The Political Economy of Reputational Sanctions for Controlling Corporate Crime

This paper merges literatures from political science, regulatory scholarship and the criminology of corporate crime to analyse how the organisational reputations of both regulators and regulated corporations are mutually shaped within the process of enforcing financial regulation. Reputation and image represent core resources for organisations in both the public and the private sphere, for regulators and corporations alike. The positive reputation of regulatory bodies performs regulatory functions on its own; it legitimises regulatory regimes, actions and proposals, and confirms the accountability of regulators. Positive corporate reputation instils trust by regulators and contractual parties, leads to better economic performance and better treatment by regulators. Central to the performance of these functions is the notion that organisational reputation is a social construct – it is established in an interactionist process between the organisation and the audiences with some power over the organisation. However, so far, this constructivist process has not been examined in depth from the perspective of how and what kinds of concerns with reputation management on both sides of the regulatory relationship permeate the regulatory enforcement process. This is the contentious stage of the regulatory relationship and it encompasses the detection, investigation and sanctioning activities of regulatory bodies against corporate misconduct. Drawing from insights from the UK financial markets, and the enforcement practices of the UK conduct of business financial regulator, the Financial Conduct Authority, this paper analyses first how regulators’ reputation management in the enforcement context leads them to take actions to diminish the reputations of the corporations they regulate. This concerns both how cases of detected corporate misconduct are escalated for further processing, and how reputational sanctions are used to control corporate behaviour through negative publicity. In the post-crisis period, there have been movements towards increased disclosure – both in terms of the extent of the legislative powers to impose reputational sanctions (e.g. how early in the enforcement process) and in their use in practice. Second, the paper analyses the corporate responses of resistance against the growth in disclosure: the strategies of political advocacy against the legislative changes and the strategies of legal advocacy to mitigate the reputational sanctions and damages. The final part of the paper theorises the significance and consequences of this two-sided affair in which both regulatory and corporate reputational concerns are simultaneously crafted and mitigated.