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The Death of Corporate Reputation—A New Book by Professor Jonathan Macey ’82

The Death of Corporate Reputation—A New Book by Professor Jonathan Macey ’82

The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street
By Jonathan R. Macey '82, Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law

For more than a century, companies seeking access to the U.S. markets made huge investments in their reputations. In order to cultivate and maintain reputations as faithful brokers and intermediaries they treated customers well – sometimes enduring losses in the process when necessary to do right by their customers. Today, the reputations of many of the major players on Wall Street are in shambles. Customers appear to have become one-off “counter-parties” to whom no duties are owed and no loyalty is required. Even regulators are viewed as captured and ineffective in protecting investors.
In his new book, The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street, Yale Law School Professor Jonathan Macey ’82 explains the demise of reputation in capital markets and corporate finance. Why, Macey asks, have so many firms lost interest in reputational capital?

The change from the old reputational model to the new laissez faire one, Macey argues, is largely the result of three factors: (1) the growth of reliance on regulation rather than reputation as the primary mechanism for protecting customers; (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.
Macey demonstrates how and why poorly considered regulation has undermined traditional trust mechanisms throughout financial institutions, accounting and law firms, credit rating agencies, and stock exchanges, and he offers a path back to corporate trust and integrity.

“For years I have discussed the economic theory of reputation in my classes. It finally dawned on me that the traditional economic theory, which posits that financial firms and regulators must have strong reputations for integrity in order to survive, has lost its explanatory power,” Professor Macey said. “The SEC, certain banks and investment banks, credit rating agencies and law firms, among other Wall Street mainstays, continue to thrive despite reputations for incompetence or shady dealings or simply for putting their own interests ahead of their customers. This book explains this unfortunate phenomenon and suggests what the future holds for Wall Street after the crisis.”