Putting Integrity into Finance: A Purely Positive Approach
Michael C. Jensen
Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
March 3, 2013
Harvard Business School NOM Unit Working Paper No. 12-074
Barbados Group Working Paper No. 12-01
The seemingly never ending scandals in the world of finance – in spite of all the various efforts to curtail the behavior that results in those scandals – argues for a shift in the current paradigm of financial economics. We summarize here our new theory of integrity that reveals integrity as a purely positive phenomenon, and discuss the significant implications of integrity as a positive phenomenon for both the theory and practice of financial economics.
In our positive theory of integrity, we define integrity as the state of being whole, complete, unbroken, unimpaired, sound, in perfect condition. Thus, integrity as we define it is not a virtue; there is nothing inherently good or bad about it. Something is either whole and complete (etc.) or it isn’t. We go on to define what must be whole and complete for 1) an object or for 2) a system to be in integrity. We also define what must be whole and complete for 3) a human being (a person) or for 4) any human entity (such as a corporation) to be in integrity.
As is the case with any positive phenomenon, there are effects caused by actions related to that phenomenon. With the positive phenomenon of gravity for example, the action of stepping off a cliff will cause an effect (whether one likes the effect or not). Likewise, action that is consistent or inconsistent with the nature of integrity as a positive phenomenon will also cause an effect (again, whether one likes the effect or not).
Because integrity has generally been treated as nothing more than a virtue (a normative phenomenon), the damaging effects of out-of-integrity actions are assigned to causes other than out-of-integrity actions – that is, these damaging effects are assigned to false causes. This makes the actual source of the damaging effects of out-of-integrity actions invisible to us. As a result, in spite of all the attempts to police the false causes of these damaging effects, the out-of-integrity actions that are the actual source of these effects continue to be repeated.
We go on to argue that there are large effects (increases in workability, value, and quality of life) to be realized by putting integrity as a positive phenomenon into the theory and practice of finance. You the reader must judge for yourself if these effects are desirable.
Number of Pages in PDF File: 69
Keywords: Integrity, Fraud, Gaming, Morality, Ethics, Legalityworking papers series
Date posted: April 5, 2012 ; Last revised: May 18, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
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