The Rational Rogue: Neoclassical Economic Ideology in the Regulation of the Financial Professional

119 Pages Posted: 19 Jun 2010

Date Written: 2002

Abstract

This Article explores the origins and operation of rogue business cultures by describing the financial scandals involving Nicholas Leeson of Barings Bank, Toshihide Iguchi of Daiwa Bank, and Yasuo Hamanaka of Sumitomo Corporation. This Article speaks prior to the exposure of the scandal involving the Enron Corporation and its auditors, Arthur Anderson, LLP, and therefore does not describe those events. Nevertheless, the Article provides an analytical structure for understanding the development of what appears to have been a rouge organizational culture at Enron, which was apparently facilitated by the organizational culture at its auditors, Arthur Andersen. The Article focuses on the impact of the ideology of self-interest, as exemplified by the economic rationality decisional heuristic deployed by the neoclassical economic paradigm, and the distinction between an organization’s values-in-use, which are guided by economic rationality, and the organization’s articulated views. Perhaps most importantly, this Article demonstrates the futility of attempting to hold individual actors culpable for engaging in behaviors that are both expected and enabled by the organization’s values-in-use. Therefore, this Article argues for remedial interventions, not at the level of the individual actor, but instead at the level of the organizational culture itself.

Keywords: business cultures, financial scandal, Nicholas Leeson, Barings Bank, Toshihide Iguchi, Daiwa Bank, Yasuo Hamanaka, Sumitomo Corporation, organizational culture, neoclassical economic paradigm, values-in-use

Suggested Citation

Pouncy, Charles, The Rational Rogue: Neoclassical Economic Ideology in the Regulation of the Financial Professional (2002). Vermont Law Review, Vol. 26, 2002, Florida International University Legal Studies Research Paper No. 10-29, Available at SSRN: https://ssrn.com/abstract=1550846

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