Basically, Jensen’s idea is based on the social contract between individuals when they “give their word”. In this sense, he links individuals in a nexus of formal and informal social contracts that make up the firm. If these contracts meet the conditions of his rules, he argues that the individual is a person of integrity. If the individuals in the organisation agree together to abide by the rules, then the organisation possesses integrity. In reality, no individual is pure and will fail to always behave with integrity. Hence, no organisation will ever meet the gold standard of integrity.
However, there is value in trying, because organisations that are made up of individuals possessing integrity are more productive and efficient, and individuals possessing more integrity will be more likely to have economic and social opportunities open up to them.
First: when individuals give their word, they intend to keep it. In essence, Jensen argues that one should not give one’s word unless they have done an analysis that giving one’s word is in there own best interest. In this sense, integrity is not about “doing good” in some general ethical sense, but in understanding that when you give your word, it influences other people’s actions and you are responsible for keeping your end of the bargain. However, in his case, keeping your end of the bargain is, ex ante, the best thing for you to do. In other words, Jensen argues that you need to do a cost-benefit analysis for yourself before giving your word.
Second: if, for any reason, you cannot keep your word when it comes time to execute what you promised, you will work to minimise any effect on the person to whom you gave your word. In this sense, Jensen is arguing that you must be prepared to ensure that the individual is, ex post, no worse off because of your failure to keep your word.
Third: you must not ever do a cost-benefit analysis associated with keeping your word. We have been in these situations. A boss gives his/her promise to do something in the future, but when the time comes it is not in the boss’s best interest to meet the terms of the verbal agreement. Normally some excuse follows as to why his/her promise is no longer valid, usually prefaced by “this is one of the hardest decisions I have had to make” and followed by a “but there is really nothing more I can do”. According to Jensen, all integrity disappears when individuals treat their word as subject to period-by-period optimisation. Once this is done, it never pays for other individuals to believe that you will hold to your word.
Jensen’s notion of integrity is not a complete theory but something of a work in progress. However, it highlights an interesting way to link the social responsibility of the individual to that of the corporation. By beginning with what amounts to a “do no harm” to those to whom I give my word, we can quickly see how this implies that an equivalent statement would ultimately hold true for the corporation in relationship to its external stakeholders.
The key to more social responsibility may not lay in more standards and regulations meant to demarcate “good” from “bad” behaviour, but the ability to get more individuals to behave with integrity. This means that when they give their word in their organisational capacity, the stakeholders can believe that that is a bona fide contract to which all parts of the organisation will work to achieve.
While no easy task, if Jensen is right and organisations that possess more integrity will be more efficient, then integrity may represent a more dynamic market-based solution to both improving corporations social responsibility and improving their competitiveness. Rather than wanting to be more socially responsible to avoid the costs of not being seen as socially responsible, managers would become more socially responsible solely because it is a by-product of being more internally and externally efficient.
Timothy Devinney is a professor of strategy at University of Technology, Sydney.
This article was first published at The Conversation.
