Beyond Agency Theory: The Power of Integrity (PDF of PowerPoint Slides)

Abstract

There is far too much concern today about the conflicts of interest between people; for example, agency theory (the conflicts of interest between agents and owners) -- a favorite topic of Jensen -- and not enough attention paid to the damage caused by an individual's conflict of interest with himself or herself.

We argue here that a large amount of the damage inflicted on people and organizations is caused by actions of individuals that are not in their own self interest. That is, people consistently impose costs on themselves, their loved ones, friends, associates, partners, employers and the public by actions that are not in their own self interest.

In this presentation we focus on the integrity issues that cause huge problems in the lives of most individuals and to every one we come in contact with. These slides draw on the work on a new model of integrity that we have co-authored with Steve Zaffron and is available at:

http://ssrn.com/abstract=920625,

http://ssrn.com/abstract=1542759,

http://ssrn.com/abstract=1511274.

We present a positive model of integrity that, as we distinguish and define integrity, provides powerful access to increased performance for individuals, groups, organizations, and societies. Our model reveals the causal link between integrity and increased performance, quality of life, and value-creation for all entities, and provides individuals and organizations access to that causal link. Integrity is thus a factor of production as important as knowledge and technology, yet its major role in productivity and performance has been largely hidden or unnoticed, or even ignored by economists and others.

Keywords: Integrity, Morality, Ethics, Legality, Sincerity, Productivity, Performance, Lies, Lying, Managing Earnings, Smoothing Earnings, Collusion, Development, Disclosure Strategy, Fiduciary Responsibility, Financial Reporting, Accounting Errors, Fraud, Corporate Governance

JEL Classification: G34