Werner: Is it time to rethink the traditional financial paradigm?

Faculty | Mar 24, 2015 | Gabelli School of Business

Associate Professor Frank Werner speaks during a presentation during Sustainability Week.

A Gabelli School of Business associate professor urged students to challenge the existing business paradigm by thinking about how a more sustainable financial system can be developed.

Frank Werner, in a recent Sustainability Week presentation to a group of students, asked what sustainability – often described as the area in which social, environmental and economic concerns overlap – has to do with current financial practices.

“The answer is very little in traditional finance,” Werner said during the event held last week at Keating Hall on Fordham University‘s Rose Hill campus. “Financial goals dominate.”

And financial goals are often at odds with sustainability, he said.

As the Industrial Age winds down, there is a new awareness about protecting resources, and new data that takes environmental, social and governance issues into account. Still, even that new awareness and the resulting new business opportunities exist within the current financial model of shareholder wealth maximization.

Werner said he wanted students to “think about whether or not this existing paradigm holds back sustainability by its very nature. And for that I’d like to ask you will the existing paradigm be enough? Or is it time for us to rethink that paradigm?”

The shareholder wealth maximization model came about in a world where the scarce resource was physical or financial capital, Werner said. Now the scarce resource for many firms is human capital – employees – and natural capital such as air and water resources.

Taking such changing capital does not doom a company to failure, Werner said. In fact, a study showed that “visionary” companies, ones in which profits are not the dominant driving force, have done better over time than other companies who operate strictly to maximize profits.

Werner’s presentation was one of several during Sustainability Week, a series of events organized in part by students from the United Student Government‘s Sustainability Committee and held last week. Werner was joined by Professor Jim Stoner, who spoke about sustainability on college campuses, Professor Christine Hinze, who discussed sustainability and religion and Professor Judith Green, who spoke about culture and sustainability.