Book: The Death of Corporate Reputation

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

Jonathan Macey, the Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law

(FT Press)

In this book, Jonathan Macey attempts to answer the questions: why did the financial scandals really happen and why are they continuing to happen? For over a century, he contends, 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 factors: the growth of reliance on regulation rather than reputation as the primary mechanism for protecting customers; 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 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.

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