Finance Reconsidered: New Perspectives for a Responsible and Sustainable Finance: Volume 10

Cover of Finance Reconsidered: New Perspectives for a Responsible and Sustainable Finance

Table of contents

(30 chapters)
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List of Figures

Pages xi-xii
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About the Editors

Pages xvii-xviii
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Preface

Pages xv-xvi
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Part I: Introduction

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Part II: Critical Analysis of the Dominant Financial Paradigm

Purpose

This chapter reconsiders commonly held views on the ownership and management of private property, contrasting capitalist and simple property, particularly in relation to how a firm shareholder governance model has shaped society. This consideration is motivated by the scale and scope of the modern global crisis, which has combined financial, economic, social and cultural dimensions to produce world disenchantment.

Methodology/approach

By contrasting an exchange value standpoint with a use value perspective, this chapter explicates current conditions in which neither the state nor the market prevail in organising economic activity (i.e. cooperative forms of governance and community-created brand value).

Findings

This chapter offers recommendations related to formalised conditions for collective action and definitions of common guiding principles that can facilitate new expressions of the principles of coordination. Such behaviours can support the development of common resources, which then should lead to a re-appropriation of the world.

Practical implications

It is necessary to think of enterprises outside a company or firm context when reflecting on the end purpose and means of collective, citizen action. From a methodological standpoint, current approaches or studies that view an enterprise as an organisation, without differentiating it from a company, create a deadlock in relation to entrepreneurial collective action. The absence of a legal definition of enterprise reduces understanding and evaluations of its performance to simply the performance by a company. The implicit shift thus facilitates the assimilation of one with the other, in a funnel effect that reduces collective projects to the sole projects of capital providers.

Originality/value

Because forsaking society as it stands is a radical response, this historical moment makes it necessary to revisit the ideals on which modern societies build, including the philosophy of freedom for all. This utopian concept has produced an ideology that is limited by capitalist notions of private property.

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Purpose

To lay the ground for a future diversification of academic finance in line with on-going sustainability issues.

Methodology/approach

We situate academic finance within the broader spectrum of social sciences and highlight its ontological, epistemological and methodological assumptions. This brings out the limitations of paradigmatic unity in finance and the ideological aspects of academic finance, and allows us to characterise diversification in finance with reference to the nested epistemological structure of scientific discourse.

Findings

We define the diversification of academic finance as a process by which (i) finance research is extended to other existing paradigms in social sciences; (ii) new research metaphors are developed within the current paradigm and (iii) puzzle-solving robustness is achieved. We develop a new research agenda which are divided down into themes, paradigmatic hypotheses, and research questions.

Research limitations/implications

We do not test any particular implications of our research agenda.

Practical implications

This chapter will be a useful reference for any researcher or practitioner seeking to contribute to the diversification of academic finance, and make finance work for society.

Originality/value

This chapter looks at academic finance from an interdisciplinary angle in order to bring out its limitations and carve out an innovative research agenda.

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Purpose

The goal of this chapter is to discuss the foundations of ‘modern finance’, its paradigm and conceptual framework, its methods and tools, its practices and results, its governance and regulation.

Approach

The first part presents the characteristics of ‘modern finance’ and its negative effects. The second part analyses the efforts made to remedy those effects and argue about the need for a real reform.

Findings

Several aspects are pointed, for example an unreasonable ‘normality’, incentives that encourage excess, the spread of subprime crisis, etc. The contemporary finance is a ‘giant with clay feet’.

Originality/value

We need to proceed with a dual reembeddedness of finance in the economy and economy in society.

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Part III: Socially Responsible Investment, Micro-Credit, and Alternative Management

Purpose

The aim of this chapter is to propose a critical analysis of socially responsible investing (SRI) through debate and reconstruction. Our goal is therefore to try to understand how the definition of ethics in finance has steered SRI towards a financial approach where ethics is guided by finance.

Methodology/approach

This chapter proposes a two-point approach consisting of a meta-debate and development perspectives. Each approach is divided into three debates (ideological and philosophical, scientific and practical), which are interconnected.

Findings

The chapter concludes that the debate on mainstream SRI is necessary but should be re-discussed, as it is preventing in its current form the concept from developing and being grounded in real ethical values, sacrificing the individual ethics that should be driving investing decisions.

Originality/value

The chapter proposes to rethink the paradigm around SRI through a conceptual framework that re-inserts finance within ethics, where non-financial performance and impact investment should be at the centre of the scientific debates, leading to an SRI based on exclusion, the consideration of controversies and social impact measurement.

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Purpose

Our hypothesis about the failure of SRI as the new mainstream a series of profound misunderstandings about CSR and SRI among the various stakeholders, that is ‘responsible’ companies that are practitioners of CSR, academic theorists, asset management companies, SRI finance professionals, rating agencies and non-financial analysts.

Methodology/approach

This chapter presents a ‘bottom-up’ approach that reintroduces the long-term horizon in investment decisions and focus on the adaptability and innovation capacities of the firms (and States) in front of the unprecedented challenges of the century.

Findings

The severity of the repeated financial crises and the challenges associated with global sustainability call urgently for responsible finance. Despite praise from institutional investors, SRI is far from the norm and has met very limited success with private investors and retail networks.

Originality/value

To truly reconcile finance and sustainability we first need to go beyond the traditional dilemma between ethics and performance which considers any non-financial criteria as a severe constraint and foster a contributive conception of sustainable prosperity, for public and private agent as well.

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Purpose

The chapter looks for the conditions of a contribution of microcredit to poverty alleviation.

Methodology/approach

It uses socioeconomical hypotheses for defining a direct and fast positive effect of microcredit on the income of the poorest. The contribution raises ten issues or conditions at a micro, meso and macro level.

Findings

It is not often that these ten conditions are all completely met. So, the impact of microcredit is generally low as regards the alleviation of poverty. The problems to achieve them are linked to the specificities of the clients and of the prevailing institutions in various sub-Saharan Africa countries.

Originality/value

The chapter clearly identifies the limits of microcredit and their reasons.

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Purpose

In a period of moral and economic crisis all the alternative solutions to finance economic activities are interesting to study, specifically those embedded in solidarity practices. The nature of the ties (bonding ties, linking ties or bridging ties) and solidarities (institutional solidarity, formal or informal solidarity, intergenerational solidarity) must then be examined.

Methodology/approach

The exchanges between the people are governed by three different modes: the market, the redistribution and the reciprocity which acts to maintain the relation (Lavoué, Jézequel, & Janvier, 2010, p. 34). The exchanges are not only of economic order and also participate in the symbolic world. Our main question is: can the relations of exchange become emancipated from the reification? We illustrate this chapter with the case of the Kabylian traditional society and market (Benet, 1957–1975) where the practices of exchanges are not only of economic order (redistribution …) but also matter with the symbolic world (honour).

Findings

Even today, in Kabylia, the survival of an ancestral social organisation (tajmaat) which has anchored in tradition and rooted values (tirugza) and practices (tiwiza) sometimes allows the local populations to offer the missing public goods or the solidarity towards those who need help (elders, orphans).

Originality/value

In traditional Kabyle society, exchange practices are not only economic in nature (they contribute to mutual assistance, redistribution, etc.), but are also symbolic.

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Purpose

The aim of the chapter is to focus on the connections between three types of actors who build the new world of brands – consumers, marketers, and financier – by focusing on the co-creation of value between the brand community and the company owning the brand.

Methodology/approach

The chapter use three case vignettes to highlight the dual process at play when a community of consumers co-create brand value.

Findings

The chapter not only highlights a value-creating trajectory for companies but also shows how a reverse process can destroy value for the very same companies. It suggests that marketers’ desire to maximize the value co-created between the company and the community in order to answer the financial requirement of brand valuation could damage the value co-creation process. According to our case vignettes’ results, these marketers are exposing themselves to the risk that consumers/fans will rebel as a result of this branding maximization, leading in return to the creation of a competitor in the form of a community brand.

Research limitations/implications

Future research will have to investigate how by cutting across organizational boundaries and functional areas, brand communities would reshape the marketing–finance interface.

Practical implications

The chapter stresses the need for companies to manage carefully the triadic relationship community/marketing/finance in order to avoid the development of a reverse brand value destruction process. In addition, the chapter contributes to research on the marketing–finance interface by highlighting the need to look beyond this level of interaction when it comes to branding.

Originality/value

Starting with the principle that consumers grouped into communities are increasingly responsible for making brands through their value-creating practices, the chapter highlights the problems raised by the company’s will to transform them into value for shareholders.

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Purpose

From a perspective of ‘critical performativity’, John Lewis is of special interest since it is celebrated as a successful organization and heralded as an alternative to more typical forms of capitalist enterprise.

Methodology/approach

Our analysis uses secondary empirical material (e.g. JLP documents in the public domain, histories of John Lewis and recent empirical research). Our assumption is that engagement and interrogation of existing empirical work can be at least as illuminating and challenging as undertaking new studies. In addition to generating fresh insights, stimulating reflection and fostering debate, our analysis is intended to contribute to an appreciation of how structures of ownership and governance are significant in enabling and constraining practices of organizing and managing.

Findings

The structures of ownership and governance at John Lewis, a major UK employee-owned retailer, have been commended by those who wish to recuperate capitalism and by those who seek to transform it.

Research limitations/implications

JLP can be read as a ‘subversive intervention’ insofar as it denies absentee investors access to, and control of, its assets. Currently, however, even the critical performative potential of the Partnership model is impeded by its paternalist structures. Exclusion of Partners’ participation in the market for corporate control is reflected in, and compounded by, a weak form of ‘democratic’ governance, where managers are accountable to Partners but not controlled by them.

Practical implications

Our contention is that JLP’s ownership and governance structures offer a practical demonstration, albeit flawed, of how an alternative form of organization is sufficiently ‘efficient’ and durable to be able to ‘compete’ against joint-stock companies.

Originality/value

By examining the cooperative elements of the John Lewis structures of ownership and governance, we illuminate a number of issues faced in realizing the principles ascribed to employee-owned cooperatives – notably, with regard to ‘democratic member control’, ‘member economic participation’ and ‘autonomy and independence’.

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Part IV: Finance, Ethics, and Society

Purpose

I investigate the efficacy of adopting two mental aptitudes in the financial industry: mindfulness and compassion.

Methodology/approach

A conceptual link is drawn between the powerful mental acuteness obtained from practicing Mindfulness (defined by Jon Kabat-Zinn) and Ruthless Compassion (defined by Chögyam Trungpa Rinpoché) and the pursuit of a noble purpose for finance, which is to channel resources into the most deserving social and/or economic activities that raise community and societal welfare.

Findings

These techniques allow decision-makers to reach new levels of awareness, giving them a competitive advantage for instance in terms of avoiding behavioral traps. Making money remains an important by-product of financial services, but not the overriding or sole criterion. An interview of Solomon Halpern, longstanding disciple of Chögyam Trungpa Rinpoché, expert in Buddhist meditation, and president of Highlander Wealth Services, illustrates how these mental tools are applied for running a small US equity fund.

Research limitations/implications

The present study provides a starting point for further survey research on how these practices are becoming adopted in the industry.

Originality/value

This chapter is the first to analyze the impact of both ruthless compassion and mindfulness in the business of finance not only in terms of raised morality but also as an added tool to resolve informational asymetries proper to the finance business.

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Purpose

This chapter uses Islamic finance to question the universality of contemporary finance leading principles. It establishes the existence of different financial paradigms and attempts to determine the form that might take operations in a non-profit maximising context.

Methodology/approach

This chapter uses Thomas Kuhn’s notion of paradigm to demonstrate that Islamic finance has its own dominant logic and, hence, cannot be reduced to a subset of contemporary finance. It describes how the former has been infused by the leading principles of the latter following the adoption by the Islamic financial field of an accounting system using a conventional referential as a point of reference. Finally, the chapter elaborates on the form that might take financing if profit maximisation is not the operation’s main purpose.

Findings

If the condition of profit maximisation is relaxed, the utilisation of Islamic finance instruments might lead to the creation of economical microcycles able to enlarge the socio-economic reach of financing operation.

Originality/value

The notion of economic intermediation is introduced to describe the operations of Islamic banks using their instruments in a non-maximising context. This approach should not be restricted to Islamic finance but viewed as the result of a case study advocating for an alternative view of finance favouring socio-economic development.

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Purpose

The objective of this chapter is twofold. It first explores the complementarities of Islamic investment with Socially Responsible Investment. Secondly, it examines the financial price, for investors, of being both shariah-compliant and socially responsible.

Methodology/approach

Using a value-weighted approach, we experiment the construction of a set of sharia-compliant stock portfolios with different Environmental, Social, and Governance (ESG) performance. We use the KLD ratings of 238 companies listed in U.S. stock market from 2007 to 2011. We measure and compare their performance using the model developed by Fama and French (1993) and extended by Carhart (1997).

Findings

The results indicate no adverse effect on returns due to the application of a double screening, Islamic and SRI, and show a substantially higher performance for positive governance screen during 2008–2011 periods. This outperformance cannot be explained by differences in investment style. Though, we observe significant outperformance for some ‘irresponsible’ portfolios involved in community and human rights controversies.

Research limitations/implications

The study only focuses on U.S. market. Future works should extend the experimentation to other markets.

Practical implications

This study provides a venue for Islamic funds managers to consider SRI screening as fully in line with shariah-compliance requirements, while preserving the performance of their portfolios.

Social implications

Potentially, the reconciliation of Islamic investment with positive SRI practices may foster the implementation of CSR policies by firms’ manager willing to attract Islamic investors.

Originality/value

With reference to the many studies emphasising the compatibility between CSR criteria and Islamic principles, this experimental study is the first to investigate the integration of a positive screening process designed to select companies based on their ESG performance in addition to a traditional shariah-compliant screening.

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Part V: Conclusion

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About the Authors

Pages 409-414
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Cover of Finance Reconsidered: New Perspectives for a Responsible and Sustainable Finance
DOI
10.1108/S2043-9059201610
Publication date
2016-09-02
Book series
Critical Studies on Corporate Responsibility, Governance and Sustainability
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-78560-980-0
Book series ISSN
2043-9059