The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street

by Jonathan R. Macey

Why did the financial scandals really happen? Why are they continuing to happen? In "The Death of Corporate Reputation," Yale's Jonathan Macey reveals the real, non-intuitive reason, and offers a new path forward. For over a century law firms, investment banks, accounting firms, credit rating agencies and companies seeking regular access to U.S. capital markets made large investments in their reputations. They treated customers well and sometimes endured losses in transactions or business deals in order to sustain and nurture their reputations as faithful brokers and "gate-keepers." This has changed completely. The existing business model among leading participants in today's capital markets no longer treats customers as valued clients whose trust must be earned and nurtured, but as one-off "counter-parties" to whom no duties are owed and no loyalty is required. The rough and tumble norms of the market-place have replaced the long-standing reputational model in U.S. finance.
This book describes the transformation in American finance from the old reputational model to the existing "laissez faire" model and argues that the change came as a result of three (1) the growth of reliance on regulation rather than reputation as the primary mechanism for protecting customers and (2) the increasing complexity of regulation, which made technical expertise rather than reputation the primary criterion on which customers choose who to do business with in today's markets; and (3) the rise of the "cult of personality" on Wall Street, which has led to a secular demise in the relevance of companies' reputations and the concomitant rise of individual "rain-makers" reputation as the basis for premium pricing of financial services."This compelling book will drive the debate about the financial crisis and financial regulation for years to come""--""both inside and outside the industry."

287 pages, Hardcover

First published March 19, 2013

Reviews

[Peter Spung · Rating 4 out of 5]

This is an important book for anyone who cares about well functioning capital markets, business investment and growth, and the interplay among lost reputation and regulatory regimes that have supplanted reputation. Mr. Macey points out how that the govt regulatory regime has become largely technical and focused on complex transactions. This serves cronies in the revolving door between financial firms, the SEC, and law firms. It does not serve the general public and regular investors who are the victim of basic fraud, such as Madoff's Ponzi scheme. These schemes are frequently missed and not on the radar screen of regulators. Also, since all financial firms are sued regularly by regulators, those suits add no reputation signals that are helpful would be market participants. So regulation has not worked either, and in fact has negatively impacted auditors, accounting firms, and promoted regulatory capture. Bureaucrats must focus on more ways that their regulations can help private companies' efforts to restore reputation. U.S. capital markets and the business investments they fund cannot withstand continued deterioration and neglect of reputation, and survive international competition.

[Mills College Library]

659.2 M1429 2013