contract—individuals and society—have obligations to one another. Moral accounting also accommodates the three most common approaches to deriving ethical claims: from duties (deontology), from consequences (consequentialism), or from character (virtue ethics). It accommodates deontology by treating morality as a matter of obligations that are recognized in moral books, accommodates consequentialism by incorporating the magnitudes of assets and liabilities into analysis of moral performance, and accommodates virtue ethics through professional standards that require character strengths like skepticism, independence, and courage, as well as excellence in practices like planning, data gathering and analysis.

Moral accounting accommodates value-based ethics, in which some deeds (like diving on a live grenade) are morally laudable but not obligatory (they are “supererogatory”), by basing judgments not merely on the existence of obligations but on a more holistic analysis of the moral books. Moral accounting accommodates moral universalism by using the same overall structure for every society, while also accommodating moral relativism by allowing different societies to recognize different obligations, and accommodates ‘special obligations’ by allowing different entities within the same society to have different obligations.

So my first question to moral philosophers is–am I right about these claims?  What am I missing?

Here’s a second question, perhaps more interesting philosophically, but not so crucial to making moral accounting work.  Immediately after the above passage, I make a stronger claim:

Any accounting system that didn’t accommodate all of these features would be inadequate even for the ‘simple’ task of holding people accountable for financial obligations. It seems unlikely that a less accommodating structure would be effective in holding people accountable for moral obligations.

If true, this would mean that a useful moral philosophy would have elements of all of the different theories listed above (thus it couldn’t be pure consequentialism, which lacks recognition of obligations, or pure deontology, which lacks measurement).  Again, is this right, and what am I missing?

Moral accounting poses many other questions for moral philosophers, but this is more than enough for one post!

UPDATE:  Here’s a good follow-up on what it means to hold people accountable in a moral way.