HARD LESSONS STREET SMARTS Linking Professional Conduct with Shareholder Value in the Securities Industry By Roy C. Smith and Ingo Walter Harvard Business School 351pp $27.50 With the stock market passing another milestone almost every hour, it's easy to forget that, with every uptick, someone, somewhere is trading on insider information, churning an account, rigging the market, or perpetrating some other felony. Street Smarts by Roy C. Smith and Ingo Walter, market-savvy professors at New York University's Stern School of Business, offers a sober reminder. Investors, Wall Streeters, and financial services industry regulators will all find the book a useful analysis of the problem, even if it serves up commonsense solutions rather than original ones. According to the authors, there is a direct link between a securities firm's ethics and its financial prospects. To make their case, they dissect some 15 years' worth of Wall Street misdeeds, ranging from such headline-grabbing debacles as Prudential Insurance Co.'s sale of poorly performing limited partnerships and Kidder Peabody's bond-trading fiasco to the insider-trading scandals of the 1980s and many lesser-known episodes, foreign and domestic. Their goal: to find lessons that might help avoid future catastrophes. In one respect, though, Street Smarts is disappointing. While the authors bring fresh insight and historical perspective to these episodes, they rely heavily on press clips and such books as James B. Stewart's Den of Thieves and Kurt Eichenwald's Serpent on the Rock. Nothing wrong with that, of course. But from the likes of a Roy Smith, who became a Goldman, Sachs & Co. general partner during a highly successful 20-year career before switching to academia in 1987, one yearns for juicy, never-before-told tales, or the skinny on controversial personalities. In vain, it turns out. Describing the challenge of managing a Wall Street firm as ''zookeeping,'' Smith and Walter write a prescription for taming the animals, or at least preventing them from killing or maiming their keepers. Many of their recommendations have a mom-and-apple-pie quality to them: For example, in compensating employees, they advise firms to ''reward good character, integrity, and leadership potential'' and to ''pay people sensibly.'' And to deter insider trading, they call for greater investment in compliance systems and encouragement of whistle-blowing. Now, who's going to argue with that? Certainly not Alan C. ''Ace'' Greenberg, the no-nonsense chairman and CEO of Bear Stearns & Co. Quoting from his 1996 Memos from the Chairman, the authors praise Greenberg for implementing tough control systems and imparting strong values. But on Wall Street, events have a way of overtaking every account: Federal and state investigators are now probing Bear Stearns's role in processing transactions for defunct A.R. Baron, which has been accused of operating a criminal concern that defrauded customers of $75 million. According to press reports, the defendants have denied the charges. For its part, Bear Stearns has said that firms like A.R. Baron make up a minute portion of its clearing business, and that playing regulator isn't its job in the first place. Still, it all goes to show what a tough assignment Smith and Walter have taken on. BY PHILLIP L. ZWEIG RELATED ITEMS PHOTO: Cover, ``Street Smarts''

Updated Aug. 7, 1997 by bwwebmaster
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