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Institutionalizing fairness in financial markets: Mission impossible?

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  • Sharon Gilad

Abstract

This article analyzes the institutionalization of process‐oriented regulation, namely: regulatory institutions that allow firms to adapt regulation to their individual circumstances, while holding them to account for the adequacy and efficacy of their internal compliance systems. The article's main focus is on the strategies sought by compliance professionals to attain managers' receptiveness to regulatory expectations. It analyzes British financial firms' responses to a process‐oriented regulatory initiative, which sought to transform the widespread culture of product “mis‐selling” in this industry. Three key arguments and hypotheses are put forward: first, it is suggested that the existing theoretical literature on process‐oriented regulation overly stresses managers' rational, profit‐maximizing motivations for (non‐)compliance, whilst overlooking their emotive motivations. Second, it is proposed that managers' emotive resistance is expected when regulatory expectations challenge firms' “organizational identities” and thereby their individual identities. Third, it is hypothesized that when process‐oriented regulation poses a threat to organizations' identities, its institutionalization will entail delegation of the design and subsequent implementation of compliance systems to managers outside compliance, and reframing of regulatory expectations into existing businesses discourses and methodologies.

Suggested Citation

  • Sharon Gilad, 2011. "Institutionalizing fairness in financial markets: Mission impossible?," Regulation & Governance, John Wiley & Sons, vol. 5(3), pages 309-332, September.
    • Handle: RePEc:wly:reggov:v:5:y:2011:i:3:p:309-332
    DOI: 10.1111/j.1748-5991.2011.01116.x
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    1. Lori Snyder Bennear, 2007. "Are management-based regulations effective? Evidence from state pollution prevention programs," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 327-348.
    2. Parker,Christine, 2002. "The Open Corporation," Cambridge Books, Cambridge University Press, number 9780521818902.
    3. Karen Golden-Biddle & Hayagreeva Rao, 1997. "Breaches in the Boardroom: Organizational Identity and Conflicts of Commitment in a Nonprofit Organization," Organization Science, INFORMS, vol. 8(6), pages 593-611, December.
    4. Black, Julia, 2008. "Forms and paradoxes of principles-based regulation," LSE Research Online Documents on Economics 23103, London School of Economics and Political Science, LSE Library.
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