Is Wall Street more accountable than Major League Baseball?

It’s too early to predict the fallout from the Houston Astros cheating scandal. But one thing is already clear: The players who participated and drove the signal-stealing scheme will not be fined or suspended. Following an internal investigation, Major League Baseball Commissioner Rob Manfred concluded that with the wide scope of players involved, and the reality that many have now moved to other teams, taking disciplinary action against players would be “difficult and impractical.”

Meanwhile, Citigroup, a global banking behemoth, just suspended the head of its lucrative High Yield Bond division in London for repeatedly skipping out on his lunch bill. 

Pushing the envelope to gain an edge has always been ingrained in baseball’s culture, from pine tar to spitballs. Now, with the advent of modern technology and exponentially larger revenue and payrolls, the pressure to cheat is stronger than ever. The same can be said (and quite often has been said by some leading presidential candidates) about Wall Street.  

But in this comparison at least, the financial sector comes out ahead when it comes to holding people responsible for their misdeeds. What made the difference in these two cases? Governance.

In each case, the transgressors were highly paid, highly valued employees who exhibited bad judgment and broke rules. In MLB’s case, the violation was arguably worse, because it undermined baseball’s primary product — the game itself. Citigroup’s free-riding trader may have repeatedly failed to pay his cafeteria bills, but that doesn’t shake public confidence in the company’s ability to buy and sell bonds. 

So why the disproportionate response?

Citigroup and MLB operate within two starkly different regulatory environments, and, as a result, you can see significant differences in their approach to institutional governance and accountability.

In London, where the bond trader was suspended, financial institutions, even U.S.-based ones, have to maintain compliance with a byzantine set of local and international regulatory regimes with strict oversight, such as the UK’s Financial Conduct Authority (FCA). One of the consequences of the post-financial crash saw market participants come under scrutiny by previously asleep-at-the-wheel regulators, although one could argue that while reforms were needed, we have had an overcorrection in regulation. 

In addition to stronger public oversight, markets and publicly traded corporations are coming under increasing pressure from the meteoric rise of the ESG (Environmental, Social and Governance) movement. ESG examines “beyond financial” considerations, such as a company’s environmental impact, the diversity on its board of directors, and of course, the soundness of its governance policies. 

With internal and external pressures forging a new culture of accountability, even instances of low-level corruption are no longer tolerated. You would be hard-pressed to find any serious or reputable financial service institution that doesn’t have an ongoing series of employee educational training for anti-money laundering, data breaches and general ethical and fraudulent standards. These days, any responsible company ensures that all employees hear directly on these issues from their CEOs with emails, town halls and video messages. 

In contrast, MLB enjoys a unique exemption from U.S. antitrust laws and has almost no regulatory oversight. So it’s no shock that the Astros and other clubs would calculate that the risks of getting caught cheating were low. 

While sign-stealing is nothing new in baseball, modern technology makes it easier, as Commissioner Manfred underscored in February of 2019 when he issued a document to all teams updating the rules around high tech video equipment’s use and placement. To ensure compliance with the rule, managers and general managers would formally attest at the beginning and end of every season that their players were not stealing signs.

Because of the rule update, Manfred had grounds to suspend the Astros executives, who were subsequently fired by their clubs. But the players walked because MLB skipped a step by only holding managers to account. Yet players stood to benefit hugely by cheating, so the corruption door was left wide open.

It’s safe to say that 20 years ago, the London bond trader would likely have received the mildest slap on the wrist. But since the financial crisis, and other forces like ESG driving transparency, governance and external accountability have become paramount for Wall Street. Our financial systems, and consumers, are safer for it.

This is not to suggest that the MLB should be regulated. But at a minimum it should take a page or two out of Wall Street’s ESG playbook. MLB leaders likely will face mounting pressure to discipline the sign-stealing players, not just team executives. If they fail to do so, they’ll invite government regulators to get in the game. As a certain out-of-work bond trader in London can attest, there’s no free lunch – not even in sports.  

Jason Gold is the managing director at the Progressive Policy Institute, where he works financial markets and economic policy. Follow him on Twitter at @jasongoldDC.