[This article was published in the Spring 2014 issue of The Journal of Social, Political and Economic Studies, pp. 52-59.]




One Man’s Fight for Stewardship and Professionalism: A Lesson in Business Ethics

Dwight D. Murphey

Wichita State University, retired



Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves

Mike Mayo

John Wiley & Sons, Inc., 2012


         Mike Mayo’s personal account of his career as a bank analyst – during which he matched a professionalism that he learned while first working at the Washington, D.C. Federal Reserve against the desire of many among his employers to receive analyses that were less than objective – provides readers with an object lesson in integrity that deserves to be assigned reading in any MBA class on business ethics.  In this article, we explore his reflections on the contemporary condition of American capitalism, and see how he joins so many others who have recently raised their voices against what they see as “crony capitalism.”  The story of the gauntlet he has run on behalf of objectivity further allows us to examine in some detail the human mechanics that are involved as principled individuals seek to cope with, and sometimes confront, the “practical realists” who embrace an ethos of “going along to get along.”


Key Words: Mike Mayo, Wall Street, bank analysts, professionalism, causes of the financial crisis, “crony capitalism,” business ethics, mechanics of ethical behavior.


          This is a brief and engaging memoir by one of Wall Street’s leading bank analysts who was named by Fortune magazine as “one of eight people who saw the crisis coming.”   It essentially does four things: (1) it gives an insider’s first-hand account of the factors that led to the recent financial debacle in the United States, confirming once again the observations of the many commentators whose books we have reviewed and who have described the vast web of derelictions that made the catastrophe what it was; (2) it warns that little had changed by the time the book was written in the late summer of 2011; (3) it adds its voice to the many who support a market economy but who abhor “crony capitalism”; and (4) it provides an inspiring personal account.  Mayo’s story invites reflection about the challenges faced by people who would act with integrity.  Exile on Wall Street is perfect for assigned reading in an MBA course on business ethics.

           Who is Mike Mayo?  He explains that “I’ve worked as a bank analyst for the past twenty years, where my job is to study publicly traded financial firms and decide which ones would make the best investments.  My research goes out to institutional investors, mutual fund companies, university endowments, public-employee retirement funds, hedge funds, [and] private pensions….”  He has worked for such financial giants as UBS, Lehman, Credit Suisse, Prudential Securities, and Deutsche Bank.  As long ago as 1998, Institutional Investor magazine rated him its “top regional bank analyst.”  A second-generation American from a Russian and Romanian Jewish family, he explains that he “has no pedigree.  No Ivy League degree, no prep schools, no internships.”  To be within the cozy inner circle of the financial elite, it has not been enough to be armed with an MBA from George Washington University and to have the “chartered financial analyst certification” that Mayo says is “de rigueur for a serious Wall Street contender.”  Thus, he has long been in the financial community but not of it.  Although that has been a delimiting professional factor, it has almost certainly been what has given him the mental detachment that’s so vital to an individual’s acting with the integrity that Mayo (if his memoir is fully to be credited) has shown.  The image a reader receives of him is one of an individual who subjects himself to Spartan self-discipline (including early-morning running and exercises far beyond anything most of us could endure) and who developed an abiding ethos of public service and objectivity while becoming a bank analyst by working at the Federal Reserve in Washington, D.C.  His experience trained him in strict professionalism.   “It was at the Fed that my thoughts on the banking industry took shape and where I learned about the crucial role that objective analysis plays as a check and balance on the sector.”

          As a personal account of the gauntlet someone runs who wishes to act with professional objectivity, Exile on Wall Street is not primarily a primer on the causes of the financial crisis.  It does, however, unavoidably mention many of them as part of its narrative.  Mayo points to “a flood of risky mortgages, banks getting too aggressive about growth, and toothless regulators.  Throw in a few other factors, such as interest rates that were too low for too long and overt government support of the housing sector, and you’ve got most of the root causes.”  “Most,” perhaps; but he also brings in the conflicts of interest that warped the behavior of CEOs (seduced away from stewardship by the pursuit of astronomical  compensation); that made analysts “paid cheerleaders”; that induced regulators to “leverage their relationships into lucrative private-sector jobs”; that led bankers to pursue “bad deals” for the fees they would generate even though “the client companies and their investors lose out”; that caused accountants “to be consultants instead of examining the books”; and [we will ourselves add] that prevented credit rating agencies from making the objective assessments of risk that so many rely on.  It is obvious that such an oblivious pursuit of self-interest suggests issues of character and culture.  Mayo makes it clear that he by no means begrudges CEOs, say, (and others) from making a fortune, but he balances this with a sensibility to which the generation that grew up in the 1960s and ‘70s has largely been blind: he says that “when money is put ahead of other considerations, including professional scruples, things can go wrong.”  This is, of course, understated; but he speaks more emphatically when he says that the dereliction is so deep that what is needed is “a cultural, perhaps generational change.” 

           He saw that little had changed to prevent the cataclysm from happening again.  “Bank CEO pay has already climbed back near precrisis levels… Banks still show aggressive accounting and opaque disclosures.”  “Few of the people who got us into the crisis were punished for their actions.  In most cases, they were rewarded.”  The massive bailouts have fed the expectation that excessive risk-taking will at worst be cushioned by more bailouts in the future: “More bailouts are on the way, for most banks on Wall Street but for Citi in particular.  It’s just a question of when.”  The “too big to fail” problem hasn’t been corrected; instead, “the five largest U.S. banks in 2011 control two-thirds of the industry based on their size, which is a greater degree of consolidation than before the crisis.”  There is little transparency, as shown by the remarkable fact that, according to Mayo’s estimates, “in 2011… banks still sat on about $300 billion in losses due to problem assets from the financial crisis that don’t show up because of leeway in accounting rules.”  And if increased regulation seems an answer, the reality is that “regulators… are vastly out-numbered, outspent, and outgunned by Wall Street.”  We can see why: “For the decade leading up to the financial crisis, the finance industry spent $2.7 billion on lobbying efforts.”  Mayo adds that “it continues to spend at close to record levels today.”

          The American Left writes disdainfully about “neoliberalism,” which is the word it applies to today’s globalized, financialized, unbridled capitalism.  Those who have long been (and continue to be) supporters of a market economy, however, prefer to call it “crony capitalism.”  Mayo complains that “we’re tainting an important global export of this country – capitalism.”  To him, “it’s not capitalism but an amped-up, ravenous version of capitalism.”  Executives who preside over huge institutions upon which millions of stockholders, investors, lenders, employees and customers depend should understand that they occupy a fiduciary role.  Mayo says they are in effect trustees, “who need to operate as stewards.”  To use Justice Cardozo’s famous phrase, they owe “the punctilio of an honor the most sensitive.”  We recognize little of this when Mayo points out that Chuck Prince, the CEO of Citi, took “a $38 million severance package with him” when he departed, with the package including a $10 million bonus for 2007, “a year in which he was seemingly forced to leave due to mismanagement.” 

John Paulson, manager of the hedge fund Paulson & Co., “personally made $3.7 billion in 2007” (our emphasis).   This brings to light a fundamental difference in market ideology between attitudes that are prevalent today and the cultural imperatives of a broader classical liberal philosophy.  What is involved is nothing less than the difference between an ethos of stewardship, which would see the profits as very largely earned for the investors, and one based on the contractual rationale that someone is entitled to whatever he can get others to agree to (often through cozy “I’ll scratch your back if you scratch mine” relationships with eager-to-please board members).  Today, many if not most of those who see themselves as devotees of a free market consider the latter a natural part of their ideology.  A doctrinaire, far-too-narrow conception of a market economy has taken hold that leads to the “amped-up, ravenous version” of which Mayo speaks.  This desiccation of classical liberalism has intellectual and cultural roots going back many decades, and amounts to one of the more unfortunate facts about Western civilization’s intellectual cauldron. 

The “crony” aspect is found in the control that “big money” exercises over government, both major American political parties, banking and business, uniting them in a group marriage of self-aggrandizement.  Again, the concept of disinterested public service is lost sight of in the scramble for “what’s in it for me?”  Mayo speaks of “the revolving door between the private and public sectors,” where people “sell out to cash in on their years of public service.”  When we wonder how it has been that so many American businessmen and financiers have lost a patriotic sense of obligation to their own country, we can find the answer in the character traits inherent in such a “capitalism.”  Many prefer to see  their multinational corporations as “no longer American,” have profited with indifference from the hollowing out of  American manufacturing, have relished the hiring of lesser-paid (and often illegal) immigrant labor, and have rationalized the withering of the broad middle class, without which the legitimacy of a market economy loses much of its foundation.  Mayo and a number of others have raised their voices in protest, but it remains to be seen whether they will make any difference.

On the matter of integrity, Mayo’s account brings to mind this reviewer’s discussion in his 1978 article “Ethics: For the Individual and the Firm,” which examined the predicament individuals find themselves in in most human contexts.[1]  The article used a handful of commonplace words – “detachment,” “absorption,” “squeeze,” “practical realist,” “ethical sub-groups” and “ethical common denominator” – to describe the elements of that predicament.  Absorption referred to the well-nigh universal tendency of people to accept implicitly (i.e., be absorbed into) the ways of thinking and behavioral norms of the group to which they belong.  When Mayo was in effect schooled in professional objectivity during his years of working at the Fed, he was imbued with a detached point of view.  This prevented his absorption into the attitudes and expectations of bank analysts and their employers if those people, as they so often did, lived as practical realists according to the notion of “going along to get along.”  The people (and there are millions of them) who accept that mentality without question live within what we might call ethical sub-groups, since their “going along” often involves behavior that in either a major or a minor way would be judged unprincipled by the society at large. 

We cannot, of course, rule out the possibility that within a certain group the ethical common denominator is indeed high enough to match society’s expectations.  An example came at Credit Suisse when Mayo wrote a “scathing critique” of a bank, First Union.  Instead of suppressing his analysis to maintain good relations with the bank, men above Mayo took it to First Union.  The bank agreed with the analysis and fixed the problems.  “That’s how the system is supposed to work.” 

We see evidence of the more prevalent “don’t rock the boat” mentality, however, in the innumerable instances in which Mayo was squeezed by threats, non-preferment, and even discharge for doing his work objectively.  He says “I was… betting my career on a principle – my right to say, truthfully, what I really thought about the banks I covered.”  Not surprisingly, he paid a continuing price for honest reporting.  One of the companies he worked for, as we have seen, was Lehman, which collapsed in late 2008 when the decision was made not to bail it out.  “My entire time at Lehman was the same story: Produce solid research, and yet it didn’t positively impact my performance reviews… I wasn’t doing the one thing that would have led to a more successful career at Lehman (i.e., playing nice with the investment bankers)….”  The squeeze sometimes came from other analysts, such as when “in one meeting with a large institutional money management firm, I sat down with the firm’s own bank analyst, who repeatedly tried to bully me, insulting me and shouting over me whenever I spoke.”  When Mayo made a “negative call” about the U.S. banking system in general, a brave call of considerable prescience that foretold the financial crash, “I was fired anyway.”  We don’t want to give the impression that Exile on Wall Street is in any way shrill about these things or that it centers unduly on him.  He tells of another analyst who in 1990 predicted that the Taj Mahal casino in Atlantic City wouldn’t make it through the winter, but who was fired despite the casino’s failure having proved him correct.  Sometimes the squeeze came in reverse form, as rewards rather than penalties: “I was learning about the prizes that awaited if the banks liked what you had to say.”

The type of person – and that’s probably the average individual – whom we have called a practical realist because he “goes along” isn’t necessarily passive or apologetic about it.  Even though he is most successful in conforming if he does so intuitively and without deliberation or the slightest hesitation, he will ordinarily have it well rationalized, and will think that anyone who does not go along is naïve, just plain wrong, unproductive and perhaps disloyal.  The norms people follow are often tribalistic, with loyalty to the in-group and task at hand, as distinct from maintaining adherence to the principles the broader society projects (sometimes merely with lip-service) through the legal system or otherwise.  It is not surprising that Mayo found himself getting poor performance reviews from the “deal makers,” who considered him “not a team player.”  It would be a mistake to imagine that they were conscious of being perverse in their attitude.

Since the presence of an independent and self-assertive mind is rather rare and his position tenuous, the question of how to raise the ethical common denominator to acceptable levels within a certain organization or profession cannot be allowed to depend on his efforts. Structural changes are needed for the task.  One would be leadership from the top, setting an example and creating a genuine, not a hypocritical, set of expectations.  Others: precisely such leadership at all subordinate levels; systematic training and education in what should be expected; ways of identifying behaviors and either rewarding or punishing them; pressure from outside, such as through appropriate law or regulation; awareness that various levels and parts of an organization often become sub-groups with an ethic of their own; and the facilitation of integrity by providing people with special protections and ways to transcend the “chain of command” when needed (such as by giving individuals access of someone like an inspector general).  A structural imperative that seems obvious from Exile on Wall Street would be the removal of the conflict of interest that is inherent in a bank analyst’s working for an organization that feeds off of favorable critiques.  An analyst working for an investor, such as a pension or investment fund that has no reason to want less than a fully objective analysis, enjoys a work environment that is free of the conflict of interest that constantly bears down on one working for a seller.  Mayo says there are both kinds of analysts, although the critiques made by those working for investors are most often kept private.  In the lead-up to the financial crisis, the ideal of “independent professional” for people such as lawyers, accountants, corporate board members, bank analysts, and sometimes even regulators was greatly vitiated.  Anything that can restore their independence and professionalism would go far toward elevating the “ethical common denominator” in the countless parts of the financial and business communities.

It was almost two hundred years ago that Ralph Waldo Emerson wrote of “abuses in which all connive.”  Mayo’s account shows us two things: that human behavior has not changed all that much and that the failure to do better can often have far-reaching consequences.


[1]   This article can be accessed without charge at www.dwightmurphey-collectedwritings.info as item Ms6 near the end of the site.