Ancient wisdom and new thinking on integrity (and how to avoid financial crises)

This article was originally published on The Guardian, here.

The likely $13bn (£8.9bn) fine imposed on JPMorgan by the US government has created a lot of buzz recently. The company was accused of passing off loans underlying mortgage-backed securities as low risk to one set of investors, while simultaneously betting with other investors that they were highly risky. It appears that the vast majority of these loans originated from Bear Stearns, acquired in March 2008 by JPMorgan. Ironically, this was done at the behest of the US government to keep the financial system from collapsing.

Many other banks are also likely to be implicated in a system so complex that individual actors could not comprehend the global impacts of their risky actions. As a recent Guardian Sustainable Business article points out, the resulting loss of credibility for banks is so severe that trust has now become a vital but scarce capital for modern banking.

These kinds of practices are examples of what may be called “whole blindness” – the inability or unwillingness to see actions and their consequences in the larger context of the system they affect. Whole blindness shows itself in three key ways

Firstly, through a lack of transparency. There is a lack of disclosure of the complete set of material information needed by others to make a decision. Secondly, in economic “rent seeking”. Here there isn’t net wealth creation as a whole; instead, wealth is created for one set of people by taking it away from others. Finally, there is a lack of cognitive bandwidth, the lack of cognitive ability to comprehend the systemic impacts of individual actions.

“Whole blindness” is a disease that makes business unsustainable. Integrated reporting and natural capital valuation are corporate responses to this disease. “Whole blindness” manifests itself as a lack of integrity.

Even as the public’s trust in the integrity of financial institutions has eroded over the years, financial economists have traditionally been hesitant to study integrity. After all, how does one quantify something commonly defined as “the quality or state of being of sound moral principle: uprightness, honesty, and sincerity”?

But more recently, the eminent financial economist Mike Jensen of the Harvard Business School has argued that integrity seen as wholeness or completeness is a more viable definition. It does not get into the troublesome normative judgments that a definition based on “sound moral principle” entails. I expect that this new work will rapidly gather momentum, since it offers researchers a positive way ahead.

Interestingly, integrity seen as the wholeness of an entity was a key feature of our ancient wisdom traditions. The word itself is derived from the Latin integritas, which means “wholeness, completeness, entirety.” When an entity was not whole or complete, it was unstable and would collapse because of a lack of integrity.

The lessons from our ancient traditions for the financial practices that caused the financial crisis are clear: a lack of wholeness in these practices led to a lack of integrity, which resulted in a breakdown of the system.

In ancient wisdom traditions, the search for wholeness was so important that it extended to the unifying principle behind the different forms of existence in the world. This quest for the “existence principle” was defined as a quest for “being”, of which wholeness or completeness was a key feature. In fact, “being” was often referred to as the “whole”, because it could help us fully understand the nature of existence itself.

Like all other great quests, this search for “being” was very difficult to fulfill. Nevertheless, the journey itself led to greater integrity, or completeness, within the seeker.

The concept of “being” is relevant to modern society because it transcends religious, spiritual, agnostic, atheistic, and other beliefs through its focus on the irrefutable fact of existence itself. Because of it, we call ourselves human beings, not doings. As another recent Guardian Sustainable Business article described, global tech firms are turning to such wisdom to increase mindfulness, happiness and sustainability in their employees.

Being-centered leadership offers a way forward for addressing problems of integrity in modern financial institutions. It combines our wisdom traditions with modern financial research on integrity to describe how business leaders can lead from a place of seeking to realise “being” in their work. Inspired by this quest, being-centered leaders will naturally seek to address the disease of whole blindness.

Consider the example of Jeremy Grantham, the co-founder of the GMO Fund with around $150bn in assets directed at sustainable investing. I consider him to be a being-centered leader in the financial services industry because of his conscious efforts to address “whole blindness” in his investments. His message is that our modern economic system is unsustainable because human beings don’t understand the perils of compounded growth over long durations.

Grantham gives a fascinating example from a discussion he had had with experts who would presumably know the effects of year-after-year growth in material output.

“To point to the ludicrous unsustainability of this compound growth I suggested that we imagine the Ancient Egyptians … whose gods, pharaohs, language, and general culture lasted for well over 3,000 years. Starting with only a cubic meter of physical possessions … I asked how much physical wealth they would have had 3,000 years later at 4.5% compounded growth. In fact, not one of these potential experts came within one billionth of 1% of the actual number … a number so vast that it could not be squeezed into a billion of our solar systems … If trained mathematicians get it so wrong, how can an ordinary specimen of Homo Sapiens have a clue?”

It is the problem of “whole blindness” that Grantham points to. If our ancient wisdom traditions are correct, Being-centered leadership could be its cure.