Human Values and Corporate Social Impact: Learning and Foresight

Editor's Note: This is the final post in a six-part series examining the Supreme Court’s 2010 “Citizens United” decision that affirmed the legality of treating corporations as persons. Using JPMorgan Chase as an example, Donald J. Munro of the University of Michigan focuses on how certain human moral values and some corporate behaviors are incompatible. You can follow the whole series here. 

By Donald J. Munro

Foresight is not prognostication or fortune telling based on finding signs about the future. Rather, it refers to some awareness of the probable risks or advantages likely to follow as consequences of our actions. It is usually based on factual information about these risks and consequences.

This value derives from our primitive instinct to seek out survival resources and avoid predators and dangerous paths that can cause injury or death. In other words, experience and learning influence evolution; “…individuals that learn to predict during life also improve their food-finding ability during life.” It involves the ability to come up with creative responses to hunger and to avoiding danger.

Experience results in learning or new knowledge, as when we make or revise choices, based on earlier instances of successful or unsuccessful choices. At the cellular level, existing synapses are strengthened by the outcomes of choices, as when the brain causes dopamine to flag certain neurons. So being able to learn and revise choices helps us to cultivate foresight.

Biological basis of foresight

As Antonio Damasio put it, “Eventually, in a fruitful combination with past memories, imagination, and reasoning, feelings led to the emergence of foresight and the possibility of creating novel, non-stereotypical responses” (Antonio Damasio, "Looking for Spinoza," p. 80). Steven Pinker described the brain function this way: “The faculties underlying empathy, foresight, and self-respect are information-processing systems that accept input and commandeer other parts of the brain and body” (in "The Blank Slate: The Modern Denial of Human Nature," p. 166).

Foresight may also involve predictions of how the law or fellow citizens will respond to our choices, as in the expectation of rewards or punishments. In the case of corporations, if they care about human moral values, foresight would go beyond the factors predicting financial profit/loss. It would also include predictions about impact on people’s health and well-being, on their families and communities, and on their self-respect.

If, prior to the Great Recession that began in 2008, executives of financial services companies had been taught that investor foreknowledge of risk was a virtue, investors might have responded by calling a halt to certain of the derivatives trades that carried excessive risk. But even inside financial services companies, often no one was even aware of the risks.

For example, when the American International Group (AIG), the worldwide insurance company, began to collapse in August 2008, the executives had no idea of the magnitude of its debt; they thought it might be around $20 billion. No one had taken the trouble to find out. But it took a team of outside bankers only 72 hours to discover that it was at least $85 billion and counting. (See also Eric Dash and Andrew Ross Sorkin, “Throwing a Lifeline to a Troubled Giant,” NYT 9/18/2008, p. C11.)

The reason for inattention to the risks is not lack of smart people. As the corporate governance advisor Robert Monks has written, "Very smart, very creative people want to be challenged and one of the constant challenges on Wall Street is to create new products that make a lot of money…this includes technically legal products that skirt the law or are one step ahead of laws. It must be a thrill to find that open space where law hasn’t yet been created. The global financial market has some wide-open frontiers, and there’s no sheriff in town.”

One can assume that JPMorgan Chase has the ability of foresight to advise their investors, if it cared to identify its risks. What risks did JPMorgan Chase pass on to investors, without also providing knowledge about the risks involved? It bundled bad loans into mortgage-backed securities, and sold them to investors, who had no idea of the risks they were buying into. The buyers lost money when the loans lost value, and the bank escaped much of the damage.

JPMorgan Chase record on risks

1. On Jan. 14, 2013, JPMorgan Chase agreed to a Consent Order with the Board of Governors of the Federal Reserve and the Office of the Comptroller of the Currency, mainly concerning the Chief Investment Officer’s risk management functions. The firm cooperated fully with the investigations. On Feb. 14, 2013, those regulators took official enforcement action against the bank, targeting risk management and money laundering controls. On March 14, 2013, a Senate panel issued a critique of the bank (regarding the bank’s $6.2 billion trading loss in 2012). The report found that the bank’s executives ignored growing risks and hid the losses from federal investigators. [source: GMI Ratings]. They did so by inflating the value of their positions to hide their losses.

2. In mid-September, 2013, JPMorgan Chase said that it would spend an additional $4 billion and commit as many as 5,000 employees to compliance and risk management functions, and it agreed to establish a new office of oversight and control. [source: James B. Stewart, “When Trying to Follow Rules Isn’t Enough,” in NYT Business, 9/21/13, pp. 1 and 5]

Robert Monks has proposed separating commercial banking and investment banking. In July, 2013 Senators Elizabeth Warren (D.-Mass) and John McCain (R.-Arizona) introduced legislation to do the same thing. This would allow bright risk takers in the financial industry to figure out clever products, using private money. When their casino bets fail, the taxpayers would not be responsible.

Image credit: Flickr/longislandwins

Donald J. Munro is professor emeritus of philosophy and Chinese at the University of Michigan. Munro connects venerable philosophical traditions to modern scientific discoveries, always with a concern for the ethics of human action. His books include The Concept of Man in Contemporary China, Images of Human Nature: A Song Portrait, and Individualism and Holism: Studies in Confucian and Taoist Values. In recent years he has been the Ch’ien Mu Lecturer in Chinese History and Culture (2006) and the Tang Junyi Visiting Professor (2009) at the Chinese University of Hong Kong. He is a founding member of the Interfaith Partnership for political Action (ippa.us).