There’s an interesting article in Strategic Finance about measure management and narrative reporting, based on research by Jeremy Bentley (a former doctoral student of mine). It’s a great opportunity to clarify how moral accounting fits together with more traditional managerial accounting, particularly as I present it in What Counts and What Gets Counted–so also a great opportunity to introduce the Managerial Reporting course I’m about to start teaching in the EMBA Americas program this month.
Measure management occurs when someone manages the measures of performance, rather than just the underlying performance the measure is supposed to capture. Measure management comes in two flavors, with slightly different implications for both traditional and moral accounting.
As an example, let’s assume we are trying to reduce the delay between the time a doctor’s appointment is booked, and the time the patient is actually seen. So we measure these delays and tie them to doctors’ incentives. You get what you measure, so that has to reduce delays, right? Nope: you reduce measured delays, not necessarily the patient wait times we actually care about.
One way doctors can improve their measures without actually improving performance is through reporting distortion: distorting how they report the measure. The Veterans Administration hospitals did something like this back in 2014: they kept a secret list of bookings, and wouldn’t report them until shortly before appointments actually occurred. The measure of delay looked better, but true performance didn’t improve.
Doctors can also use operating distortion: reporting as they ordinarily would, but changing what they do. Doctors in the UK did this when the UK started requiring doctors to see patients within 48 hours of booking an appointment. What did doctors do? When a patient called and asked for an appointment for the next week, doctors would simply turn them away, and force them to keep calling back until there was an appointment. Voila–fewer measured delays greater than 48 hours, but not what we were hoping for.
From the perspective of traditional accounting, the problem with reporting and operating distortion is simple: they make governance less effective. We’re trying to get people to do what we want, but people do what they want–which is to look good according to the measures we devise, so they get bonuses, promotions, etc.
What Counts and What Gets Counted is filled with advice on how to improve performance effectively in the face of measure management, which I won’t repeat here (read Chapter 3.3!) And that highlights one aspect of the relationship of traditional accounting to moral accounting. Moral accounting has seven many principles that must be met in order to hold people accountable in a moral way, but traditional accounting addresses only one of them: Effectiveness. And even there, traditional accounting falls short of morality, since to be moral you would have to be effective in making behavior more moral, not just (for example) more profitable.
So you can think of What Counts as being a detailed set of instructions for being effective. Moral accounting, on the other hand, helps us evaluate whether we are effective in making people behave more morally, and also helps us evaluate whether we are holding people accountable in a moral way.
And on that second point, measure management poses some different challenges. For starters, do the people we manage have an obligation to avoid measure management? If so, what type of punishment or control would be proportional? And so on. If you are interested in this last topic, take a look at my paper Reporting Distortion is Like Lying, But Operating Distortion is Like Stealing–a great topic for the EMBA Americas discussion forum!