Learning from History: Why Supply Chain Managers Shouldn’t Disregard the Lean Manufacturing Principle

The day before the twentieth anniversary of the 9/11 attack on the World Trade Center, Politico published “They Created Our Post-9/11 World. Here’s What They Think They Got Wrong.” In the closing sentence, U.S. Senator Joe Lieberman stated his “lesson learned” regarding America’s unpreparedness:

You’ve got to be careful not to always fight the last war.”[1]

That sentiment is undoubtedly true, but isn’t the reverse sentiment also true? Sometimes we move so quickly to fight the next war that we foolishly disregard the last one. Indeed, supply chain managers may be experiencing such a moment right now.

A Brief History

The field of supply chain management extends over much of human history. It was first practiced during the early developmental periods of agriculture, industry, trade, and military conquest. It later took great leaps forward during the periods of mercantilism and industrialization, and then entered the modern age during the transformation of the global economy after World War II.

Indeed, supply chain management was transformed with the implementation of lean manufacturing principles. First popularized in Japan by Toyota and other manufacturers, lean manufacturing engineers espoused the goals of zero lead times and zero inventory balances. They later developed business applications in other sectors, ranging from Zero-Based Budgeting processes to Zero Inbox email procedures.

Lean manufacturing proponents emphasize the benefits of running extremely sparse and slender systems that waste no resources, that only utilize what is required at the very moment that resources are needed, that demand full justification for every purchased item, and that maintain a continuous and smooth flow of materials and activities.

For decades, these appeared to be “no brainer” operating practices. Supply chain managers always presumed that they were common-sense principles …

… until the coronavirus struck and the climate changed.

Fighting the Next War

In March 2020, shortages ranging from computer chips to toilet paper began to plague the global economy. Suddenly lean manufacturing became the principle to blame! Why, asked critics, did we ever assume that shipments would always arrive on time? And why did we believe that employees would always report to their workplaces on a full-time schedule?

Consumers began to hoard face masks, toilet paper, and cans of soup. Corporations began to run short of electronics equipment, rare-earth minerals, and transportation vehicles. Indeed, for supply chain managers, inventory-on-hand appeared to evolve from a burden to a benefit. They began to perceive the “Next War” as one in which the primary risk was failing to move away from lean management principles.

Unfortunately, supply chain managers who share this perception are failing to learn from history. Toyota, for instance, never applied lean management principles to its entire supply chain. Instead, it only applied those techniques to the specific segments of its supply chain for which it was cost-effective to “run lean” on a risk-adjusted basis.

Toyota History

When Toyota first developed its Toyota City manufacturing hub, it offered as many local city locations to its suppliers as possible. The physical proximity of its raw material and industrial component suppliers reduced the risk of inventory shortages. Thus, if Toyota ran short of an important component, an employee could simply drive over to a nearby supplier for replacements.

However, the manufacturing hub only represented one segment of Toyota’s supply chain. Its automobiles still needed to be transported to Japanese ports, shipped to the United States, processed through Customs, and then sent to dealerships before they could be sold. At every step of this distribution process, Toyota stockpiled a reasonable amount of inventory.

Why? Because the risk of running out of vehicles was simply too high. A customer who couldn’t be served in a Toyota dealership could easily drive down the street to the Honda dealer. Conversely, when incomplete paperwork trapped vehicles in the U.S. Customs zone, Toyota administrators couldn’t simply drive down the street to a different Customs Office. In both cases, the risk of such events could be addressed by increasing vehicle inventories.

Pandemics, Hurricanes, and Wildfires

In today’s high risk business environment, incomplete Customs paperwork is clearly not the greatest worry facing supply chain managers. Pandemics, hurricanes, and wildfires are now far more likely to cause disruptions in the flow of manufacturing and distribution activities.

When such disruptions occur, it is easy to wrongfully conclude “I must avoid fighting the last war. Lean manufacturing had its day, but the world has changed. Supply chain experts cannot help me now, so I’ll simply build up excess supplies of inventory throughout my system.”

Why is that wrong? Because supply chain experts always knew that inventory stockpiles are desirable under certain circumstances. In other words, the last war never ended; only the battles — which now have names like Covid, Ida, and Caldor — are new.

It may seem odd to turn to your lean manufacturing supply chain experts for advice in a business environment where inventory must increase across the board. In truth, though, lean manufacturing experts have been practicing within this environment all along. Thus, supply chain managers shouldn’t disregard the lean manufacturing principle. Throughout the post World War II period, it has always been employed as a viable strategy at appropriate stages of the supply chain. That simple fact remains true today.

[1] See https://www.politico.com/news/magazine/2021/09/10/9-11-attacks-20th-anniversary-reassessing-20-years-of-war-506924.

Sustainable Investing and Environmental – Social – Governance (ESG) Metrics: Revealing The Truth Behind The Numbers

What better way to end a dismal 2020 than by looking ahead to a (much) better 2021?

Instead of leaning back and closing the year with the customary “Year In Review” blog post, I thought that I’d lean forward and invite my colleagues to a free webinar that I am presenting on January 20, 2021 from 4pm to 6pm Eastern time, 3pm to 5pm Central time. There is no fee for attendance; the webinar will be co-presented by the Houston CPA Society and the Sustainability Investment Leadership Council. See below for details.

If you wish to attend, please contact me at michael.kraten@savethebluefrog.com. I’ll be delighted to forward the log-in codes to you. Happy New Year!

Here are the details:

Hundreds of millions of dollars are now invested in funds that are labeled “socially responsible investments.” But who determines what is “socially responsible”? How are standards and metrics defined for this large – and growing exponentially larger – sector of the capital markets?

Session Description

By June 2020, a quarter of a trillion dollars were invested in ESG funds. And the growth trend is increasing exponentially; the amount of capital that flowed into sustainable funds last year was roughly four times as great as the amount in the prior year, and six times as great as the amount in 2013.

Many wealth managers follow automated “robo-advisor” guidance by investing in ESG funds that track sustainability indices and other publicly available metrics. Thus, personal financial planners and investment managers who compete against such advisory services may find it helpful to learn about the “truth behind the numbers.”

In this session, we will review growth trends in the ESG fund industry. We will then engage in a detailed analysis of the investment methodology of the world’s leading set of sustainability indices. Finally, we will review the definitions and constructs of the world’s leading promulgators of ESG metrics and standards.

Target Audience

Wealth managers, investment advisors, and personal financial planners
Assurance professionals with professional interests in the ESG field
Accounting professionals and students with career interests in sustainability

Major Discussion Topics

Development of global ESG capital markets
The Dow Jones Sustainability Indices (DJSI)
Roles Played by RobecoSAM and Rep Risk in the DJSI
Case Study: Exxon Mobil
The Global Reporting Initiative (GRI) Standards
The United Nations Sustainable Development Goals (SDGs)
IPIECA International Petroleum Industry Metrics

Discussion Materials

CNBC, Money Moving Into Environmental Funds Shatters Previous Record

Dow Jones Sustainability Indices (DJSI) Methodology




Global Reporting Initiative (GRI)

United Nations Sustainable Development Goals (SDGs)

IPIECA International Petroleum Industry Metrics

Integrated Reporting: Built To Last

Four months ago, I wrote about the International Integrated Reporting Council’s (IIRC’s) efforts to update its 2013 sustainability reporting model. The world has confronted numerous new challenges since that time, and the financial community has risen to these challenges by pouring resources into ESG focused index funds.

As of the last quarter, for instance, a quarter of a trillion dollars were invested in such funds. Furthermore, the amount of capital that flowed into sustainable funds in 2019 was roughly four times as great as the amount in 2018, and six times as great as the amount in 2013.

It thus appears reasonable that the IIRC wishes to update its 2013 model to account for new developments, doesn’t it? Four months ago, for instance, I noted that the IIRC’s “String to Spring” approach bore some helpful similarities to COSO’s relatively new 2017 Helix model of Enterprise Risk Management. So how far from the IIRC’s original 2013 framework has its 2020 revision progressed?

Page 13 of the “Companion Document” of the 2020 revision contains the details. It compares the original 2013 Framework to a “mock-up” of the revised framework. How many of the proposed changes are radically new?

In a word? None. Indeed, the new mock-up merely contains five clarifications of the original Framework:

“Outcomes” are now referred to as “Short, Medium, and Long-Term Outcomes” to emphasize that organizations must assess impact throughout the time horizon.

“Business Activities” are now referred to as “Activities” to incorporate the non-business activities of organizations.

“Mission and Vision” are now expanded to “Purpose, Mission, Vision” to emphasize that a holistic sense of purpose should define all strategic activities.

“External Environment” now appears above the organization and not below it to emphasize that organizations must survive within their environments.

“Value Creation” is now expanded to “Value Creation, Preservation, or Erosion Over Time” to explicitly remind organizations that their actions may destroy value as easily as they build it.

None of these revisions is truly new. In fact, these concepts were already embedded in the original 2013 guidance. The 2020 mock-up simply presents these implicit points in a more explicit manner.

Thus, a model that was developed seven years ago to address the world of 2013 has been updated to address the radically transformed world of 2020. And yet this update does not include any radically new concepts at all.

It appears that the original Integrated Reporting Framework was built to last. Like the QWERTY keyboard — a model that remains just as indispensable on a 2020 Apple Macbook as on an 1893 Remington typewriter — the Integrated Reporting Framework perseveres as the leading standard of sustainability reporting.

Measuring Stakeholder Capitalism: Accountants Are Saving The Planet!

Five years ago, Jane-Gleeson White authored the whimsically titled book Six Capitals, or Can Accountants Save the Planet? Its sub-title was Rethinking Capitalism for the Twenty-first Century.

For obvious reasons, the book proved to be quite popular with the accounting crowd. And during the past five years, it also proved to be prescient about the global community’s flourishing debate regarding the impact of capitalism on social inequality, economic instability, and environmental degradation.

Last month, the World Economic Forum worked in collaboration with public accounting’s “Big Four” global firms to produce a White Paper entitled Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. Under normal circumstances, one might expect such a White Paper to be filled with general platitudes and vague goals about moving “towards” more concrete standards over the long term.

Not this time. The White Paper is stunningly specific about a major obstacle that impedes our attempts to save the planet. Indeed, it presents a detailed solution.

What is the obstacle? It is the lack of a universal consensus around a single set of sustainability standards. The Paper creates such a set by synthesizing the frameworks and standards of five different voluntary bodies, while referring to the Sustainable Development Goals of a sixth body, the United Nations. Drawing upon these sources, the Paper defines 55 universal metrics and disclosures that can be utilized by all global organizations.

These are not 55 vague definitions. They are detailed technical standards that are designed to be measured within organizations and then reported to the public. In the White Paper, the World Economic Forum and the “Big Four” public accounting firms assert that:

By reporting on these recommended metrics in its mainstream report – and integrating them into governance, business strategy and performance management —a company demonstrates to its shareholders and stakeholders alike that it diligently weighs all pertinent risks and opportunities in running its business.

But beyond this, those corporations that align their goals to the long-term goals of society … are the most likely to create long-term sustainable value, while driving positive outcomes for business, the economy, society and the planet. This is the true definition of stakeholder capitalism.


The Problems That Plague Us

Imagine this scenario. One terrible morning, you wake up with a shooting pain in your chest, a badly leaking roof on your house, and a text message on your mobile device that you lost your job.

What would you do? Undoubtedly, you would prioritize. First, you would go to the emergency room. If your diagnosis is “merely a bad case of indigestion,” you would quickly patch the roof with a temporary plug. Then you would get your resume in order and change your LinkedIn status to “available.”

After a couple of days, what would you do? You would reassess your risks and reprioritize these challenges. Is your indigestion now chronic and severe, making it impossible for you to get any sleep? It might become your short term priority. But what if the temporary roof patch is leaking badly? Then you might shift gears and focus on a more permanent solution.

Finally, what if you learn that you are about to receive no severance pay and no continuation of employer-paid health benefits? Then a new job – any new job – might become your top priority.

You would not actually attempt to manage all concerns simultaneously. Multi-tasking, after all, is not a feasible strategy because it prevents you from focusing on any single consideration. Instead, you would frequently reassess each of your concerns and continually shift your attention to the issue that represents your new immediate priority.

Analogous challenges now confront us at the global level. Instead of confronting the personal risks of heart and digestive failure, house infrastructure failure, and job failure, we are confronting the communal risks of coronavirus, wildfires and hurricanes, and economic recession. How can we possibly solve all problems simultaneously?

Indeed, we cannot solve them all at once. Not if we wish to “do it well.” Thus, we must be prepared to frequently reassess these crises and then refocus on our reframed priorities.

This sounds like a game of Whack-A-Mole, doesn’t it? Over time, though, the proverbial “moles” may become progressively smaller, and we may expend considerably less energy when we deliver each “whack.”

We can, indeed, find guidance to help us plan this approach. Page 7 of the Executive Summary of COSO’s 2017 Enterprise Risk Management: Integrating with Strategy and Performance lists twenty practices for managing risk. The eleventh through thirteenth practices are: Identifies Risk, Assesses Severity of Risk, and Prioritizes Risk.

As a society, we have already identified the crises that bedevil us. But there is no national strategy for assessing and prioritizing the problems, and thus no plan for expending scarce resources on potential solutions.

If we can simply apply the proven COSO guidance to the challenges that now face us, we may be able to devise effective solutions. If we cannot, we will continue to lurch from crisis to crisis, unable to solve the problems that plague us.

Back To The Classroom: A Professor’s Experience

As a professor at a private regional university in one of America’s largest cities, I found last week’s “back to the classroom” experience to be a surreal one.

I spoke for 75 consecutive minutes through a face mask. I fidgeted while anchored to the podium, unable to move around the room while remaining within range of a video camera. And I watched with trepidation while students moved within six feet of friends, tugged down their masks to speak, and generally struggled to respect the restrictions of social distancing standards.

How can any one teach under such circumstances? Indeed, how can any teacher meet the semester’s learning objectives when students are permitted to “elect the remote learning option,” thereby eliminating the classroom entirely and opting to “attend” sessions by watching the video recordings of the live lectures?

Thus far, I only have one week of teaching under my belt. Nevertheless, I am already adapting to new realities by emphasizing certain principles:

1. EMPATHY. In unfamiliar and unprecedented circumstances, I find that I can only anticipate the needs of students by making a conscious effort to “stand in their shoes” and “see through their eyes” to identify their obstacles to learning. By making such an effort, I can recognize difficulties and develop solutions that may not have occurred to me otherwise.

For instance, consider an ostensibly inconsequential student presentation assignment. For students who are learning remotely, the physical classroom must be replaced by some type of electronic communication platform.

At first blush, a video platform such as Zoom or Skype may appear to offer an effective solution. But what if I view this assignment through the eyes of a disadvantaged student? Does that student possess a broadband internet connection at home? In more extreme circumstances, does the student live in a home at all? And in a visually “presentable” one at that?

There are various solutions to deal with this problem, though (regrettably) none is ideal. Nevertheless, by applying a sense of empathy, I may be more likely to identify the challenges that students may confront during a simple presentation activity.

2. FLIPPING THE CLASSROOM. Traditionally structured courses require students to listen to lectures and discuss cases in live classroom environments, and then to go home and apply their knowledge by completing homework assignments. For many years, though, some teachers have “flipped the classroom” by instructing students to watch video lectures at home. Then students are expected to complete their application activities in the classroom, guided by teachers who serve as coaches and mentors instead of as lecturers.

To be sure, this is not a new pedagogical strategy. However, when many students must “attend” lectures through videos because personal circumstances prevent them from traveling to their classrooms, “flipping the classroom” may evolve from an optional strategy to a mandatory imperative. Under such circumstances, teachers can embrace the “flipping” model and communicate with these remote students electronically, serving as coaches and mentors in an empathetic manner.

3. PULL COMMUNICATION. Under normal circumstances, teachers communicate with students by making verbal announcements in classrooms and video chat rooms, and by posting messages via email, blogs, and electronic announcement boards. Students then reply by verbal conversations and email transmissions.

Under pandemic conditions, teachers can continue to communicate by utilizing these methods. But imagine the discomfort that students may experience while telling teachers “I have Covid” in open Zoom chat rooms, or while reporting on students who attend off-campus “no masks allowed” parties via email messages.

New communication methods may be needed to “pull” such information from students by removing the behavioral obstacles that impede such conversations. Anonymous message systems and private reporting mechanisms may conflict with recent trends towards open and transparent group communication methods, but they may enable more effective interactions during the pandemic era.


Technology clearly plays a key role in each of these three circumstances. However, the solution in each circumstance is not technology itself. Rather, the “Path Forward” may involve the establishment of a more durable and reliable human connection between the professors and the students whom they serve.

Integrated Reporting and Risk: A Helix and a Spring

Note: This post has also appeared on the blogs of the Public Interest Section of the American Accounting Association and the Sustainability Investment Leadership Council. I encourage you to use these links to peruse these outstanding online publications.

Three years ago, COSO updated its Integrated Framework for Enterprise Risk Management (ERM). It was a noteworthy event in the business community, given that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is the leading authority that promulgates guidance about internal control and enterprise risk management systems.

Prior to this update, organizations utilized a cubic ERM framework that COSO first promulgated in 2004, following a scandal plagued era that featured the collapses of Enron, Arthur Andersen, and WorldCom. The original cubic ERM model emphasized the practices of event identification, risk assessment, control practices, and response capabilities.

After years of widespread use, the 2004 COSO Cube became synonymous with the practice of ERM. In its 2017 update, though, COSO presented a new “Focused Framework” with five components: (a) Governance and Culture, (b) Strategy and Objective Setting, (c) Performance, (d) Review and Revision, and (e) Information, Communication, and Reporting. To emphasize the “interrelated” nature of these five components, COSO designed a visual framework that weaves the five together in the form of a multi-colored Helix.

The designers of the Integrated Reporting <IR> Framework may have taken this Helix into account when they defined their own framework development goals earlier this year. Since 2013, issuers of integrated reports have used the International Integrated Reporting Council’s (IIRC’s) colorful Six Capitals model to structure their presentations. Some even referred to the framework as the Octopus Model, given its vaguely mollusk-like shape.

Like COSO, the IIRC felt the need to update this original framework. Its design project remains in progress, but the organization recently issued a model entitled “From String to Spring” that features an extension of the Six Capitals model.

Each of the six capitals of the <IR> Framework, like each of the five components of the ERM framework, is represented by a colorful String. Whereas the five “interrelated” Strings of the ERM framework are woven into a colorful Helix, the six “integrated” Strings of the <IR> Framework are woven into a colorful Spring.

Given the obvious similarities between the Helix and the Spring, it is hard to believe that the two design teams were oblivious to each other’s efforts to update their original Frameworks. Indeed, by presenting such similar models, COSO and the IIRC remind us of the significant “interrelationships” and “integrations” that link the functions of enterprise risk management and integrated reporting.

The Historical (And Yet Contemporary) Importance of Behavioral Accounting

Note: This post has also appeared on the blogs of Econvue, the Public Interest Section of the American Accounting Association, and the Sustainability Investment Leadership Council. I encourage you to use these links to peruse these outstanding online publications.

The field of behavioral finance studies the behavior of the investment markets. Similarly, the field of behavioral economics studies the behavior of the global economy and the numerous national, regional, and local economies.

But what of the field of behavioral accounting? How does it resemble the fields of behavioral finance and economics? And how does it differ?

Behavioral accountants, like their colleagues in the other financial professions, focus on elements of human characteristics that can be identified in aggregate data sets. They recognize that organizations, like markets and societies, are composed of individuals who make personal decisions in often-predictable ways. Thus, because behavioral researchers can understand and predict individual decisions in various situations, they are also able to understand and predict the impact of aggregate decisions.

Accountants, though, specialize in the development of organizational reports that describe the conditions of organizations. Internal and external users of their reports rely on them to make important decisions that impact the well-being of those organizations. Thus, at times, accountants feel inherent tensions between the goals of “measuring and reporting data accurately and objectively” versus “measuring and reporting data that persuades the user to make decisions that help the organization.”

Individuals study to become public accountants to learn how to implement measurement and assurance procedures in support of the first goal. Separately, they study to become behavioral accountants to learn how to support the second goal. These goals overlap, but they are not mutually exclusive. In certain situations, they are perfectly aligned. In other situations, though, they have little in common, and they may even conflict.

A Controversial Example of Behavioral Accounting

A prime example of controversial behavioral accounting is commonly known as “greenwashing” in sustainability circles. Organizations cherry-pick data that appear to portray them as responsible guardians of the environment, and then present that data to persuade readers that they are responsible stewards of the natural world.

Volkswagen’s notorious collection of falsified emissions testing data is an obvious and egregious illustration of greenwashing behavior. Other illustrations are more subtle in nature, generating healthy debates over whether the content is misleading at all.

Consider, for instance, the pledge that was made by E. Neville Isdell, Chairman and CEO of The Coca-Cola Company. In 2007, he declared that “Our goal is to replace every drop of water we use in our beverages and their production.

On the one hand, the firm produced data that indicated the successful achievement of that goal. But on the other hand, investigative reporters have noted that “… ‘every drop’ includes only what goes into the bottle. The company does not count water in its supply chain — including the water-guzzling sugar crop — in its ‘every drop’ math.

Indeed, a public accountant may be able to provide assurance that the “drop for drop” phrase is (technically speaking) an accurate description of Coca-Cola’s water utilization patterns. But a behavioral accountant may protest that the vaguely defined phrase invites selective interpretation.

A Universally Admired Example of Behavioral Accounting

Ben & Jerry’s provides a contrasting illustration to the controversial food and beverage example of Coca-Cola’s environmental accounting practices. The ice cream manufacturer is often credited with producing the world’s first Corporate Stakeholder report (i.e. Integrated Report) more than two decades ago.

Using an internally developed proprietary format that the firm called Social & Environmental Assessment Reports (SEARs), Ben & Jerry’s published sustainability data on its web site for many years until concluding the practice in 2018. The reports employed colorful graphic imagery to express its core values, its focus on its social mission, its multiple year planning processes, its goal setting practices, and its outcomes. It also hired an independent public accounting firm to prepare annual independent review reports on the information.

The playful graphics, the earnest social messaging, and the metrics all served to reinforce the impression of Ben & Jerry’s as a socially conscious firm that made business decisions in support of the public interest. The behavioral impressions that were produced by the SEAR Reports undoubtedly supported the decision by Unilever to purchase the firm on friendly terms.

From The Past To The Future

Why did Abraham Lincoln begin his 1863 Gettysburg Address by noting an event that occurred “four score and seven years ago,” instead of simply beginning with the phrase “in 1776”? He must have known that his audience would have leaned into the arithmetic calisthenics of computing the year, thereby placing them in an appropriate frame of mind to focus on his intellectual argument about the war’s threat to democracy.

And why did he end his Address by vowing to protect the “government of the people, by the people, for the people”? Why didn’t he simply vow to protect “democracy”? Once again, he must have anticipated that the repetitive rhythmic triadic cadence would be more memorable to his audience. It’s also why Martin Luther King repeated “I Have A Dream” nine times in his immortal address, and “Free At Last” three times at the very end of the speech.

Lincoln and King both knew that the levels of the persuasiveness of the information that they conveyed to their audiences were just as important as the objective validity of their logical arguments. Such knowledge continually inspires today’s behavioral accountants to redefine traditional profitability measurements into more esoteric metrics like Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Adjusted Consolidated Segment Operating Income (ACSOI).

From Abraham Lincoln to the Chief Financial Officer of Groupon, the principles of behavioral accounting have been widely used to influence the decisions of stakeholders. Indeed, it is not sufficient for an accountant to simply “get the numbers right.” It is also important for an accountant to “persuade the user of the numbers to behave in a desirable manner.”

Once Again, A Lost Generation

Precisely one century ago, Ernest Hemingway was living in Chicago and attempting to readjust to civilian life after experiencing the horrors of service as an ambulance driver for the Italian Army in World War I. F Scott Fitzgerald was drinking excessively and wooing his future wife Zelda while attempting to transition from an unsuccessful career in advertising to a lucrative one in writing novels and short stories. And the United States, as a nation, was struggling to recover from its loss of human life during the Spanish Flu pandemic, its failure to permanently “make the world safe for democracy” in World War I, and its inability to prevent the economic collapse of the 1920 Depression.

Hemingway’s and Fitzgerald’s subsequent tales illustrated the plight of The Lost Generation, the demographic cohort that came of age at a time when national leaders and the general public were asking serious questions about the sustainability of American society and its capitalist economy. Although the 1920s are now remembered as a time of prosperity, the decade also represented a time of escalating income inequality, debt-fueled business transactions, racial and religious bigotry, and political turmoil.

Today, much praise is bestowed on America’s Greatest Generation, the demographic group that came of age during the Great Depression and World War II. Much less attention is paid to the Lost Generation, though, the preceding generation that (according to Hemingway) believed that “if you have a success you have it for the wrong reasons. If you become popular it is always because of the worst aspects of your work.”

What caused such a pessimistic, fatalistic, and almost nihilistic perception of American business and society to be adopted by an entire generation? It could not have been a mere single catastrophic event; after all, many American generations experience such events. Perhaps, instead, it was the impact of a wide variety of catastrophic events that generated such cynicism, catastrophes that affected many different types of institutions that supported American society.

And what of today’s youthful generation? What of Gen Z, the demographic cohort that was born after 1996 and is now entering the work force? Their collective memories encompass the national security failure of 9/11, the military quagmire of the Middle Eastern wars, the economic collapse of the Great Recession, the radicalization of contemporary political movements, and the social and medical convulsions of the coronavirus pandemic.

Today, some citizens are calling for dramatic new investments in national programs, arguing that the failure to make such investments will result in severe economic losses. Others reply that massive increases in federal debt will be required to finance such investments, and that excessive spending will impose even more severe economic losses in the long term.

But neither side is factoring the risk of the emergence of a new Lost Generation into its Return On Investment analyses. If we believe that the potential cost of a climate collapse must be factored into analyses of proposed environmental sustainability investments, perhaps we should likewise conclude that the potential cost of producing another Lost Generation must be factored into analyses of proposed social sustainability investments.

After all, a century ago, the Spanish Flu pandemic helped to produce a group of “Lost” authors who shaped the generation that stumbled into the Great Depression. What will the Coronavirus pandemic do today?

Accounting for Coronavirus Risk

As Queen Elizabeth makes her emergency address to the British people from her safe zone in Windsor Castle, and as the U.S. Surgeon General Jerome Adams warns the American people of an impending “Pearl Harbor Moment,” is it reasonable to ask why governments and businesses were caught blindsided by the coronavirus catastrophe?

Perhaps it’s unfair to expect foresight in the face of such a menace. But why weren’t health care providers and other organizations prepared to respond promptly? Why the shortages of such basic items as face masks and nasal swabs? Where was the contingency plan to increase production of such essentials at a time of dire need?

If we review the reporting standards of the Global Reporting Institute (GRI), we can find disclosure requirements that address these readiness considerations. GRI Standard 204 on Procurement Practices, for instance, states that:

When reporting its management approach for procurement practices, the reporting organization can … describe actions taken to identify and adjust the organization’s procurement practices that cause or contribute to negative impacts in the supply chain … (these) can include stability or length of relationships with suppliers, lead times, ordering and payment routines, purchasing prices, changing or cancelling orders.”

Consider the many health care providers that rely on unstable Asian suppliers to provide face masks under terms that permit long lead times, uncertain ordering routines, and the imposition of extreme price increases when products are scarce. If they are required to disclose these procurement relationships under GRI Standard 204, we would be aware of the resulting social risk.

Likewise, GRI Standard 403 on Occupational Health and Safety states that:

The reporting organization shall report … whether the (occupational health and safety management) system has been implemented based on recognized risk management and/or management system standards / guidelines and, if so, a list of the standard guidelines.”

Consider the employees of our food and delivery companies who are now protesting that their employers are not providing satisfactory protections against the coronavirus. If the employers are required to disclose the standards and systems that they utilize to keep their employees healthy and safe, we would be aware of the extent of their preparedness (or lack thereof) in the face of pandemic threat.

There are other GRI Standards that come close to addressing pandemic concerns, but that fall just short of the mark. GRI Standard 201 on Economic Performance, for instance, states that:

The reporting organization shall report … risks and opportunities posed by climate change that have the potential to generate substantive changes in operations, revenue, or expenditure, including a description of the risk … a description of the impact associated with the risk … the financial implications of the risk … the methods used to manage the risk … (and) the costs of actions taken to manage the risk.”

Although Standard 201 refers to climate change, it would represent an ideal disclosure requirement for pandemic preparedness if the GRI simply adds the words “and pandemics” to “climate change.”

It may be comforting to know that disclosure defining entities like the GRI have issued standards that address our readiness to fight the current pandemic. But we cannot reap the benefits of these disclosure requirements if organizations simply ignore their reporting responsibilities.