Regulations aren’t black and white. There’s a gray area where individual identity and organizational culture influence implementation. Like the law, regulation is endogenous—it comes from within. Ultimately, organizations interpret laws to serve their own needs (Edelman, “Law at Work,” p. 337). Individuals’ interpretations vary, however. Prior experience, race, and gender can be significant indicators of an individual’s willingness to accept symbolic compliance (Fuller, et al., “Legal Readings,” p. 206). After the financial collapse of 2008, a confidential report from the Federal Reserve Bank of New York revealed a culture that was too risk averse. The Fed went on a hiring spree to create an outspoken New Guard of bank examiners (Bernstein). Like any cultural shift, this caused a lot of friction. Was the New Guard’s confrontational style damaging the Fed’s credibility? Was the Old Guard stuck in the pocket of big banks? These are easy questions to ask, but they don’t get to the truth of the matter. It’s not likely either side was acting dubiously for any sinister reason. Instead, this friction was a result of experienced individuals confronting a generalist system of regulation that often accepted internal logic and symbolic compliance in order to avoid personal and organizational risk.
In “Law at Work: The Endogenous Construction of Civil Rights,” Lauren Edelman outlines how the law is “generated within the realm it seeks to regulate” (p. 337). There are two main sets of compliance professionals: lawyers and management consultants. Lawyers provide the first reading of new rules—examining any potential threats and providing insight to academic journals, other lawyers, or management consultants. Management consultants are responsible for diffusing the legal information throughout the organization. Since they work within the organization, their interpretation of the law is more likely to represent the views of the business. Edelman also observed how these compliance professionals mythologized and exaggerated claims against companies. They’d tell stories about ridiculous settlements for consumers and employees for organizations that did not meet standards (p. 342). A lack of any mythologizing and the separation between lawyers and management consultants were the central problems of the Federal Reserve. Bank examiners work in the banks they’re regulating as management consultants. Most examiners have introductory knowledge of a variety of regulations. They’d have to call Fed HQ to get any specialized information from lawyers. In practice, however, it was easier to question the people in the bank about complex transactions first. This essentially gave banks incredible influence in regulating themselves (Bernstein). Furthermore, the management consultants lacked any real way to mythologize their positions. Given the nature of financial regulation, improper implementation may come at a large cost overall but, at the same time, a small cost to individual consumers. Although it’s important for the banks to have some say in realistic implementation, this should not get in the way of the regulation’s real purpose. Separation of information and thought between these two entities—lawyers and management consultants—combined with a lack of story-telling helped organizations gain stronger sway over how the law was diffused in the industry.
What happens when individuals enter this workplace with a lawyer’s mindset? Sally Fuller, Lauren Edelman, and Sharon Matasik explain how individuals within organizations interpret and mobilize law differently due to personal history and existing legal structures. They explain how people with more experience in a certain area of law are less likely to accept symbolic messages and more likely to judge a policy based on how it is actually implemented (“Legal Readings,” p. 206). When the Fed started its hiring spree, they were looking for experienced employees for this exact reason. The New Guard of bank examiners were not generalists. Some of them had worked directly with banks in the past on complying with complex rules. Their entire job depended on their ability to understand how laws should actually work (Bernstein). By replacing management consultants with lawyers as bank examiners, the Fed was demonstrating a cultural shift to begin properly regulating the banks.
Carmen Segarra had worked with CitiBank for ten years, helping them comply with a variety of rules and regulations. She was hired as a bank examiner for the Federal Reserve Bank of New York and went after Goldman Sachs for not meeting standards on their conflict of interest policy. She spent seven months building her case, but when she was about to publish her findings, she ran against the Old Guard. Her supervisors were confused as to why this was an issue at all. Goldman Sachs’ Code of Conduct included something that at least looked like a policy. Wasn’t that good enough? Segarra knew it wasn’t, and other Fed lawyers have confirmed this. In the end, she’s forced to act like Goldman had a policy before publishing her findings (Bernstein). The policy in Goldman’s Code of Conduct was a symbol—something put there to give an illusion of following higher standards. Segarra had spent years helping banks make policies like these and knew that how strongly the reality differed from the symbol. Since the other management consultants lacked Segarra’s lawyerly experience, they were more sensitive to the bank’s views. Furthermore, they lacked the urgency in story-telling that would normally characterize legal threat minimization. They worried more about credibility than reality. The mere presence of a symbol remained important to them, whether or not it worked.
The reason any of this became public was because Carmen Segarra was fired from her job and sued the Fed for wrongful termination. Right now, she’s appealing the case. In response to questions about her termination the Fed said it was based “entirely on performance grounds, not because she raised concerns as a member of an examination team about any institution” (Bernstein). This is believable to some Fed employees who thought Segarra had “sharper elbows”. For Segarra, however, the symbol has strayed from reality.
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Bernstein, Jake. ""The Secret Recordings of Carmen Segarra"" This American Life.
Edelman, Lauren, "The Law at Work"
Fuller, et al, "Legal Readings"
I find this essay particularly interesting related to discursive communities. When the lawyers provide the first reading of the rules they are engaged in a particular discursive community that not everyone has access to. Then the management consultants have to distribute this information throughout the company, interpreting the lawyer's discourse into one that the employees can understand and interact with. In the essay, there is a point made that the management consultants will interpret the rules to benefit the business and I would like to make the argument that their biased interpretation is possible because of the discursive gap between the lawyers and employees.
ReplyDeleteI think this essay is an excellent look into the difficulties associated with regulating industries-- how those who worked for so long to avoid regulations are also those hired to enforce them, and how difficult and problematic this often is. Seggara's case with the fed is a great example of how laws created to regulate industries are often toothless because of those in charge of executing those regulations, and how it really is up to the organization to enforce these rules on themselves. I'm glad I got to see a case of this outside of the realm of civil rights, which the original reading delved into but gave no insight into other areas.
ReplyDeleteI found this essay interesting for stating and exploring that " Prior experience, race, and gender can be significant indicators of an individual’s willingness to accept symbolic compliance". This willingness to accept, and different levels of acceptance creates an imbalance within business structures. and will always leave the big business leaders unfairly the top dogs.
ReplyDeleteThe aspect of your paper that I found interesting was when you discuss how people have different mindsets based on their varying experiences. It reminded me of both the trial simulation and also the book we read, The Common Place of the Law. I think in a lot of circumstances that taking a closer look is valuable but in this case you demonstrate how sometimes problems can arise because of that. Your example of Carmen Segarra being fired showcased this, which I found surprising because if Goldman Sachs was only a symbol, why wouldn’t the Federal Reserve want to solve the problem instead of sweeping the problem under the rug? I think your paper highlights the power that companies have, so much so that they are free from the rules set out by regulatory committees
ReplyDeleteGreat post, Carson, and such an interesting application of our readings! You found a great intersection between individual identity and organizational culture with the Segarra example, and how these two things are (or aren’t) reconciled. I found it interesting how the Fed made this concerted effort to shake up the organizational culture by forming this ‘New Guard’ of examiners, but then ending up falling back into old habits regardless. It appears that, in the same way that Goldman Sach’s Code of Conduct was merely an illusion, so was this Fed initiative towards proper regulation.
ReplyDeleteI found your post incredibly interesting, especially as it sheds light on a topic common college students would probably not find themselves reading about. I found it especially interesting that such a large controversy in the industry could have little to no palpable repercussions in conventional society. It does appear as if these large corporations are playing to that exact notion though. By firing Segarra, Goldman Sachs clearly illustrated that they hold the maintenance of their image and prestige in higher priority than their actual functioning as a ridiculously large bank. It seems as if the Fed's push for change was symbolic in itself. And now I'm curious. At what breaking point would massive organizations such as these actually, legitimately risk reputation for reform?
ReplyDeleteNice post Carson! It would be interesting to see how much of this institutional hesitance towards reform is due to the nature of bureaucratic organizations, and how much of it is due to the influence of large corporations. With the prospect of a high paying banking job awaiting any federal regulator who bows to wall street's demands, it's difficult for even the staunchest of enforcers to openly oppose the big banks. Even more, there has to be a larger effort to change the norms of financial regulation within the fed beyond the creation of a so called "New Guard." As long as the old guard dominates the upper echelons of the NY Fed's management, there is little reformists can do outside of reeducating and restructuring the Fed's bureaucratic framework. Even if Segarra is brought back into the organization, other reformers will face major barriers to their work. They could be reassigned to lower profile cases, given less resources or less competent staff, or find themselves with a greater workload so they don't have time to adequately police banking institutions. However, if the politicians in power begin voicing their support for drastic reforms, and they work to educate management in the fed on the dangers of financial deregulation, then there is a hope of actual change occurring.
ReplyDeleteAs someone who’s going into finance, I found this post to be quite interesting. As you described, misunderstandings about how to comply with the formal banking rules led to symbolic compliance rather than full compliance. These misunderstandings were based on the management consultants lack of lawyerly experience. However, there have been some very blatant violations for banking codes in the past decade. With these blatant violations, lawyers have played a role in attempting to correct practices. For example, Alayne Fleischmann revealed that banks repackaged toxic assets, and sold them without alerting consumers on the possibility of default. This goes role that lawyers play either when violations are simple misunderstandings or more serious crimes. This role particularly important in the finance industry, where there is a lot of access to capital.
ReplyDeletehttp://www.rollingstone.com/politics/news/the-9-billion-witness-20141106