Archive for the ‘Integrity’ Tag

Putting Integrity Into Finance: A Purely Positive Approach (Excerpt)

Conclusion:

We argue that the financial economics paradigm is incomplete. The evidence for any paradigm being incomplete is the presence of a significant continuing breakdown in the discipline, along with the discipline’s continuing ineffectiveness in dealing with that breakdown
(what Kuhn (1962, 2012) termed “crises and anomalies” in a discipline). In the world of finance, the combination of 1) the extent of out-of-integrity behavior and its consequent impact on value, coupled with 2) the financial economics discipline having provided little or
nothing that has been effective in stemming this out-of-integrity behavior, is evidence for our argument that the financial economics paradigm is incomplete.

The out-of-integrity behavior we termed the “scandals” in Section 2 and the various examples of out-of-integrity behavior discussed in Sections 3 through 11 (mostly unrecognized as out-of-integrity behavior) are important examples of what contributes to the general
atmosphere of low integrity in the world of finance (albeit not identified as such and certainly not spoken of). Out-of-integrity behavior has become virtually institutionalized.

The environment of low integrity is so pervasive it seems to be nothing more than business as usual, or just a part of the nature of finance. Forstmoser’s (2006) first three indicators of the lack of integrity (listed in Section 6.b)—”Everyone else is doing it.”; “We’ve always done
it.”; and “This is the way this business works.”—illustrate this environment. When we speak of “integrity”, in the case of a system (or object) we mean nothing more than, but nothing less than, that the design, the implementation of the design, and the use of the system (or object) are whole, complete, unbroken, sound, and in perfect condition with respect to its intended purpose. When we speak of integrity for a person or other human entity, we mean nothing more than, but nothing less than, that the word (as defined earlier) of the person or other human entity is whole, complete, unbroken, sound, in perfect condition. We have shown that integrity dealt with in this way is an important factor of
production.

However, integrity as it is currently understood has been undistinguished as a factor of production, with the result that its impact on workability, and therefore productivity and value (by its presence or absence) has been wrongfully assigned to other causes. Integrity,
as we define it, matters. Not because it is virtuous, but because it creates workability. And workability increases the opportunity for performance, and maximum workability is necessary for realizing maximum value.

Note that describing the effects of integrity is not normative. In addition, we make no admonition to act with integrity; it doesn’t work to tell people what they should do. People act in what they perceive to be in their self-interest in the way it shows up for them in the
circumstances they are dealing with or are confronted by. We don’t tell people what to do, rather we give a picture of reality (in this case a picture of the reality of integrity revealed as a positive phenomenon) that naturally alters their correlated behavior.

As the Law of Integrity states: As the integrity (the state of being whole and complete, etc.) of an object, system, person, or other human entity or practice declines, workability declines, and as workability declines the opportunity for performance declines. Note however that when the behavior is not recognized as out of integrity, the decline in the opportunity for performance will be explained in some other way.

The model of integrity introduced in this paper makes clear just how widespread out-of-integrity behavior actually is, and the enormity of the cost of out-of-integrity behavior. The model also makes clear that given the way integrity is currently understood, our out-of-integrity behavior does not occur for us as such, and as a result we ascribe the cause of the damage of out-of-integrity behavior to something other than our out-of-integrity behavior. But the recognition of the foregoing is only a beginning for persons, groups, and organizations to have access to acting with integrity.
From within our new model of integrity when it is fully understood, integrity occurs for people (is understood by people, shows up for people) such that:
1) out-of-integrity behavior actually shows up for people as out-of-integrity behavior, but most importantly,
2) the damaging consequences of that behavior, whether immediate or long term, show up in present time right along with the out-of-integrity behavior, and
3) the damaging consequences show up as being caused by the out-of-integrity
behavior.
This shift in the showing up profoundly alters the way out-of-integrity behavior occurs or shows up for people. As we have said, people with normal brains act in what appears to them to be in their self-interest, but in their self-interest given the way in which what they are dealing with occurs or shows up for them.

Our purpose here has been to show that including integrity as a purely positive phenomenon, and as such an important factor of production in the paradigm of financial economics, would allow financial economics scholars to develop the tools to effectively deal with the “crises and anomalies” of the value-destroying out-of-integrity behavior in the world of finance, and ultimately to transform the culture of finance into one of integrity.

What makes this addition to the current financial economics paradigm challenging for most professionals is that the “proof ” of a paradigm is the “testing” of it in practice, rather than in the a priori theoretical proof of it. While the proposition that “as integrity (whole and complete) decreases, workability decreases” is unmistakably valid, the proposition that “any diminution in the integrity (wholeness and completeness) of an individual’s or other human entity’s word results in a diminution of workability for that individual or entity” is a heuristic. It just works. When the fact that it actually works in practice becomes a clear-cut personal discovery, this naturally alters future behavior.

 

Erhard, Werner and Jensen, Michael C., Putting Integrity Into Finance: A Purely Positive Approach (2017). Capitalism and Society, Vol. 12 [2017], Iss. 1, Art. 1. Available at SSRN: https://ssrn.com/abstract=2963231

Capitalism and Society

In their groundbreaking paper published by The Center on Capitalism and Society, “Putting Integrity Into Finance: A Purely Positive Approach,” Werner Erhard and Professor Michael C. Jensen discuss their positive model of integrity that links integrity and personal and corporate performance.   The creation of this model reveals a causal link between integrity and increased performance. Through the work of clarifying and defining what integrity is and it’s causal link to performance, this model provides access to increased performance for private individuals, executives, economists, philosophers, policy makers, leaders, legal and government authorities.

“The Center on Capitalism and Society brings together leading scholars in economics, business, finance, and law to study capitalist institutions, their effectiveness, and their weaknesses in order to get some answers to such basic questions about capitalism – its working, its dynamism, and the instability it may cause, its inclusiveness or lack thereof and its role in a democracy.”

Werner Erhard at NBER

 Working Paper by Werner Erhard and Michael C Jensen available at the National Bureau of Economic Research: Putting Integrity Into Finance: A Purely Positive Approach

The seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare (that continue unabated in spite of all the various efforts to curtail the behavior that results in those scandals) argues strongly for an addition to the current paradigm of financial economics. We summarize here our new theory of integrity that reveals integrity as a purely positive phenomenon with no normative aspects whatsoever. Adding integrity as a positive phenomenon to the paradigm of financial economics provides actionable access (rather than mere explanation with no access) to the source of the behavior that has resulted in those damaging effects on value and human welfare, thereby significantly reducing that behavior. More generally we argue that this addition to the paradigm of financial economics can create significant increases in economic efficiency and productivity.

Financial Times features Werner’s new work

Excerpts from: The only way is ethics: Andrew Hill on where Erhard and Jensen are coming from

Werner Erhard and Michael Jensen look an unlikely pairing but their leadership teaching fits into a broad stream of business education and research about ethics and integrity. ”

“In ‘A Positive Theory of the Normative Virtues’, the draft introduction to their forthcoming book, they write that their desire to confront their own “personal contributions to the mess generated by out-of-integrity behaviour” was one trigger for their research. But it was the Enron scandal of 2001 that prompted business schools to refocus attention on this area. The financial crisis of 2008-2009 gave this effort new impetus, as management schools realised they had to bear some responsibility for the bad corporate behavior of their alumni. ”

“Jensen and Erhard’s latest work shifts the emphasis away from external incentives and structures to leaders’ internal motivation, encouraging self-examination and personal action. Whatever the strengths and weaknesses of this approach, managers seem to have an appetite for it. Another eminent Harvard professor, Clay Christensen – one of whose HBS classmates was the disgraced Enron chief executive Jeff Skilling – is about to publish a book, How Will You Measure Your Life?, offering advice on how to build a successful life and career that avoids ethical compromise. The 2010 Harvard Business Review article on which it is based is one of the best-read in the journal’s history.”

Andrew Hill is the FT’s management editor

Werner Erhard and Michael Jensen’s book on integrity is forthcoming from Cambridge University Press

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