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

Book Description

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 inAmerican financefrom the old reputational model to the existing laissez faire model and argues that the change came as a result of threefactors: (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.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Praise for The Death of Corporate Reputation
  4. Dedication Page
  5. Contents
  6. Acknowledgments
  7. About the Author
  8. Introduction
  9. 1. The Way Things Used to Work: Reputational Theory and Its Demise
    1. Facebook
    2. Endnotes
  10. 2. Thriving the New Way: With Little or No Reputation—The Goldman Sachs Story
    1. Endnotes
  11. 3. The Way Things Used to Be: When Reputation Was Critical to Survival
    1. Gibson Greeting Cards Versus Bankers Trust
    2. Procter & Gamble Versus Bankers Trust
    3. Endnotes
  12. 4. Individual Reputation Unhinged from the Firm: Hardly Anybody Goes Down with the Ship
    1. Flaw Number One: Cheaters Never Prosper
    2. Flaw Number Two: You Will Go Down with the Ship
    3. Flaw Number Three: Corporate Reputation and Individual Reputation Are the Same
    4. Endnotes
  13. 5. Proof in the Pudding: Michael Milken, Junk Bonds, and the Decline of Drexel and Nobody Else
    1. Michael Milken: The Emperor of Junk Bonds
    2. Milken Was Loved by His Customers, Loathed and Feared by His Competitors
    3. Where the Drexel People Landed
    4. Milken Had Many Reputations, and He Probably Was Innocent
    5. Not Even Michael Milken Could Survive the Collapse of the S&L Industry
    6. Michael Milken Was a Political Stepping-Stone for an Ambitious Unscrupulous NY Politician
    7. Drexel Died but Its People Survived
    8. Endnotes
  14. 6. The New, Post-Reputation Wall Street: Accounting Firms
    1. Reputations for Hire: The Reputation Industry
    2. You Don’t Have to Trust the Company if You Can Trust Its Auditor
    3. Enron and the Accounting Firm That Audited It
    4. From General Partnerships to Limited Liability Partnerships
    5. Where Did All the Enron Partners Go?
    6. Auditing and Consulting Simultaneously
    7. Endnotes
  15. 7. The New, Post-Reputation Wall Street: Law Firms
    1. Accounting for the Risk?
    2. Resolute Representative and Moral Mediator
    3. Attorneys Rise; Accountants Fall
    4. The Legal Reputational Model
    5. Endnotes
  16. 8. The New, Post-Reputation Wall Street: Credit Rating Agencies
    1. Rating the Raters
    2. NRSROs and a Downgrade in Quality
    3. Understanding Structured Issues
    4. Downgraded Ratings
    5. Tradition and Simplicity Outweigh Reputation
    6. Endnotes
  17. 9. The New, Post-Reputation Wall Street: Stock Exchanges
    1. The Credit Rating Agencies
    2. The Accounting Firms and the Audit of Public Companies
    3. Stock Exchanges as Reputational Intermediaries
    4. Endnotes
  18. 10. The SEC and Reputation
    1. Succeeding In and Out of the SEC
    2. Endnotes
  19. 11. The SEC: Captured and Quite Happy About It
    1. Problems at the SEC: Is the SEC Simply “Captured” or Is It Suffering from “Stockholm Syndrome” Too?
    2. Let’s Sue Them All and Let Investors Decide for Themselves Who the Bad Guys Are
    3. The SEC Has Priorities All Its Own
    4. The SEC Versus the Supreme Court and the Department of Justice
    5. Endnotes
  20. 12. Where We Are and Where We Are Headed: A Conclusion of Sorts
    1. Max Weber and Statistical Discrimination
    2. Social Capital
    3. Self-Help and New Institutions as Sources of Trust
    4. Regulation: The New Secular Religion
    5. Endnotes
  21. Index
  22. FT Press