What’s in a name?

Any subscriber personally acquainted with this editor knows I have a particular fascination for history, and in my tenure here I have discovered the history of finance is not only as intriguing as any medieval political manoeuvre, but of surprising daily relevance as well.

In transcribing Professor Alan Morrison’s podcast for the Said Business School (page 32) where he discussed the beginnings of asset management as we know it and the importance reputation played in the 18th and 19th century, I found Morrison touched on a particularly timely issue — the value of a name. What’s in a reputation? In the early days lack of technology meant business communication was slow, so reputation had real value as solid capital. That capital was knowing the person or firm you were dealing with was truly looking out for your interests, because their reputation rested on the ability — not just to make money — but to do so by telling the truth, by being honest and straightforward. The incentive was that if clients didn’t trust you, repeat trade was lost. Morrison looked into the current financial crisis and its causes. He started his research by examining the 1970s but, like unwinding a ball of string, the story increasingly lengthened. He found the changes in technology took an industry, formerly relying on reputation for good honest business decisions, and pulled the rug out on two centuries of ‘business by good conduct’. Technology made trade easier, but its infrastructure also required it be made bigger — much bigger. And the constant push for astronomical profits has set off a nuclear mushroom of knock-on effects, arguably one of the most devastating being we have become de-incentivised when it comes to maintaining the capital value of reputation.

More regulation seems to be in order, but Morrison argues that regulation in itself is de-incentivising, that it will become far too easy for firms to put the blame on the regulators rather than themselves for any meltdown or misconduct... and funnily enough, Robert Peston of the BBC recently blogged about Goldman Sach’s part in Greece’s currency ‘swaps’.
Goldman has said that “the Greek government has stated (and we agree) that these transactions were consistent with the Eurostat principles governing their use and application at the time” while Peston astutely observes “but that seems to shift the blame to regulators who created a loophole; it’s not an examination of Goldman’s corporate conscience”.
We’ve come a long way from the 19th century, a time when just having someone from JP Morgan on the board ensured a firm’s quality simply because Morgan’s reputation was a guarantee of no dodgy dealings. But can we put hand on heart and say it was forward?

Deborah Valentine, Managing editor



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