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Inactivity Based Cost Management [IBCM©] in Part I and

Corporate Critical Density in Part II

“You can’t expect to meet the challenges of today with yesterday’s tools and expect to be in business tomorrow”

What is presented in the two books is unique and meet the challenges of tomorrow. The Author has seen through a number of tools used for management and every one of them belong to the yesterday’s tools.

If 0 and 1 gave an immense opportunity for a computer to explode to infinity, the same binary values bring infinite succession of finite purposes to a single rating system, objectively. This concept is unique and metrics everlasting.


External Reviewer’s comments: Quote:

How widely is the subject, as represented by this book, taught?

The subject of Governance has and will find growing interest. However, Governance is dealt with by Jayaraman in a truly path breaking manner.


Jayaraman’s book could actually initiate a fairly radical transformation in how this subject is dealt with or taught!

As issues of ethics and accountability gain importance, especially after what the world witnessed the last couple of years in the financial sector, the market is ready for some radical thought.

Which are the principal books (Indian and foreign) with which this one would have to compete or with which it will be compared? Please compare them with the work you are evaluating, pointing out the relative strengths and weaknesses.

This book is truly in a ‘Blue Ocean’! There are no books that I know of that has dealt with tangibles and intangibles; accountability and governance as dealt with in this book.

Unquote:

Executive Summary

(1) Hidden Values: An organisation is made up of three kinds of elementary particles: policies, which have a positive electrical charge; practices, which have a negative electrical charge; and the People who have no charge. Policies and People are packed into the nucleus, while practices spin around outside.

  • Policies are the creative process of management excellence where the managerial emphasis is apparent, the protons of the organisation atom. Organisation that has an identity is measured as to policies created and collectively form Intellectual Value Capital of the Organisation.

  • Practices are the action process of the related policies where the operational emphasis is apparent, electrons of the organisation atom, for an infinite succession of finite purposes. Organisation that has an identity is measured as to practices followed and collectively form Emotional Value Capital of the Organisation.
  • People (society) do not influence identity of the organisation but they do add to its mass. People form a nucleus with policies of an organisation where participation of society is apparent, the neutrons of the organisation atom. Organisation that has an identity is measured as to policies created, practices followed, with society compacted into the nucleus and collectively form Intangible Value Capital of the Organisation.

(2) Manifestation of values: There’s a commonality between a potter and a scientist accomplishing the task effortlessly, each entrusted with the same energy force Intangible.

  • Intangible Value Capital is the measurement of the usage of Intellectual and Emotional Value Capital, brings out the best from matter by colliding with Intangible transforming into pure energy.

(3) Corporate Strategies predict probabilities for future events based on past ones. That by which a strategy transforms in six stages from a state of non-existence into a tangible substance as a policy document or an IPR or an identifiable object adds up to the Intellectual Value Capital of an organisation.

  • Illustratively, Corrado and Hulten (2010) estimated that in 2007 investments in intangibles which was at $4.1 trillion was excluded from published national accounts data in the United States,i is the result of incomplete strategies gone berserk.
  • All substance animate and inanimate, sentient (active) and insentient (inactive) objects go through the same creative process. From foetus to baby, from seeds to plant, from ideas to IPRs, to manufacturing, to enacting laws, to accounting standards, to diamonds, to Constitution framework, are all created to be called ‘Matter’ or ‘Substance’ when each goes through an identical Creative Process.
  • Corporate Strategies end up as Intellectual Value Capital that represents the Quality of a company, that adds mass m to the energy force by forming a nucleus with the society.

(4) Corporate Governance, is the result of practices followed by the management with each action directly related to the intellectual value capital, forming emotional value capital of a company that revolves around the policies accomplishing finite tasks in infinite succession.

  • With the intellectual value capital (policies) as the backbone emotional value capital (practices) establishes the connection to the cause and effect of a cosmic formula, churning out intangible value capital.
  • Governance, as it ought to be, functions in a dynamic state enabled by real-time monitoring of material actions.

(5) Enterprise Resource Control: All man-made objects, the outcome of accomplishing tasks in an infinite succession of finite purposes, hold on to a single source of energy – intangible supplied by a single resource provider – People. The manifestations of values found in every building block of the organisation, in multiple functions at multiple dimensions exhibit a self-similarity by measurable terms of binary value 1 and 0(zero) signifying the presence or absence of energy force intangible.

  • Intangible is the essence of enterprise resource control resolving the paradox i. of efficiency – by real-time monitoring, ii. of values – by participation of society and iii. of profits – by study of cost consequence, enabled by Inactivity Based Cost Management, analysing inactive intangible.

  • Paradox is the result of, what KPMG, EIU report findings stateii: Many firms are grappling with the problem of deciding exactly what and how to measure ; Deciding how to measure is more difficult than deciding what to measure.

(6) Corporate Critical Density: Policies, Practices and People add mass m to the organisational atom that the3-Ps personify.

  • Huge energy (E=mc²), where E is the energy, m is the mass and c the speed of light, is bound up in every material event. The three components of m – the 3 Ps – Policies, Practices and People – are the energy force of the organisation when optimised is multiplied by speed of light times speed of light, indicating a company of its capability.

  • For the universe to exist as it does requires that hydrogen be converted to helium in a precise but comparatively stately manner that gravity is perfectly pitched – ‘critical density’ is the cosmologists’ term for it – and that it will hold the universe together at the just right dimensions to allow things to go on indefinitely.iii

  • The character of gravity revolves around the 3Ps that Corporate Critical Density is the fulcrum for sustainability of optimal efficiency, sustainability of values and sustainability of profits to go on indefinitely.

  • With the six-stages of the creative process as well as action process of policies and practices respectively the Intellectual Value Capital and Emotional Value Capital shall be 0-5 at any given time with the optimal value attributed to each at 5 indicating the presence or absence of intangible given the binary value of 1 and 0.

  • Intangible Value Capital = (Intellectual Value Capital + Emotional Value Capital)/2, by simple average of all corporates, determines the country rating of AAA.

As Newton said Nature is very consonant and conformable to herself, there is beauty and symmetry in all tangible substance. Science succeeds getting closer and closer to the Nature’s underlying structure that Corporate Management shall adopt for the applicability of the criterion of simplicity.

Presenting in two parts an extract of my work.

Yours truly,

Jayaraman Rajah Iyer

Kodaikanal, Tamil Nadu, India

Part I – Inactivity Based Cost Management iv

Jayaraman Rajah Iyer

Executive Summary

Activity has a cost incidence, Inactivity a Cost Consequence.

Accounting is built on logic, a binary system with corresponding value of 1 and 1, within a framework of a material event for an activity.

Whereas, inactivity is a paradox when materiality that provides a threshold or cut-off point is breached, having opposite values signifying presence or absence of energy. That energy is intangible, marked by binary value of 1 and 0(zero). Energy is liberated matter, matter is energy waiting to happenv. By defining intangible paradox finds a secured place in a logical framework.

Inactivity Based Cost Management is study of Cost Consequence.

1. Understanding Intangible

Dictionary meaning of Intangible is, 1. incapable of being perceived by the senses. 2. Incapable of being realized or defined. 3. Incorporealvi. Unlike other words Intangible remains undefined in any dictionary.

AS(26) defines Intangible Asset: as, an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. Exposure Draft E50 in 1995, re-exposed as E59 in 1997 and when finally emerged in 1998 as IAS 38 Intangible Asset the word Intangible remained undefined and the term was never brought into discussion during the period.

Intangible Assets, the investment: “Nakamura estimated the value of U.S. gross investments in intangibles in 2000 to be at least $1 trillion annually. More recently, Corrado and Hulten (2010) estimated that in 2007 investments in intangibles which was at $4.1 trillion was excluded from published national accounts data in the United States.vii

Frustration today: US Corporates feel: in fact, it is not clear that the so-called GAAP standard is even particularly meaningful anymore, companies continue to search for beneficial ways in which to disclose information about themselves with or without formal sanction.viii

At the same time Auditors point out:ix i. The responsibility for the prevention and detection of non-compliance rests with managementx, and ii. Thus, materiality provides a threshold or cut-off point….” ISA 320.3xi.

Read with the definition of materiality and the decision to exclude $4.1 trillion investments in intangibles from published national accounts data in the United States, understanding of the word Intangible in the term Intangible Asset is warranted.

2. Intangible the energy force

Intangible is antimatter and good similarities exist between matter and antimatter on the one hand, and tangible and intangible on the other. A physics textbook describes matter as that which takes up space and has mass. Every physical object in the visible universe consists of matter. Antimatter cannot be even thought about by all the faculties the human mind possesses, as to what antimatter was before the Big Bang, because the laws of physics apply only since then. Antimatter can be discussed only in relation to matter.

Similarly Intangible can be seen however, but only in relation to a tangible matter. Accountability, Governance, Good Intentions, Confidence Measures, Responsibility, Collaboration are all Intangible. They are not seen – just like running, sleeping, walking, idling etc., that are intangible elements. In fact not even a grammatical sentence can be formed without the intangible as this is the rudimentary verbal element that develops to form a stem and to the stem is added a personal ending so as to form a complete verb. The Earth’s atmosphere and magnetic field is so thick that x-rays are unable to penetrate from outer space all the way to the Earth’s surface. Neither the atmosphere magnetic field nor the x-ray, one is able to see. When the same x-ray is passed through a machine the result is not only seen but is also captured for verification.

When intangible is associated with tangible it brings life into matter. Just like an antiparticle when it collides with a particle that merges and converts into pure energy, intangible colliding with tangible becomes pure energy.

Intangible is the energy force, is the God particle without which there is no pull or energy in the body of management. In the domain of intangible there is no duality, no paradox, no plurality and no opposite values that are the characteristics of the tangible domain. The intangible is a single indivisible unit, an energy force ever permanent.

Therefore the term Intangible Asset is an oxymoron.

3. Framework for Policies and Practices of Management

From Nature we find, every atom is made from three kinds of elementary particles: protons, which have a positive electrical charge; electrons, which have a negative electrical charge; and neutrons, which have no charge.xii An organisation is made up of three kinds of elementary particles: policies, which have a positive electrical charge; practices, which have a negative electrical charge; and the People who have no charge.

Protons and neutrons are packed into the nucleus, while electrons spin around outsidexiii. Policies and People are packed into the nucleus, while practices spin around outside.

The number of protons in an atom is always balanced by an equal number of electrons.xiv The number of categories of personnel in policies are always balanced by an equal number of categories of personnel in practices.

Neutrons don’t influence an atom’s identity but they do add to its mass.xv People do not influence identity of the organisation but they do add to its mass.

4. Creative Process of Policies

Articles of Association (AoA) and Memorandum of Association (MoA) together form the constitution of a company, as protons and neutrons respectively at the nucleus. AoA gives identity to a company whereas MoA its umbilical cord from the society. Energy is liberated matter, matter is energy waiting to happenxvi. A company acquires an identity, becomes a substance with energy, to create multiples of polices followed by related practices for an infinite succession of finite purposes.

A company duly registered is an end product of a creative process culminating as a substance with action waiting to follow. The substance is a tangible instrument identifiable as a legal person with AoA and MoA specifying the Quality of the substance as Policies. Thus the substance joins every other substance created in the tangible world – man-made or Natural – on equal footing. Practices are liberated Policies, policies are Practices waiting to happen, cause and effect of a cosmic formula.

The Six Stages Of Creative Process of Substance

All substance animate and inanimate, sentient (active) and insentient (inactive) objects go through the same creative process. From foetus to baby, from seeds to plant, from ideas to IPRs, to manufacturing, to enacting laws, to accounting standards, to diamonds, to Constitution framework, are all created to be called ‘Matter’ or ‘Substance’ when each goes through an identicalCreative Process.

The six stages illustrated below are major milestones from a state of non-existence to a completed state of Substance, transforming linearly with tangible signs of development at each stage, similar to Nature.

Stages of Creative Process

The characteristics of a creative process

1. During transformation, presence of energy force intangible is visible. When development stalls and growth is stunted the absenceof energy force is manifest.

2. The absence of energy is the inactive elements of intangible indicating the gap to be bridged in order to reach the state of a substance.

3. The presence or absence of energy is marked by a binary value of 1 and 0 (zero) respectively.

4. Marking binary values for presence or absence of energy is on real-time.

5. When the creative process is complete the substance acquires a value of 5 equal to the six stages of completion.

6. The inactive elements of intangible is always 5 minus the stage of completion, called Index of Inactivity, indicating energy waiting to happen for substance to emerge.

7. Index of Inactivity is the basis for study of cost consequence.

Binary Value during Creative Process (Policies)

Binary Value during Creative Process (Policies)

State

Binary Value

Status

State of Quiescence

0

Non-existence

Conceptualisation

1

(The subtlest of the elements created in space has only one quality – Sound) Idea to float a company

Communication

2

(Air: which is less pervasive, in addition to sound has the quality of touch that can be heard and felt.) Idea communicated to float a company

Formation

3

(Fire has three qualities, in addition to sound and touch, possesses a form that can be heard, felt and seen.) Team set-up with specific agenda for forming a company

Formulation

4

(Water has four qualities in addition to the qualities of sound, touch and form has the quality of taste that can be heard, touched, seen and tasted, to distinguish the flavour.) Formulating Financial, Market, Economic analysis and findings ready to set-up a company.

Substance created

5

(Earth has five qualities, sound, touch, form, taste and smell that can be heard, touched, seen, tasted and smelt. Matter is in completed form) AoA & MoA signed and sealed.

5. Opposite Values

Logic means something, which doesn’t have an opposite, which is straight, which is not paradoxical. Accounting is built on logic of binary system not opposite but corresponding value of 1 and 1, where debit equals credit tallying in a trial balance. In case of Investments in intangibles of $4.1 trillion excluded from published national accounts data in the United States, logic gives way to paradox when materiality that provides a threshold or cut-off point is breached.

The breach of materiality clause happened when IAS 9 (Research and Development Costs) in the year 1998 was replaced by IAS 38 (Intangible Assets) that opened the Pandora box of material events escaping the scrutiny of the audit profession. Prevention and detection of non-compliance is feasible by real-time monitoring but not after the event has taken place, resulting in Audit profession’s difficulty in resolving $4.1 trillion that is left unaccounted. Governance is monitoring the speedometer while driving.

Truth is paradoxical and Truth involves completely opposite values; then only, can it be Truth. Opposite values consist of positive and negative charge that attract each other. The absence of one renders the other dysfunctional as well as repels by meeting its own kind. For example, If X² = 4, X = √4; then √4 Ξ ± 2; Ξ is a symbol with three dashes i.e., identically equal to +2 as well as -2. Policies as protons with +ve charge and Practices as electrons with -ve charge, power into an energy force one attracting the other. Policy is a substance and is the outcome of creative process, whereas practices the related action process.

As OECD report mentions: It is management‘s responsibility, with the oversight of those charged with Governance, to ensure that the entity‘s operations are conducted in accordance with laws and regulations.xvii, the responsibility for managerial actions coincides with Governance that logic would fail to resolve. Practices therefore need a standard to fall back upon, a policy specifying the Quality. When one of the two processes i.e., policy or the related action is missing, accounting profession finds the gap of opposite values that is hard to reconcile. Opposite values are assigned a binary value of 1 and 0(zero) as to the presence or absence of energy respectively.

6. Action Process of Practices

Substance is such that its Quality cannot be separated nor can its Work or Action be dissociated from it. Creative Process is identical for all substance whereas action process is unique to the quality of substance acted upon. A Substance retains its independence throughout, even while performing tasks while yoked with another, enabling accomplishment of infinite succession of finite purposes by controlling each goal.

Quality of Policies influences the outcome of the Practices. The proton is about 1836 times heavier than the electron, so that the proton constitutes almost the entire mass of the atom. The atom consists of proton as the nucleus, to which a single negatively charged electron is bound by an attractive electrical force (since opposite charges attract).xviii

Whereas, Policies are the protons of the organisational-atom positively charged, Practices its electrons negatively charged enabling Policies and Practices to attract each other for a perpetual cyclical motion of Energy as liberated matter and matter as energy waiting to happen.

Practices are the action process that follow the respective policies and go through the same six stages of completion as creative process. In case of practices several substance are yoked and complete the task together albeit independently.

Action Process (Practices)

Stages

State

0 – Insentient

No Action

1 – Conceptualisation

Strategy Planning

2 – Communication

On the marks

3 – Formation

Ready

4 – Formulation

Get Set

5 – Task Accomplishment

Go

Practices can also have targets set and completed. Targeted performance is assessed by relative efficiency on six scales of performance, viz., i) 0 (zero) = Rank 0, ii) (>0% <25%) = Rank 1, iii) (>25% <50%) = Rank 2, iv) (>50% <75%) = Rank3, v) (>75% <100%) = Rank4, vi) > 100% = Rank 5, equating to the six stages of creative process.

7.Binary value of Intangible

Creative process begins with a state of quiescence of non-existence whereas the related execution process stays insentient if not pressed into action. Both the processes are distinctly energetic during its journey, one ending up as a substance and the other accomplishing the given task.

When antimatter collides with matter the mass is converted into pure energy and so does the intangible. The mass keeps transforming by six stages of development emerges as a substance. Quality of the substance depends on the energy force it received during its development. Accounting Standard, for example is a substance ready for action.

Only the completed stage is taken note of, so that the binary value is always in integers. Binary value is marked 0 to 5 during the creative process as well as during the relative action process. Since the action process starts only after the substance is created the value of the substance is theoretically at 5. However the quality of the substance shall determine the optimum value of the substance. For example. AS(26) Intangible Asset shall not necessarily obtain a value of 5 although the substance is ready and is used, since the Quality of the substance is doubtful for having not defined the word Intangible.

8. Intangible defined

Intangible is in insular State of non-duality, where there is no paradox, no plurality, no opposite values, that creates as well converts a tangible matter into energy seen by effort. Intangible is defined as: 1. Intangible is an effort, 2. Initiated for a specific task creative as well as action, 3. Having an identifiable goal, 4. Enabled by the factors for the task accomplishment, and 5. Measured by defined performance criteria.

9. Resource ownership of Intangible: All man-made matters inanimate as they are, depend on only one animate natural substance – people. Common factor during the transformation in creative process as well as action process is the human effort. There is only one resource owner for creating as well as for the related action of any substance.

10. Simple average:Performance of one can be added to another to arrive at a simple average for both, to identify the average status, as intangible is the common denominator. Linking creative process to its related action process an average status of a substance can be arrived at. Only the completed stage is accounted though. The table below framework of accountability is the result of the equation, which is sum of policies and practices divided by 2. The optimal values for each being 5, the optimal value of accountability is 5. The number of substance yoked together can be many and each substance can be in any one of the five stages. For example, a scheduled flight can have a number of operations from ticketing to landing to clearance to complaint resolution, that the efficiency of each building-block is noted by way of set KPIs to arrive at an average as below. When the rating is at 5 accountability is 0% and vice versa.

Framework for Accountability = (Policies + Practices)/2

Intangible

Tangible

Quality (Policies)(1)

Performance (Practices)(2)

Accountability

(3) = ((1)+(2))/2

Non-existent

0%

0-5

0-5

0-5

Conceptualisation

>0%<25%

0-5

0-5

0-5

Communication

>25%<50%

0-5

0-5

0-5

Formation

>50%<75%

0-5

0-5

0-5

Formulation

>75%<100%

0-5

0-5

0-5

Substance/Task Completion

>100%

0-5

0-5

0-5

11. Study Of Cost Consequence:

Index of Inactivity: The inactive elements of intangible is always 5 (optimal efficiency) minus the stage of completion, called Index of Inactivity. The Index of Inactivity reflects the inactive elements in the operational cycle of a substance i.e. verifying the action process and at the same time checking the in-built quality of the substance. Policy and Action go hand in hand. When the average status is 2 then 3 more stages need to be bridged. This gap of 3 looked at by real-time monitoring basis provides the study of cost consequence. Inactive elements are spotted before the bubble bursts on real-time monitoring.

Study of cost consequence and managerial action thereupon is Inactivity Based Cost Management.

Part II Corporate Critical Density

The application of Inactivity Based Cost Management is detailed in the next part Corporate Critical Densityxix, detailing how a perfectly pitched organisation holding a company together at the just right dimensions to allow things to go on indefinitely, for sustainability of optimal efficiency, sustainability of values, sustainability of profits in that order analysing ethical responsibility, fiscal responsibility and fiduciary responsibility for an organisation of multiple functions in multiple dimensions.

Part II

Part II – Corporate Critical Density

(Application of Inactivity Based Cost Manag ement IBCM©xx)

Jayaraman Rajah Iyer

Executive Summary

An organisation is made up of three kinds of elementary particles: policies, which have a positive electrical charge; practices, which have a negative electrical charge; and the People who have no charge. Policies and People are packed into the nucleus, while practices spin around outside.

Huge energy (E=mc²), where E is the energy, m is the mass and c the speed of light, is bound up in every material event. People (society) do not influence identity of the organisation but they do add to its mass. The energy force of an organisation rests on m the Corporate Critical Density measured by Intangible, compacted by 3Ps – Policies, Practices and People.

1. Recap Part I – Inactivity Based Cost Management:

1. Activity has a cost incidence, Inactivity a Cost Consequence. Accounting is built on logic, a binary system with corresponding value of 1 and 1, within a framework of a material event for an activity. Whereas, inactivity is a paradox when materiality that provides a threshold or cut-off point is breached, havingopposite values signifying presence or absence of energy, marked by binary value of 1 and 0(zero). That energy intangible is in a perpetual cyclical motion ofEnergy as liberated matter, matter as energy waiting to happenxxi. By defining the intangible, paradox finds a secured place in a logical framework. Inactivity Based Cost Management is study of Cost Consequence enabling manifest matter to collide with the intangible to turn into pure energy.

2. Statement of the problem – what to measure?

2. Aman Singh Das writing in Vault’s CSR blog xxii QUOTE: “At a recent breakfast hosted by the Global Reporting Initiative (GRI) and NYSE Euronext, the Conference Board’s David Vidal asked an insightful question: What are the top three reasons for your company’s reluctance to embrace sustainability—and to adopt sustainability reporting? The responses that came from an audience representing the glitterati of the corporate social responsibility world might surprise. What these responses point to, however, is the continued sense of reluctance across senior leadership toward combining the social and environmental with corporate.‘ The 11 challenges indicated were: i. Doubt, ii. Liabilities, iii. Denial, iv. Resources, v. Causality, vi. Lack of Global Standards, vii. Benchmarking, viii. Lack of comparative credibility, ix. Uncertainty, x. Fear of the unknown, xi. Fear of the known. UNQUOTE

3. Secondly, in a recent survey of 558 global companies on CSR by KPMG International in cooperation with Economist Intelligence Unit on Corporate Sustainability – KPMG – EIU a Progress reportxxiii – there is a stunning statement – Many firms are grappling with the problem of deciding exactly what and how to measure ; Deciding how to measure is more difficult than deciding what to measure. -(EIU report findings):

4. The problems stated are indeed universal. The simplicity of ‘how to measure’ depends on complexities of ‘what to measure’. What is the common factor of such complex variables of management such as Corporate Governance, Business Ethics, Market Collaboration, IPRs, Innovation, Intangible Assets, Corporate Social Responsibility, frenemy relationship, creative destruction – terms that have been singularly responsible for excluding an estimated $4.1 trillion of investment in intangibles from published national accounts data in the United States.xxiv? Read with the 11 challenges quoted herein ‘what to measure’ becomes an overriding challenge than the simplicity of ‘how to measure’.

3. Tweaking for ‘Corporate Critical Density’

5. An Analogy with Nature:Martin Rees on universe: For the universe to exist as it does requires that hydrogen be converted to helium in a precise but comparatively stately manner – specifically, in a way that converts seven one-thousandths of its mass to energy. Lower that value very slightly – from 0.007 per cent to 0.006 per cent, say – and no transformation can take place: the universe would consist of hydrogen and nothing else. Raise the value very slightly – to 0.008 per cent – and bonding would be so wildly prolific that the hydrogen would long since have been exhausted. In either case, with the slightest tweaking of the numbers the universe as we know and need it would not be here. I should say that everything is just right so far. In the long run, gravity may turn out to be a little too strong; one day it may halt the expansion of the universe and bring it collapsing in upon itself, until it crushes itself down into another singularity, possibly to start the whole process over again. On the other hand, it may be too weak, in which case the universe will keep racing away for ever until everything is so far apart that there is no chance of material interactions, so that the universe becomes a place that is very roomy, but inert and dead. The third option is that gravity is perfectly pitched – ‘critical density’ is the cosmologists’ term for it – and that it will hold the universe together at the just right dimensions to allow things to go on indefinitely. Cosmologists, in their lighter moments, sometimes calls this the ‘Goldilocks effect’ – that everything is just right. (For the record, these three possible universes are known respectively as closed, open and flat.)xxv

6. Corporate – Government – People: It was in the year 1965 that the Government of India brought into force Cost Audit system for essential commodities that companies, particularly vegetable oils such as Dalda, had to approach the government for a few paise of price increase every fortnight. Forward Trading was yet to be banned in some commodities that influenced the pricing decision. Companies adopted several cost drivers for apportionment to the finished product, including calculation of stock-profits/loss that Dr. Kaplan’s Activity Based Costing in 1983 was a mere old wine, in an old bottle with a new label. It was an instance of everything just right for Government-Corporate-People share of responsibility. In 2012 everything in India is so far apart, chances of material interactions between Government-Corporate-People minimal that the country has become a place that is very roomy, but inert waiting for intangible to collide and transform into pure energy. Time to tweak for Corporate Critical Density.

4. What to measure?

7. Ethical Responsibility, Fiscal Responsibility, Fiduciary Responsibility vis-a-vis Corporate Social Responsibility. An organisation is made up of three kinds of elementary particles: policies, which have a positive electrical charge; practices, which have a negative electrical charge; and the People who have no charge. Policies and People are packed into the nucleus, while practices spin around outside the nucleus. People do not influence identity of the organisation but they do add to its mass.

8. Articles of Association (AoA) and Memorandum of Association (MoA) together form the constitution of a company. A company gets its identity from AoA and its umbilical cord from MoA. As Nobel laureate Gell Mann says You don’t need something more to get something more, Corporate Social Responsibility (CSR) is a built-in feature of a public limited company (plc). AoA and MoA constitute fiduciary responsibility of the company legally bound to act, guaranteeing fiscal responsibility within the confines of the law, in the best interests of the beneficiary – the people.

People undertake ethical responsibility and look for company’s operations are run within the common set of business values, as stated in the United Nations Global Compact (UNGC) of 10 Principles by four issue areas i. Human Rights, ii. Labour Rights, iii. Environmental Rights and iv. Anti-Corruption.

What to measure is a question of focussing on the three particles- the 3Ps – Polices, Practices and People, the protons, electrons and neutrons respectively that compact an organisational-atom.

5. How to measure?

9. Resource team: Institutions, Governments, Industry are all man-made matter, inanimate like many such objects so created.A man-made substance needs only one resource – People. There are two distinct intangible power base within a single building-block – policies and practices, protons and electrons respectively of the atomic structure of an organisation. Within the overall framework, any number of policies are created and related practices accomplish tasks in infinite succession of finite purposes . Each policy document is a created substance. Creative process of a substance is of intellectual bent whereas related practices of the created substance are emotional.

10. Resource Categories: Both the creative process as well as action process of a substance consist of managerial force and operational force representing intellectual and emotional values of a company. In both the processes Technology and finance force play a major supportive role. Four categories of people i. Managerial Force, ii. Technology, iii. Operational Force and iv. Finance are present in every building block of the organisation in multiple functions at multiple dimensions. Yet they are different shades of subatomic particles of the energy reservoir of a single source people.

11. Intangible – the common denominator: Man-made substance is the handiwork of individuals who all share the same energy force Intangible as the common denominator. Fiscal responsibility, comprising policies and practices, is measured by Intangible.

Responsibility – UNGC

12. Key Performance Indicator (KPI) – Fiscal & Ethical Responsibility: : Targets are set by KPIs for each of the goals envisioned by the company. Illustratively, for Principle 1-10 UNGC of four issue areas, i. Human Rights, ii. Labour Rights, iii. Environment and iv. Anti-Corruption, a detailed sets of five KPIs combining Ethical and Fiscal responsibility shall be prepared for Policies and relative Practices separately for each Principle by each process area.

13. Quality of Policies influences the outcome of the Practices. The proton is about 1836 times heavier than the electron. One goal has a number of KPIs to reach the target. Each goal sets defining terms of two processes – creating the policies and the related practices. Each KPI set breaks into five(5) categories of intangible force who form a team, four representing Fiscal Responsibility and one of ethical responsibility representing the people.

14. The five categories are the sub-particles of the intangibleforce – people, in different dimensions. Accountability is shared by fiscal responsibility group. For ethical responsibility of the people, accountability rests with the fiscal responsibility highlighting the onus of fiduciary responsibility.

15. The illustration Accountability = (Policies+Practices)/2 looks at the criteria set by UNGC on 10 Principles under four issue areas for company assessment of status at six(6) different stages for each of the process areas as achieved by the resource groups.

16. UNGC covers the entire gamut of Corporate Social Responsibility and Business Ethics under fiduciary responsibility. UNGC Principles 1-10 will be the fulcrum of values for companies balancing optimal efficiency and profits.

17. Fiscal responsibility rests with the management comprising policies and practices, assuring sustainability of optimal efficiency, where policies form the nucleus with the people (society) participating for sustainability of values while practices spin around the nucleus ensuring sustainability of profits.

6. Valuation of Policies and Practices – Corporate Brand Value

18. The proton is about 1836 times heavier than the electron, so that the proton constitutes almost the entire mass of the atom. Huge energy (E=mc²), where E is the energy, m is the mass and c the speed of light, is bound up in every material event. The structure of the organisational atom: Policies as protons constitute almost the entire mass of the organisational atom. People (society) as neutrons have no charge and do not influence the identity of the organisation but they do add to its mass. Fiscal responsibility rests with the management comprising policies and practices where policies form the nucleus with the people and practices spin around them.

19. When policies are created with the fifth participant people (society) as neutron, policies become a substance or matter that takes up space and has mass. Brand values play a significant role in the equation (E=mc²) where people add to the mass m for the organisation. The other two components of m are policies and practices. Maximising m with 3 Ps – Policies, Practices and People, energy of the organisation is optimised, multiplied by speed of light times speed of light.

20. Corporate Planning and Budgeting for Policies and Practices: i. One single performance criterion has five (5) KPIs of a team work, one representing the ethical responsibility and the rest of fiscal responsibility, termed as a building-block. ii. For discharging fiduciary responsibility a CSR team shall oversee operational aspects of policies and practices of the fifth KPI. iii. A single policy, say Principle 10 UNGC Anti-corruption can have a number of goals and any number of building-blocks. iv. For existing policies with UNCAC as a benchmark quality of the said policy document is identified. v. For non-existing policy documents till the fresh ones are created a rating of zero(0) is given, as per the six stages of creative process of substance. vi. Corresponding practices under each policy document shall get a rating by each KPI building-block by building-block. vii. Intangible being the common denominator the status is averaged between two sets of building-blocks to arrive at a single rating with only integers being considered. viii. The rating of one building-block is comparable to any other building-block.

21. Index of Inactivity: Optimal efficiency for each KPI within a building-block is 5 and the total will be 25. Inactive elements of one building-block will be equal to (25 minus the total as per the status observed).Illustratively, Index of Inactivity is presented below UNGC rating for SAP’s performance of 2010, as appeared from published data.For detailed analysis please refer to the link givenxxvi.

SAP UNGC Grading of Index of Inactivity

22. SAP Report card: Corporate Critical Density – UNGC – 10 Principles SAP is 2. Principle 7 and 10 SAP scored optimal values and for the rest between 1 to 3. Number of issue areas under UNGC were 68. Target 340, i.e. (5×68); Achieved – 181; Inactivity – 159; Index of Inactivity 46.76%, broken down to each Principle. Break-up of resource providers are not available. Index of Inactivity is prepared on the basis of published report once a year by SAP”s GRI data.

Corporate Critical Density

23. Valuation: (E=mc²) where m stands for Corporate Critical Density = (Policies+Practices+People)/3, where policies and practices propels sustainability of optimal efficiency, policies that form the nucleus with the people (society) powers sustainability of values while practices that spin around the nucleus gauges sustainability of profits.

24. Corporate Critical Density – Industry: In order to hold the Industry together at the just right dimensions to allow things to go on indefinitely, Corporate Critical Density at the optimum level of five(5) for the 3Ps – Policies, Practices and People – is imperative.

7. Conclusion:

Three criteria as to how Corporate Critical Density would help address the issues raised under Statement of the problem: (2 above) and resolve the paradox.

1. Real-time monitoring: By equating creative process to every man-made and Natural substance, establishing causality of action, relating symmetry of properties between both the said processes of a substance with a common denominator Intangible in six-stages of development, enabling dynamic Governance, the company measuring by real-time monitoring resolves the paradox of efficiency.

2. Participation of Society: By forming a nucleus with people, policies defining the fiduciary responsibility of the company, recognising society’s ethical responsibility in every building-block of fiscal responsibility, made accountable by four resource categories, ensuring practices do spin around the nucleus, the company measuring by incorporating society’s participation resolves the paradox of values.

3. Study of Cost Consequence: That by which remains in a state of non-existence during creative process, that remains insentient during action process, enabling intangible to collide with the inert matter converting mass in the organisational-atom into pure energy, the company measuring by study of cost consequence resolves the paradox of profits.

Corporate Critical Density is the result of tweaking the 3 Ps – Policies, Practices and People, when perfectly pitched by the gravity shall hold the Corporate world together at the just right dimensions to allow things to go on indefinitely. Huge energy {(E=mc²), where E the energy, m is the mass and c the speed of light} is bound up in the 3 Ps as mass of the organisational-atom available for use to companies by triggering the intangible, following the dictum Energy as liberated matter, matter as energy waiting to happenxxvii.

8. Recommendation

1. Establish International Ethical Standards Board (IESB) along the lines of International Accounting Standards Board (IASB).

2. The simplicity of ‘how to measure’ that a Balance Sheet – the most innovative design of all man-made substance portrays, shall remain a challenge for a simpler model to compact the complexities of ‘what to measure’.of subjective impressions of indeterminism.

What zero established as a number on its own right Intangible as the energy force on its own right brings in the immense uncontrollable data to a single controllable rating system.

Jayaraman Rajah Iyer

iHow Intangible stimulates Economic Growth, Jobs Creation & Build Value Capital? Page 3 Background paper for the conference session: “Emerging Measures for Strategic Management” Sponsored by OECD, & others http://bit.ly/oe97Ta

iiKPMG International in cooperation with EIU on Corporate Sustainability – A Progress Report, 15th April 2011, – see page 16; page29

iiiref ii above- p23

iv Inactivity Based Cost Management IBCM ©– Copyright © REGN. NO. L-27490/2006 DATED December 1, 2006 Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah Iyer: ISBN 978-81-920004-0-4

v A Short History of Nearly Everything – Bill Bryson Illustrated – Transworld Publishers p152

viiHow Intangible stimulates Economic Growth, Jobs Creation & Build Value Capital? Page 3 Background paper for the conference session: “Emerging Measures for Strategic Management” Sponsored by OECD, & others http://bit.ly/oe97Ta

viiiibid “Global Competition and Collaboration” http://bit.ly/pwaGeF

ix January 2008 Consultation Paper Review of the OECD Instruments on Combating Bribery of Foreign Public Officials in International Business Transactions Ten Years after Adoption

x ibid, KPMG International

xiibid Ernst &Young Global Limited

xii A Short History of Nearly Everything – Bill Bryson Illustrated – Transworld Publishers – p152

xiii ibid

xiv ibid

xv ibid

xvi ibid p152

xvii January 2008 Consultation Paper Review of the OECD Instruments on Combating Bribery of Foreign Public Officials in International Business Transactions Ten Years after Adoption. KPMG International

xviii http://www.answers.com/topic/proton#ixzz1iJC6vfb9 McGraw-Hill Encyclopedia of Science and Technology

xix Corporate Critical Density, Leveraging Companies to Occupy Wall Street, (with a case-study on Unilever Sustainable Living Plan) – Author Jayaraman Rajah Iyer, ISBN 978-81-920004-2-8, , ISBN 978-81-920004-1-1

xx Inactivity Based Cost Management – Copyright © REGN. NO. L-27490/2006 DATED December 1, 2006 Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah Iyer

xxi A Short History of Nearly Everything – Bill Bryson – Transworld Publishers p152

xxiiiKPMG International in cooperation with EIU on Corporate Sustainability – A Progress Report, 15th April 2011, – see page 16; page29

xxiv“Emerging Measures for Strategic Management” Sponsored by OECD & others http://bit.ly/oe97Ta

xxvref ii above- p23

xxvii ref. ii above

Jayaraman Rajah Iyer

Kodaikanal, India

Twitter: @jayaribcm

Author of Inactivity Based Cost Management:

eBook: http://www.smashwords.com/books/view/24530

Printed version: https://www.createspace.com/3488434

Kindle Amazon: http://www.amazon.com/dp/B003Z9JQWQ

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