Tag Archives: finance

Intervening: problems with values in finance

A few days ago, I attended a conference on the work of French sociologist Pierre Bordieu and its relevance for accounting. There were many things to take away but one of them was the fact that, in later life, Bordieu increasingly became an activist as well as an academic. In his 2003 work Firing Back: Against the Tyranny of the Market 2, he famously wrote:

“Those who have the good fortune to be able to devote their lives to the study of the social world cannot stand aside, neutral and indifferent, from the struggles in which the future of the world is at stake.”

He was specifically referring to sociologists, but I think the same is true of business educators and, most relevant to me, finance educators. Following the financial crisis, a writer in The Economist observed the following:

“Most of the people at the heart of the crisis— from Dick Fuld at Lehman Brothers to John Thain at Merrill Lynch to Andy Hornby at HBOS—had MBAs after their name . . . In recent years about 40% of the graduates of America’s best business schools ended up on Wall Street, where they assiduously applied the techniques that they had spent a small fortune learning. You cannot both claim that your mission is “to educate leaders who make a difference in the world”. . . and then wash your hands of your alumni when the difference they make is malign.” (Economist, September 24, 2009: on-line edition, quoted in Crossan et al, 2013)

Of course, business schools have always included at least some materials on ethics, and are even starting to consider character, as Crossan and her colleagues set out in their paper, but I do not think this goes far enough. There is a bigger issue that has bugged me more and more in my many years as a finance educator and I would express it like this:

The general assumption seems to be that finance is a technocratic, value-neutral discipline. It is taught the same way all over the world to people of widely different cultures and outlooks. Ethics in finance largely consist of reporting things correctly (sic), ensuring that controls are effective, rules are complied with and that managers discharge their responsibilities to their shareholders or stakeholders.

It does not take very much effort to deconstruct and undermine this view. Jacques Derrida argued that symbols (which include words and numbers) never have a fixed, neutral meaning. Meaning of symbols is always “deferred” into other symbols. In other words, meaning of any sort depends on a complex web of context. Financial numbers mean nothing in isolation, they can only be interpreted in a context, and that context will include values. It follows on from this that, like Bourdieu, Derrida insisted on an activist dimension to his project – “Deconstruction, I have insisted, is not neutral. It intervenes” (Positions).

To take one concrete example, the law in the UK requires directors to act in the best interests of shareholders, which is assumed to be maximising financial return. This is also the assumption behind corporate governance codes and the starting point for most financial analysis techniques. This point is further reinforced by the structure of an income statement, which culminates in the profit or loss attributable to shareholders, inherently conveying the idea that the only really important number is the return to providers of equity capital, as pointed out by Sikka (2015) and others.

It is clear that there is a value system hard-wired into the way we do finance and, to my mind, the best ever summary of that system was set out by the fictional financier Gordon Gekko in his famous speech from the 1987 film Wall Street. If by some chance you have never seen this speech, I highly recommend viewing it. It is an extraordinary piece of film:

Of course, it is obvious to us now that Gekko was spectacularly wrong in his prescription for the USA, and many of us would recoil from his description, but who can deny that his approach is the morality at work in our boardrooms and trading desks? If you have an hour available at some point, a contrary view can be found in this absorbing documentary where the entrepreneur Peter Jones interviews Mark & Mo Constantine, the owners of Lush, along with Chris Dawson, owner of discount store The Range.

Lush is a rare example of a business run to maximise social good rather just profit, although along the way the Constantines have created a spectacularly successful business too. They can do this because the business is privately owned – the reason Mark Constantine declares he would never sell the business is because a publicly-owned company could not operate like this. If he sold the company, it would be absorbed by the dominant paradigm and its values would not last long.

So if we are not happy with Mr Gekko’s approach, are there some alternative approaches which can inform our finance education and practice? I think there are, and will aim to explore these in my next blog post.

References:
Crossan, M., Mazutis, D., Seijts, G. & Gandz, J., “Developing Leadership Character in Business Programs”, Academy of Management Learning & Education, 2013, 12 (2), 285–305. http://dx.doi.org/10.5465/amle.2011.0024A
Sikka, P. (2015) “The hand of accounting and accountancy firms in deepening income and wealth inequalities and the economic crisis: Some evidence”, Critical Perspectives on Accounting, 30, 46–62. http://dx.doi.org/10.1016/j.cpa.2013.02.003

Leave a comment

Filed under Finance education, Uncategorized

Getting to grips with postmodernism

I am currently working towards starting a doctorate in September and have previously sketched out some ideas for this. I am fairly convinced that postmodernism, whatever this means, has important lessons for banking and finance. It has been encouraging to discover some academics, notably Elton McGoun and the late Norman MacIntosh, who have done fascinating work in this field. But my first task has been to get my head around postmodernism itself, and this can be a daunting task. Countless books, articles and blogs have been written on the subject, and there is nothing like consensus on what the term represents. In fact, the issue is summed up nicely by Stronach & Maclure (1997), discussing the terms “post-structuralism, deconstruction and postmodernism”:

“…if these terms did have something in common, it would be that each problematizes the very notion of definition. Each blocks the escape route to a place outside language, or into metalanguage, from which its essential characteristics could be named…”

So these terms cannot be defined, but I do need to explain them, if only to myself. And I do have one advantage here, which is a background in theology and a strong interest in radical theology, which owes much to postmodernism and which I blog about elsewhere. So based on all of this, and my reading so far, here are two ways I would try to briefly explain postmodernism.

Ever since Plato, Western philosophy has been influenced by the idea that words and concepts correspond to some sort of ideal form “out there”. If we say a word, let’s say “table”, then there is a concept of tableness beyond language to which the word refers. Someone might use the word differently – for example say table to refer to a chair – but that is simply incorrect and misrepresenting the table. In theological language, when we talk about God, evil, law or heaven, we are referring to concepts that objectively exist “out there”. We will never be able to fully represent them, but they are there.

But in postmodernism there is no “out there”, or at least none that is relevant for us, and words do not refer to independently existing concepts. Jacques Derrida famously coined the term “différance” which has overtones both of differing and deferring. So the word “table” does not refer to an externally existing concept – it has meaning simply because it differs from all the other words we use and that meaning is “deferred” into other words, because we can only explain what a table is by using other words. In finance, for example, the word “value” is sometimes used as if it appeals to a non-contextual, absolute concept which we could potentially understand. However, “value”, like everything else, depends entirely on context and language.
 

Or here is another approach, which takes as its starting point a recent Radio 4 programme about memory called Past Imperfect. We generally assume that our memories can be relied upon, but there is a mountain of evidence to show that memories are often unreliable and it is actually not that difficult to plant false memories in people. Why is this? One expert interviewee, Professor Chris French of Goldsmith’s College, notes that the human brain is subjected to a torrent of information every second – far more than we are able to process or store. So we need to make sense of all this information by being selective about what we perceive and what we remember, so memory becomes somewhat plastic. As far as I can see, one of the ways we do this is by constructing stories, which is the way the human brain can most readily remember things. This happens in all kinds of ways – not just novels and tv dramas but the news, politics, science, songs and many other phenomena involve taking the messy, complicated, chaotic reality and turning it into stories that we can understand and absorb. I am not being critical of stories – I love stories more than most – but we need to be aware of this process.
 

This, perhaps is one reason why another great postmodern philosopher, Jean-François Lyotard (1984), wrote:
 

“Simplifying to the extreme, I define postmodern as incredulity toward metanarratives…”
 

We need to tell ourselves and each other stories – that is part of being human – but at the same time we need to treat them with a bit of suspicion. All stories are incomplete and told from a particular perspective, there is always another way to tell a story and that might be illuminating. To take just one example of a novel that illustrates this superbly – An Instance of the Fingerpost by Iain Pears, set in seventeenth-century England, tells the same story from four different perspectives. It makes for a gripping read, but should also provoke us to think about the nature of storytelling and how we perceive reality. All four accounts are contradictory and none can be fully relied upon. The title is a quotation from Francis Bacon that refers to the process of deciding what is really the situation but the book itself subtlely subverts the very idea of getting at “the truth”. So can we ever rely on human perception to tell us “what really happened”? Finance uses plenty of stories too, often in numerical form which gives them a spurious sense of accuracy, but we should always be aware that a story is a partial incomplete account, and will differ if told from another perspective.
 
So I am starting to explain postmodernism to myself with these narratives but of course there are plenty of others. However, they do illustrate, to me at least, why the postmodern perspective is still needed so badly in finance and elsewhere.
 
References:
Lyotard, J-F (1984) Postmodern Condition: A Report on Knowledge, trans Bennington, G., Massumi, B. Manchester University Press, Manchester.
Stronach, I. & MacLure, M. (1997) Educational Research Undone: The Postmodern Embrace. Open University Press, Buckingham. 

Leave a comment

Filed under Finance education, postmodernism