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Hierarchy and heterarchy in (impact) finance: an ontological analysis

Noriaki Okamoto
p. 75-88


Although finance is ubiquitous in modern life, its ontological foundation is rarely discussed. This essay considers some key characteristics of finance from a social ontological perspective. It initially argues that money requires some sort of representation, and that financial institutions rely on various forms of cognition as well as documents anchoring representations. From that standpoint, one of the crucial aspects of finance is that it provides reference points through the process of quantification. These reference points are numerical representations that allow people to make comparisons. Comparing numbers inevitably creates different hierarchies. However, a specific hierarchy can become outdated or less significant. In such situations, a heterarchy can be created outside the hierarchy. This essay illustrates the appearance of heterarchy in the recent shift toward impact finance, in which financial hierarchies encompass heterarchical systems that are finally replaced by quantifiable hierarchical metrics. With this example, the present research demonstrates that finance tends to convert heterarchical systems into hierarchical ones by quantification through monetary units.

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Testo integrale

1. Introduction

1Undoubtedly finance plays a central role in modern life. It is common for people to have at least one bank account, whether for saving and spending money, paying bills, using a debit or a credit card, or a number of other related functions. According to Statista,1 global financial institutions’ total assets in 2021 were valued at $468.7 trillion, and they have more than doubled since 2009. It is obvious that, even after the severe financial crisis of 2008, the financial sector has regained its power in terms of asset size. Currently, the spread of finance is ubiquitous and undeniable, and has resulted in the trend of “financialization”, that is “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies” (Epstein 2005: 3).

  • 2 For instance, an entire branch of economics, that is financial economics, is devoted to the study o (...)
  • 3 This may be because social ontology has not promoted interactions and collaborations with more subs (...)

2Although social scientists have been interested in various financial matters,2 the ontological foundation of finance (that is, how the financial world is put into existence) has been rarely discussed, and scholars generally take its existence for granted.3 This essay aims to fill this gap and provide a preliminary social ontological analysis of some dynamics belonging to the financial realm in the effort to delineate its idiosyncratic characteristics.

3A good starting point for such an analysis is money, so in section 2, I focus on the nature of money and highlight the role of representations. Section 3 considers how such representations, the documents they are anchored to, and different forms of cognition are at work in financial institutions. Section 4 argues that quantification through monetary representation is a crucial aspect of finance as it provides reference points that facilitate individuals’ comparisons and behaviors. Section 5 analyzes the consequences of those reference points from the dual perspective of hierarchy and heterarchy. Section 6 then expands upon this analysis in the context of the rapidly growing field of impact finance. Finally, section 7 summarizes and concludes.

2. Money

4“Finance” is a broad term that is used in a variety of contexts. For instance, there are at least three main types of finance: personal, corporate, and public/government.4 Following the Cambridge English Dictionary, I assume that the terms “finance” and “finances” mean respectively “(the management of) a supply of money”, and “the money that a person or company has”. I also assume the verb “to finance” means “to provide the money needed for something to happen”.5

  • 6 From an economic perspective, there are at least two other functions of money: money serves as a me (...)

5These definitions clearly show that finance has much to do with money. It is widely accepted that money functions as medium of exchange and store of value.6 Whenever we go out, we bring a wallet in which cash and/or credit/debit cards are stored, so that we are ready to exchange money for goods and services when necessary. This is possible because we collectively accept that certain objects serve as money. Searle emphasizes that aspect by stating that money is like various other types of status function in that something is money only if everybody believes that it is money and that everybody believes that everybody else believes that it is money and everybody believes that everybody else believes that everybody else believes that it is money and so on (Searle 2017: 1461). This collective acceptance allows money to acquire characteristics, such as liquidity, which help to solve problems of social coordination and cooperation (Guala 2020).

6In order to capture a broader picture of money (and, consequentially, of finance), it is important to focus on the fact that monetary numbers represent something. Searle states that “possessing money gives you deontic powers and that those who owe you money have deontic obligations” (Searle 2017: 1466). Therefore, money does not involve just a physical object used as a device in financial transactions, but also the representation of a specific purchasing power measured through an assigned numerical value (Searle 2017: 1462). The prime relevance of these representations seems to be proved by the fact that, although monetary numbers are always required to be recorded on some material support, physical money, such as bills and coins, is not used in many modern financial transactions. Indeed, as most of us know, money can be transferred online in a few seconds.

3. Financial institutions: documents and cognition

7The significance of documents in the social world is undeniable (see for example Ferraris 2013; Smith 2012). Indeed, documents allow us to create new and enduring social entities (Smith 2014: 21), and financial documents, in particular, can generate new dimensions of socioeconomic reality. In addition, documents allow us to keep track of our transactions (Smith 2014: 27-28), and this makes it possible the creation of more and more complex financial instruments.

8Documents displaying numeric values are thus crucial for the existence of the financial institutions, the relations among their members who rely on those institutions, and the actions that they perform. Here, “institutions” are broadly understood as “systems of established and prevalent social rules that structure social interactions” (Hodgson 2006: 2). To explain how people operate within financial institutions, the theory of institutional externalism is particularly useful. Based on this theory, institutions can exist insofar as there are established procedures to which the relevant actors collectively defer in order to know how to perform binding actions (Torrengo 2017: 83-84). In formal institutions, such as the financial ones, these procedures are recorded in documents; thus, in formal institutions, people not only perform actions through documents, but they also defer to documents in order to know how to perform their actions. This idea is also supported by Tuomela’s distinction between operative and non-operative members in society. In brief, social institutions do not need to involve an extensive collective acceptance of all the procedures. In most cases, operative members of society generally act on behalf of the other non-operative members, and non-operative members only need to tacitly accept what the operative members decide (Tuomela 2003).

  • 7 There is a wide range of types of financial cognition. Vollmer et al. (2009) assume relatively more (...)

9Financial institutions, and the actions performed within them, also involve the “financial cognition” of the agents. This expression denotes the processes of interactive knowledge production and cognitive schemas – in combination with technical instruments, financial models, specific room layouts, group interactions, etc. – that play a central role in the formation and execution of investment and trading strategies (Vollmer et al. 2009: 621).7 In addition to financial cognition, there is also a “market cognition” (Zaki et al. 2021). Although not all market participants must have market cognition (market reasoning) in order to participate in the transactions, these cognitive frameworks as well as the representations anchored to financial documents are necessary components of the financial institutions and their functioning.

4. Quantification and reference points

10Financial transactions are recorded, and these records display monetary units. These monetary units are the outcome of a process of quantification which is essential in finance. Quantification integrates information but, in so doing, also reduces, simplifies, and decontextualizes knowledge: on one hand, quantification renders many components irrelevant but, on the other hand, it imposes a singular form upon all others (Esposito, Stark 2019: 6). Consider, for instance, corporate accounting. Thanks to systematic financial accounting standards and bookkeeping rules, a myriad of everyday corporate business activities is quantified and summarized into featured comparable figures on financial statements, such as sales, operating income, and net profit. Such quantification has the advantage of numbers being easy to export and make public; they work for everyone, and it is not necessary to know the receiver’s location or opinion (Esposito, Stark 2019: 13). For that reason, quantification can be seen as a way to bridge the knowledge gaps between insiders and outsiders, the proximal and the distant, and expert and inexperienced users, who know less but nevertheless must consume, invest, and make decisions (Espeland, Sauder 2016: 21).

11Furthermore, numbers are simple representations, and their apparent straightforwardness signals objectivity and mathematical justification (Espeland, Sauder 2016: 24). By simplifying and organizing information, numbers create clear rules for including and excluding (Espeland, Sauder 2016: 22). Regarding corporate accounting, for example, double-entry bookkeeping rules and generally accepted accounting principles enable the calculation of corporate income. Simply put, corporate income is calculated by subtracting the total expenses from the total revenue in a specific period. As you can imagine, a negative number means a net loss, which represents bad business performance in the period.

  • 8 According to the latest International Standard on Auditing 700, “the auditor shall express an unmod (...)
  • 9 To understand why double-entry bookkeeping has been legitimate, see for example Carruthers, Espelan (...)

12The rigor of quantification improves our decisions, making us more rational, trustworthy, and disciplined (Espeland, Sauder 2016: 22). In the context of corporate accounting, there is an institutional system of auditing that provides certified public accountants’ opinions to supplement corporate financial numbers. The auditor’s unmodified opinion shows that corporate financial numbers are presumed to be free from material misstatements and makes the corporate calculation of financial numbers trustworthy.8 Also, numbers can confer legitimacy that becomes more robust as the ways they are employed become increasingly accepted, regardless of their appropriateness (Espeland, Sauder 2016: 24-25). For example, double-entry bookkeeping that upholds the calculation of periodic corporate income has been used for several centuries, and there have been no powerful alternatives.9

13The monetary units displayed by the financial documents allow for comparability; comparisons do emerge and, even if unintentional, this leads to competition (Esposito, Stark 2019: 7). Put simply, direct comparison is possible if there are at least two numbers, one of which is regarded as a reference point. This reference point might be a past result or an external observation, such as a benchmark. Reference points tend to be case-specific, they constantly change and update, and they contribute to uncertainty and anxiety, instead of eliminating them (Esposito, Stark 2019: 19).

5. Hierarchy vs heterarchy

  • 10 According to Stark (2009: 28), the term hierarchy was originally coined by Dionisius the Areopagite (...)

14Quantification inevitably creates a hierarchy, which is generally defined as a system in which people or things are ranked at different levels according to their importance.10 Hierarchies are often used to depict different levels of authority within an organization (Esposito and Stark 2019: 7). Modern corporations still have hierarchical structures that start at the top management (chief officers/directors), go through middle managers, and end with other employees.

15The term heterarchy denotes, instead, an organizational form characterized by distributed intelligence, which functions through crosscutting network structures and reflects the interdependencies created by complex collaboration (Stark 2009: 19). For example, Taylor et al. (2019) apply Stark’s theory of heterarchy (2009) to a concrete case, that is an Australian start-up company, and demonstrate that when the coordination of a highly interdependent heterarchical team is combined with distributed authority and lateral accountability, this generates a higher receptivity to new ideas. Taylor et al. (2019) thus show that heterarchical organizations can have positive aspects, including the generation of unique ideas that would be less likely within an organization with a hierarchical structure.

16Crumley argues that, when applied to organizational settings, heterarchy can shed light on coalitions, federations, and other examples of shared or counterpoised power (Crumley 1995: 2-3), while hierarchy cannot. Thus, hierarchies are not the only way of maintaining orderly and functioning systems (Cumming 2016: 629).

17Despite this, modern society abounds with vertical metrics that allow hierarchical comparisons, and finance, which uses monetary units and reference points, is the typical example of a social field that heavily relies on such metrics. Finance has created and adopted numerical metrics or categories expressed in monetary units precisely to facilitate hierarchical comparisons. When individuals and organizations use these comparisons in their decision-making process, they add values to these hierarchies. Even though hierarchies come and go – some have gained importance, while others have become outdated – the practice of hierarchical comparison itself has become dominant in finance. A typical example of hierarchical comparison is enabled by financial accounting that is well-incorporated into corporate finance. Thanks to systematic financial accounting standards, investors and shareholders can compare the profitability of corporations by considering, for example, those corporations’ net income and their return on assets (ROA).

18However, although modern global accounting standards are accepted in more than 160 jurisdictions,11 the fact that, for example, these standards insufficiently recognize intellectual assets (intangibles) make some financial documents not so relevant for the investors (Lev, Gu 2016). It demonstrates that individuals and organizations sometimes seek independence from existing hierarchies. Occasionally, they assign value to engaging in structures outside of the hierarchies they belong to. By doing so, individuals or organizations who share the same opinions or identity create new, unique social institutions that enable alternative comparisons. In short, heterarchies can also be created outside existing hierarchies simply by triggering actors’ desire to be free from existing hierarchies. Numerical metrics are not immediately compatible with heterarchical actions. However, a heterarchical community (for example, a group of people who are looking for different values) can also be hierarchical because a collective opinion can emerge and be used as a benchmark in hierarchical systems even in the absence of numerical metrics.12 This simple cycle is depicted in Fig. 1. Among community-based and flexible heterarchical institutions, only collectively accepted metrics can be objective and officially regulated or centralized as hierarchical institutions. However, when such hierarchical institutions are no longer suitable, a group of people often attempts to create alternative heterarchical systems.

Fig. 1. Dynamics of hierarchy and heterarchy

Fig. 1. Dynamics of hierarchy and heterarchy

6. Impact finance and the inclination to quantify

19I argue that a heterarchical attempt to integrate alternative value within the financial system tends to follow a process of quantification in order to allow for objective comparisons. This argument finds support in the current upsurge of impact finance where the benefits produced by the actions of an organization are measured and used to provide funds to it (Cohen 2021: 12). Impact finance is expected to help us to solve complicated social problems through financial knowledge (see for example Epstein, Yuthas 2014; Spiess-Knafl, Scheck 2017).

  • 13 According to Cohen (2021), “impact investing” is a term that was coined to replace the term “social (...)

20The size of impact finance has gradually increased. The Global Impact Investing Network (GIIN) estimated that, in 2021, over 3,349 organizations managed $1.164 billion under impact investing (Hand et al. 2022), which has rapidly grown from 2013 ($25.4 billion). Investors who are interested in impact finance usually analyze and predict the social impact (positive or negative) of the organizations. However, despite the rapid growth of the impact investing sector (Jones et al. 2022) and several attempts to define “impact”, this notion remains still vague. Intuitively, “impact” can be simply defined as the benefit to people and the planet that an action generates and that goes beyond minimizing harmful outcomes, indeed the aim is to actively create good ones (Cohen 2020: 11).13

21How then does impact investment differ from other common investment methods? Brandstetter and Lehner (2015) place impact investment on a spectrum (Fig. 2) that ranges from traditional investment, which mainly seeks financial returns, to philanthropic investment, which solely pursues the objective of solving social and environmental issues. Their framework identifies two new paradigmatic styles of impact investment. The first is sustainable investment, which pursues competitive returns, while also seeking to improve environmental, social, and governance (ESG) metrics. The second is visionary investment, which prioritizes environmental and social impact over financial returns. Although both approaches have hybrid goals, their weights on expected returns and impact differ slightly.

22Even though impact finance has recently attracted significant interest, research on it remains scarce, but it seems clear that its departure from more traditional analysis based on financial statements has both advantages and disadvantages.

  • 14 Muller (2019) provides case studies of different types of metrics meant to improve performance in c (...)

23One of these disadvantages is that to measure the social impact of a certain action can be rather challenging. There are currently various methods to quantify social impact, and they have seen mixed success and received varying degrees of support from interested parties (Matthew 2018). This seems to represent a shift toward the tyranny of metrics (Muller 2018).14 Indeed, since the long-lasting acceptance of financial accounting institutions derives from the power of quantified inscriptions (records) (Robson 1992), quantifying social impact is essential.

Fig. 2. Impact investment on the spectrum (Brandstetter, Lehner 2015: 89)

Fig. 2. Impact investment on the spectrum (Brandstetter, Lehner 2015: 89)

24On the other hand, a study of the various attempts to quantify social impact would sharpen the conceptual framework used to understand what quantification really is (Berman, Hirschman 2018: 265). As Power (2015) states, the custom of emphasizing impact or “impact culture” has found its way into different social spheres. In the context of impact finance and investment, the topic of how specific impact metrics are selectively used has not received enough scholarly attention.

25Below, Tab. 1 lists selected attempts to measure different degrees of corporate social impact. There are actually other attempts to measure both social impact and sustainability, and corporate sustainable development goals (SDGs), but this study only focuses on the major approaches of impact measurement.

Tab. 1. Impact measurement frameworks by various organizations

Tab. 1. Impact measurement frameworks by various organizations

26B Impact Assessment has the longest history and is currently being used by more than 150,000 businesses.15 An organization responds to customized questions about its governance, workers, community, environment, and customers, and then it receives a score based on its business impact. A higher score is sufficient to receive the B Corp Certification, which has symbolic value for the organization’s stakeholders. GIIN established its impact measurement framework, IRIS+, which consists of regularly updated core metrics and is aligned with external principles, such as the UN Sustainable Development Goals, to make it easier for investors to translate their impact intentions into tangible results. At present, it has more than 27,000 registered users.16 The social value calculation framework established and disseminated by Social Value International (SVI) takes a more stakeholder-oriented approach. The SVI has a global network that consists of 25 national and regional organizations working at the forefront of social value and impact management.17 By focusing on stakeholders’ concerns and outcomes that contribute to the quantification of social value, SVI makes it possible to estimate investors’ social return on investment. The World Benchmarking Alliance’s (WBA) bottom-up approach now involves more than 280 organizations, and multistakeholder allies share useful data and experiences to improve their benchmarks. Finally, the impact-weighted initiative sponsored by the Harvard Business School, which has rapidly gained popularity, is led by leading researchers and Sir Ronald Cohen, an iconic figure in impact finance. Its uniqueness comes from the use of various secondary market data sources and efforts to monetize impact.

27Although these five frameworks share the same objective, which is to capture the corporate social impact, the fact that they use different measurement methods may cause confusion. The Global Steering Group (GSG) pointed out that using nine different measurement frameworks,18 in addition to creating an “alphabet soup”, results in no internationally accepted standard and little communication between the organizations setting the benchmarks. Efforts to establish a unified social impact measurement framework have met several obstacles. As we have seen above, there is no consensus on the meaning of the term “impact”, so people have just an intuitive understanding of it. Moreover, it is often unclear whether an outcome (that is, the impact) is the direct result of an organization’s actions or not (Guter-Sandu 2023: 210). Although the Impact Measurement Project (IMP) was formed in 2016 to provide a forum for building global consensus on measuring, managing, and reporting sustainability impact, standardizing and unifying these measurement frameworks created by independent standard-setting organizations presents a difficult challenge.19

28Based on the above, it seems evident that the global phenomenon of financialization makes it necessary, for social impact, to be quantified in monetary numbers. Ontologically speaking, the core of finance still comes down to documents expressing a quantification, which implies that finance is inherently hierarchical.

7. Conclusion

29This essay has provided an ontological analysis of some aspects of the financial world. It has proposed, first of all, a characterization of money by pointing out that monetary numbers represent something and, as a consequence, finance heavily relies on those representations and the documents displaying them. Monetary numbers are the result of the process of quantification which integrates information but also reduce, simplify, and decontextualize knowledge by using a singular form. Monetary numbers are used as reference points against which objective comparisons are possible.

30This essay has then dealt with the way these reference points are used in systemic comparisons. In general, finance creates a hierarchy that facilitates comparisons and categorizations. Put differently, finance constitutes a system that is believed to be objective and thus supportive of reliable ratings. However, when a hierarchical system does not keep pace with social changes, new comparative systems emerge, which is considered the result of a heterarchical action. Initially, heterarchical comparisons tend to be subjective, flexible, and community-based. But heterarchical systems can become widely accepted and, in some cases, they require some sort of quantification that makes them hierarchical.

31We illustrated these points by using the case of the emerging field of impact finance, which reflects a shift (at least temporary) away from traditional finance and can also be seen as a cycle-like move from heterarchy to hierarchy. Based on that, we can conclude that finance tend to be quantifiable and hierarchical, but more research is needed to further investigate its dynamics.

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1 (accessed: 22 November 2022).

2 For instance, an entire branch of economics, that is financial economics, is devoted to the study of financial activities. It is also notable that sociologists have turned their attention to finance and that the field of sociology of finance has gained popularity (Knorr-Cetina, Preda 2012).

3 This may be because social ontology has not promoted interactions and collaborations with more substantive disciplines, such as accounting, economics and finance (Mäki 2020: 246).

4 (accessed: 5 December 2022).

5 (accessed: 22 November 2022).

6 From an economic perspective, there are at least two other functions of money: money serves as a means of payment, and as a standard of value or a unit of account (Mäki 2020: 247).

7 There is a wide range of types of financial cognition. Vollmer et al. (2009) assume relatively more technical investment and valuation knowledge that make financial instruments and their valuation complicated, while Delis et al. (2021) use actors’ general financial literacy scores to measure their financial cognition.

8 According to the latest International Standard on Auditing 700, “the auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework” ( Accessed: 9 February 2023).

9 To understand why double-entry bookkeeping has been legitimate, see for example Carruthers, Espeland (1991).

10 According to Stark (2009: 28), the term hierarchy was originally coined by Dionisius the Areopagite, a fifth-century medieval theologian, in two treatises – one on the celestial and another on the ecclesiastical hierarchies.

11 (accessed: 7 December 2022).

12 Once the numbers have been created, other groups can find new uses for them, partly because removing them from the peculiarities of a specific context makes them amenable to other users’ knowledge (Espeland, Sauder 2016: 22).

13 According to Cohen (2021), “impact investing” is a term that was coined to replace the term “social investment” at a meeting hosted by the Rockefeller Foundation in Italy in 2007.

14 Muller (2019) provides case studies of different types of metrics meant to improve performance in colleges and universities, public schools, medicine, policing, the military, business and finance, and so on. The tyranny of metrics represents a cultural pattern of “metrics fixation” that has become ubiquitous in recent decades, which is based on the belief in the necessity of measurement for improvement.

15 (accessed: 7 December 2022).

16 (accessed: 7 December 2022).

17 Available at (accessed: 7 December 2022).

18 CDP, CDSB, CFA ESG Standards, GIIN (IRIS+), GRI standards, IIRC framework, SASB standards, SVI standards, and TCFD.

19 A summary of the Impact Measurement Platform is available at: (accessed: 7 December 2022).

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Indice delle illustrazioni

Titolo Fig. 1. Dynamics of hierarchy and heterarchy
File image/png, 101k
Titolo Fig. 2. Impact investment on the spectrum (Brandstetter, Lehner 2015: 89)
File image/png, 334k
Titolo Tab. 1. Impact measurement frameworks by various organizations
File image/png, 211k
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Noriaki Okamoto, «Hierarchy and heterarchy in (impact) finance: an ontological analysis»Rivista di estetica, 84 | 2023, 75-88.

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Noriaki Okamoto, «Hierarchy and heterarchy in (impact) finance: an ontological analysis»Rivista di estetica [Online], 84 | 2023, online dal 01 février 2024, consultato il 15 juin 2024. URL:; DOI:

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