An Institutional Theory of Corporate Regulation

The regulation of corporate behaviour has persisted in spite of peaks of neo-liberalism in many developed jurisdictions of the world, including the UK. This paradox is described as ‘regulatory capitalism’ by a number of scholars. Of particular note is the proliferation of corporate regulation to govern ‘socially responsible’ behaviour in recent legislative reforms in the EU and UK. In seeking to answer the broader question of whether corporate regulation indeed effectively governs and moderates corporate behaviour, this paper focuses on the nature of corporate regulation. Although different pieces of corporate regulation purport to achieve different objectives and impose different types of obligations, this paper offers an institutional account of corporate regulation, specifically in relation to the UK’s regulatory capitalism, as the UK is typically held up as having a liberal market economy (which is broadly similar to the US). We argue that the nature and effectiveness of corporate regulation crucially depends on the nature of ‘regulatory capitalism’ in the type of economic order under discussion. Hence the study of the UK’s economic order and its efforts in introducing corporate regulation to change corporate behaviour holds lessons more generally for corporate regulation in economies that share similar features. The examination in this article provides an overarching framework for distilling the achievements and limitations of corporate regulation in such economic contexts. 

First, the paper clarifies that regulatory capitalism in the UK is characterised by three key tenets which reflect the spirit of the liberal market economy embraced here. Over time, gaps have been revealed in the achievements of these tenets of regulatory capitalism, particularly in relation to social expectations of the regulation of corporate behaviour. These gaps have become the subject of debates in the realm of ‘corporate social responsibility’ (CSR), where business, civil society and the state frame the expectations of corporate behaviour in contested ways such as in relation to scope, motivations, theoretical and practical premises. In the aftermath of the global financial crisis 2007-9, we observe increasing legalisation in the EU and UK of CSR issues, framed in ‘new governance’ regulatory techniques. They hold promise for change in corporate conduct through deeper forms of corporate engagement and accountability but they appear at the same time relatively undemanding and susceptible to cosmetic compliance. By discussing key examples in new corporate regulation reforms in the EU and UK, we seek to understand why recent corporate regulation reforms seem to offer mixed and in some cases, relatively limited achievements in governing corporate behaviour. We argue that the institutional account of corporate regulation continues to be able to explain regulatory weaknesses and limited achievements, in spite of the deployment of ‘new governance’ regulatory techniques. This is because ‘new governance’ regulatory techniques are implemented within the ethos of regulatory capitalism which limits their potential to introduce paradigm shifts. However the limitations of these regulatory reforms highlight more sharply the institutional shifts that are needed in order to connect the efficacy of corporate regulation with meeting social expectations.