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

How Integrity Has Been Destroyed on Wall Street

Jonathan R. Macey

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2013 by Jonathan R. Macey
Published by Pearson Education, Inc.
Publishing as FT Press
Upper Saddle River, New Jersey 07458

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Printed in the United States of America

First Printing March 2013

ISBN-10: 0-13-303970-6
ISBN-13: 978-0-13-303970-2

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In his path-breaking new study, The Death of Corporate Reputation, Yale Law Professor Jonathan Macey offers a fresh, provocative, and insightful analysis of the intersection of reputation and regulation. In his characteristic manner, Professor Macey invokes close institutional and legal analysis with a commanding understanding of economics, finance, and politics to describe a set of profound changes to the system of American finance that regulators, market participants, and the public at large ignore at their peril. The book is an indispensable read for anyone who cares about the very survival of our system finance and those who are dependent on its functioning.

Ronald Daniels, President of Johns Hopkins University who previously has served as Provost of the University of Pennsylvania and Dean of the University of Toronto Faculty of Law

The book contains a frank and compelling account of some of the problems that plague our so-called corporate democracy. Drawing on the lessons in this book, we should craft stronger rules to require the corporate directors and the law firms, investment banks, and other businesses that are paid with shareholders money to work on behalf of the shareholders and not on behalf of themselves. The topic of reputation is an important one that all companies in the financial world should be concerned about.

Carl Icahn, one of the most successful financiers in U.S. history

In The Death of Corporate Reputation, Jonathan Macey chronicles the demise of an era in which ethics and integrity mattered for both personal and economic reasons. Using brilliantly curated real-world examples, Macey describes a new era in which regulatory (and other) forces displace, but fail to replace, traditional incentives for upstanding individual and corporate behavior. Students of finance and participants in the markets will both benefit enormously from and enjoy Maceys provocative and thoroughly engaging book.

David Swensen, Chief Investment Officer at Yale University

The Death of Corporate Reputation is a brilliant, provocative, and persuasive exploration of a root cause of the failure of modern financial market regulation, engendered by lawmakers, regulators and prosecutors, and their legal and accounting acolytes. Systemic change in corporate behavior cannot be engineered solely by externally imposed fiat; it must come from within. In this seminal work, Professor Macey demonstrates, with unerring accuracy, unassailable logic, and wit, that modern financial regulation effectively nullifies and destroys the most potent antidote to corporate malfeasancethe innate drive to create, maintain, and enhance positive organizational reputations. A must-read for anyone concerned about the health and well-being of our capital and financial markets.

Harvey Pitt, CEO of global business consultancy Kalorama Partners, formerly 26th Chairman of the U.S. Securities and Exchange Commission (20012003)

The Death of Corporate Reputation is a revolutionary book. It blends incisive analysis and colorful narrative to track the demise of the traditional theory of reputation, with a focus on the decline of Wall Street banks and their dysfunctional support network of accounting firms, law firms, credit rating agencies, and regulators. In a skillful and refreshingly frank about-face from some of his previous writings, Yale Law School Professor Jonathan Macey, once a leading proponent of traditional theories of reputational capital, systemically hacks to pieces the assumptions that once supported those theories and argues for a far more skeptical approach to the complexities of modern financial markets and their regulatory apparatus. A new conversation about reputational theory has begun, and with this comprehensive and engaging book, Professor Macey has emerged as one the movements leading and most compelling voices.

Professor Frank Partnoy, George E. Barrett Professor of Law and Finance at the University of San Diego, author of F.I.A.S.C.O.: Blood in the Water on Wall Street, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets, and The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals

This book is for my family: Amy, Josh, Ally, and Zach,
individually and collectively, who are invaluable
and precious sources of moral, spiritual,
and intellectual inspiration for me.

I am extremely grateful for support from Dean Robert Post and many of my colleagues at Yale Law School. I presented several chapters of this book to the Hoover Institutions John and Jean De Nault Task Force on Property Rights, Freedom, and Prosperity at Stanford University. I am very grateful for the financial support and intellectual stimulation I received from this task force at Hoover. I also am deeply appreciative of the comments and conversations regarding the ideas in this book at the Yale Law School Faculty Workshop and from colleagues at Bocconi University, as well as from Bruce Ackerman, Ian Ayres, Richard Brooks, Luca Enriques, Henry Hansmann, John Langbein, Yair Listokin, Jerry Mashaw, Geoffrey Miller, Maureen OHara, Nicholas Parrillo, Roberta Romano, and Alan Schwartz.

I am very grateful to Logan Beirne, Yale Law School class of 2011; Douglas Cunningham, Yale Law School class of 2014; Arnaldur Hjartarson, Yale Law School class of 2013; Drew Macklin, Yale Law School class of 2015; Gillian Weaver, Colgate University class of 2013; and Michael Wyselmerski, Yale College class of 2012, for providing outstanding research assistance.