Beyond Endogeneity: How Firms and Regulators Co‐Construct the Meaning of Regulation

In: Law & policy, Band 36, Heft 2, S. 134-164

Abstract

What role do regulators and firms play in the construction of open‐ended regulatory terms? The new institutionallegal endogeneitymodel posits that organizations respond to legal uncertainty by adopting formal structures to symbolically signal their compliance. These structures, however, tend to embody businesses' managerial and commercial values, as opposed to regulatory goals. Law becomes endogenous insofar as legal actors then defer to businesses' institutionalized ideas about regulation and compliance. Professionals, such as lawyers and human‐resource managers, and their strategic deployment of framing, are portrayed as the engines of the above process of legal endogeneity. By comparison, administrative agencies' strategies in shaping the meaning that corporations attach to the law are practically ignored. Building on a detailed case study ofBritish financial firms' responses to theFinancialServicesAuthority'sTreatingCustomersFairly initiative, this article problematizes the supposition of regulatory deference to business constructions of law. Instead, it develops a more balanced model that recognizes business professionals'andregulators'co‐constructionof regulation and compliance. The process of regulatory meaning co‐construction, as depicted by this model, involves alignment and disputes between regulators' and professionals' strategic framing of regulatory concerns with tangible consequences for the enactment of regulation.