Reputation is dead? Not!
Steven Davidoff, author of the Deal Professor column for the New York Times, wrote last week that “reputation is dead on Wall Street.” Why does reputation no longer matter, according to Davidoff? “The reason is unfortunate and partly attributable to why we got into the financial crisis. People simply don’t matter as much on Wall Street as they used to. Instead size and technology carry the day.”
Count me among the unconvinced. Reputation does matter and will continue to matter. The fact that there has been little individual culpability in the wake of the financial crisis, doesn’t mean that banks are free to blindly serve their own selfish purposes. To the contrary, we have seen significant changes in the industry brought about by emboldened regulators and Congress. Significant restrictions on prop trading, central clearing of derivatives, new capital requirements, new reporting requirements, and the threat of restrictions on pay have resulted in real structural change in the banking world. Wall Street was unable to resist the wave of new regulation, in part, because its weakened reputation.
The reason banks have not suffered even pain has more to do with too big to fail than Davidoff’s notions about executives failing upward and the degree to which preserving corporate reputation should prevent bad business practices. A small institution or hedge fund can be wiped out by a single scandal, impropriety or hit to reputation. It simply takes more to penetrate the armor of a global financial institution. That said, if we needed a TARP II, would it pass today? No way. Of course reputation matters, even for big, bad banks.
Update: An analyst at UBS predicts management changes at Goldman Sachs. Part of the cause: reputation. “GS’s management team is very strong; however, missteps on the public relations front have further tarnished the firm’s reputation.”
Update 2: A Bloomberg survey (of users of its terminals, I think) reveals that Goldman has the worst reputation among banks.