Organizational Reputation and the Securities and Exchange Commission’s Failed Regulatory Revolution 1 Carl E. Gershenson 2 When do regulatory innovations fail? I provide a novel organizations-based answer to this question by devel- oping an institutional-reputational approach to regulatory politics. Regulators cannot hope to monitor the vast majority of market activities, so they must rely on the regulated to condition their behavior on the regu- lator’s reputation: beliefs and expectations concerning the regulator’s goals and capabilities. Regulators thus pursue daily activities while being mindful of how these activities will shape their reputation and thus their ability to achieve future goals. However, even long-standing reputations are rendered fragile when rival actors use the organization’s reputation to cross-purposes. Thus, while reputation represents a major source of power, reputation also proves fragile when organizations face conflicting reputational demands. The fragi- lity of reputations provides a novel explanation of an understudied phenomenon: failed regulatory revolu- tions. I develop this theory through the analysis of innovative Securities and Exchange Commission activity in disclosure law following the Watergate investigation. KEYWORDS: economic sociology; institutionalism; organizations; public administration; regulation; reputation. INTRODUCTION As state corporate law became increasingly permissive in the United States dur- ing the 1960s and 1970s, there emerged a regulatory vacuum that advocates of cor- porate regulation abhorred (Cary 1974). Into this vacuum stepped the Securities and Exchange Commission (SEC)—a respected but hitherto quiet regulatory agency—which began to exercise unprecedented power over corporate manage- ment. In the 1970s, the SEC initiated an enforcement program that successfully broadened the scope of the Watergate investigation to include corporate bribery and fraudulent accounting. The SEC argued that illegal or immoral activities perpe- trated by management were “material” to a reasonable investor’s decision to pur- chase corporate securities, and therefore failure to disclose unethical activities was a violation of securities law. This aggressive and novel enforcement program incen- tivized more than 100 major corporations to disclose international malfeasances; indirectly instigated a coup in Honduras, the disgrace of the Dutch royal family, the collapse of the Japanese governing coalition and the arrest of its prime minister; and finally, became a prime mover in the passage of the 1977 Foreign Corrupt Prac- tices Act (FCPA), the first law of its kind in the world. One observer notes that the 1 The author would like to thank Frank Dobbin, Jason Beckfield, Fred Block, Carly Knight, Kim Pernell-Gallagher, and Theda Skocpol for their helpful comments and suggestions on earlier versions of this article. 2 Department of Sociology, Washington University in St. Louis, 1 Brookings Drive, St. Louis, Missouri 63130; e-mail: cgershenson@wustl.edu Sociological Forum, 2019 DOI: 10.1111/socf.12518 © 2019 Eastern Sociological Society 1