Putting Integrity into Finance: A Purely Positive Approach

Abstract

for their willingness to share their efforts, knowledge and insights into matters relevant to this paper, and especially Kevin Murphy for his insightful challenges, questions, and comments on this paper, and his willingness to share with us his knowledge, data and exhibits relevant to executive compensation. We acknowledge our students and seminar participants for their contribution to us, in particular the critical lessons about the viability of the material and the methodology for mastering it. We are also indebted to two anonymous referees for their valuable comments, criticisms, and suggestions. All errors are our responsibility. Jensen has received financial support from the Harvard Business School Division of Research. Both authors are associated with the non-profit Erhard-Jensen Ontological / Phenomenological Initiative (from which the authors receive no financial benefit other than a reimbursement of travel expenses when dealing with the Initiative's activities). The purpose of the Initiative is to stimulate and support research into and the application of the ontological / phenomenological perspective on human nature and behavior, and the impact of such a perspective on life, living, and self. ABSTRACTThe 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.4 It follows that as integrity declines, the opportunity for performance declines.5 This leads to the empirically refutable proposition that, ceteris paribus, as integrity declines, performance declines. e. Actual Access To The Source Of Out-Of-Integrity BehaviorWe identify eleven factors that contribute to what we call the "Veil of Invisibility" that hides the actual source of out-of-integrity behavior (see Section 3.h, p. 19 below). Because the actual source of out-of-integrity behavior is almost always hidden, the damaging effects of outof-integrity behavior are attributed to sources other than out-of-integrity behaviorthat is, these damaging effects are attributed to false causes. Common examples of false causes that explain the factors that generate the actions that result in these damaging effects are properties inherent in certain individuals or organizationsthat is, a person or an organization is immoral, gree...

Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

“…Civic engagement can engender positive 4 For recent theoretical work on the origins of trust, see Carlin, Dorobantu, and Viswanathan (2009). 5 The concept of trust is also related to the concept of integrity put forward in recent work by Erhard, Jensen, and Zaffron (2009) and Erhard and Jensen (2015), who argue that trust follows from a proactive stance to establish integrity-the process of honoring one's word on commitments made to a variety of constituents consistently. 6 The first two interpretations of social capital are often used in sociology and present social capital as a resource for individuals built through networks (e.g., Coleman (1988), Lin (2001)); the last two interpretations are often used in politics and economics and emphasize social capital as a resource for facilitating cooperation at the group, community, or societal level.…”

Institutional Micro Credit Determinants and Portfolio Quality of Investment Groups

“…The theory also posits that owners can constrain management's ability to maximize personal utility by establishing contracts that minimizes the divergence in interests in exchange for a level of salary and benefits to management that is greater than what owner-managers would grant them if they were in control of the firm (Shi, Connelly & Hoskisson, 2016). Erhard and Jensen (2014) posit that a firm should consider the agency costs of debt vis a vis the benefits of debt to determine the optimum debt. Optimum debt according to them is the point at which marginal agency costs of debt is equal to marginal benefits of debt.…”

Promoting corporate social responsibility and sustainability: a model of integrity

“…According to Erhard et al (2009) and Erhard and Jensen (2014), integrity (the condition of being whole and complete) is a necessary requirement for workability, which determines for an individual, group or organization the available opportunity set for performance that is "measured not only as results, but as joy, well-being, the admiration of others, and just about anything else in life that one values" (Erhard et al, 2009, p. 70). Integrity provides an unambiguous and actionable access to the opportunity for superior performance and competitive advantage.…”

“…This paradox situation might promote some new CSR and sustainability promises and talks by businesses that could not be held. This paper proposes a framework based on a model of integrity developed by Erhard et al (2009) and Erhard and Jensen (2014) to help performing an assessment of such CSR and sustainability promises (talks). We apply this framework to a historical case of the New Lanark mills from Owen's (1991) new view of society.…”