Law and Reputation: How the Legal System Shapes Behavior by Producing Information

Description

The legal system affects behavior not just directly, by imposing sanctions, but also indirectly, by producing information on how people behave. For example, internal company documents exposed during litigation will help third parties assess whether they trust a company and want to keep doing business with it. The law therefore affects behavior by shaping reputations. Drawing on economics, communications, and a nascent multidisciplinary literature on reputation, Roy Shapira highlights how reputation works, and how information from the courtroom affects the court of public opinion, with a particular emphasis on the role of the media. By fleshing out interactions between law and reputation, Shapira corrects common misperceptions about the ability of market forces to discipline corporate behavior and adds to timely, ongoing debates such as the desirability of heightened pleading standards or mandatory arbitration clauses. Law and Reputation should interest any scholar who invokes notions of market discipline in their work.

Roy Shapira is Associate Professor at the Harry Radzyner Law School, Interdisciplinary Center (IDC), Herzliya. He has focused on the interactions between law and reputation over the past decade: teaching it at Harvard Economics Department, consulting on it for private firms, and publishing in numerous law reviews and business publications.

'Roy Shapira's superb book presents an extremely illuminating analysis of how the legal system affects reputational sanctions and rewards, and vice-versa, and it makes many sensible recommendations for improving the relationship.' Robert Charles Clark, Harvard University Distinguished Service Professor and former Dean, Harvard Law School 'How does the law deter wrongdoing? Partly via formal sanctions, such as fines. But also by threatening wrongdoers with exposure and embarrassment, even when formal sanctions are not applied. Roy Shapira's groundbreaking book on the relationship between law and reputation is a must-read for those curious about how the legal system actually shapes behavior.' Jesse M. Fried, co-author of Pay without Performance: The Unfulfilled Promise of Executive Compensation 'Roy Shapira shows how reputation and lawmaking can and should interact. The two are not just substitutes: it's not just that we want good law to handle what reputation cannot. Rather, properly done legal structures can use reputational sanctions when they are more effective and more accurate than what an administered legal system can do. Moreover, reputation and legal enforcement have costs; each has weak spots where it will be ineffective; each has strengths. The astute policymaker must keep the comparative costs, weaknesses, and strengths in mind when designing a legal system to confine wrong-doing. Shapira's book provides an insightful guide for how to do this.' Mark J. Roe, author of Political Determinants of Corporate Governance and Strong Managers, Weak Owners: The Political Roots of American Corporate Finance 'Shapira elegantly bridges the divide between academia and practice. This book powerfully speaks to the way in which law and reputation interact and shape each other, and brilliantly captures the important notion of reputation as a driver rather than just an outcome of litigation.' Rupert Younger, Director, Oxford University Centre for Corporate Reputation 'This publication is recommended for business, information, and marketing legal professionals seeking to comprehend the influences of law upon corporate reputations. Shapira provides considerable research with references to numerous American case law and law review articles to support his arguments ... Shapira's transparent style of writing inherently leads readers to further their own knowledge on what defines reputation and what influences reputational judgment.' Gillian Eguaras, Canadian Law Library Review 'Overall, Shapira's explanations are as clear as they can be for such a complex subject. He combines interviews, case studies, and meta-analysis of other studies in various fields that are related to law and reputation, such as consumer behavior and stock market analysis. Each chapter begins with an overview of the chapter's content and how it links to other parts of the book. Readers also benefit from extensive footnotes, with sources from a variety of fields. I recommend the book to any law library that collects in law and economics, business law, or products liability.' Melissa Strickland, Law Library Journal