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

Authors

  • Sharon Gilad

    Corresponding author
    • Address correspondence to Sharon Gilad, Department of Political Science and Federmann School of Public Policy, The Hebrew University of Jerusalem, Mount Scopus, Jerusalem. Telephone: 00972-2-5883562; Fax: 00972-2-5880047; E-mail: gilads@mscc.huji.ac.il.

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  • I thank Micki Eisenman, Michal Frenkel, Ronen Mandelkern, Varda Wasserman, and three anonymous reviewers for their helpful comments. I also thank the London School of Economics Centre for the Analysis of Risk and Regulation for funding the data-collection stage of this project.

Abstract

What role do regulators and firms play in the construction of open-ended regulatory terms? The new institutional legal endogeneity model 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 of British financial firms' responses to the Financial Services Authority's Treating Customers Fairly 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' and regulators' co-construction of 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.

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