Industry Self-regulation Under Government Intervention

Abstract

Objective Industry actors (organizations, associations) can influence the way in which firms comply with regulations. This study examines how this influence process is affected by government intervention. Methods Using official, anonymized data from the entire industry of financial intermediation in the Netherlands (N = 8655 firms), we examine how firms' affiliations with industry actors relate to (1) voluntary actions aligned with improving regulatory compliance (e.g., requesting audits, attending workshops), and (2) law violations. Industry actors are distinguished between trade associations and the industry's self-regulatory organization (SRO), which is subject to more government intervention. The analysis employs Poisson regressions to explain count variables, and bootstrapping to assess indirect associations. A series of robustness tests focus on relevant sub-samples, employ exact matching to address possible self-selection, and incorporate lagged dependent variables. Results The association between affiliations with industry actors and law violations is negative and significant. This association is more indirect for trade associations than for the SRO (i.e., it is more strongly mediated by the voluntary actions firms take and which help to improve compliance). Conclusions These findings go in line with the theory that government intervention makes industry-self regulation more mandated and less voluntary. Under less government intervention, industry actors may promote more voluntary efforts to comply.

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“…Self-regulation refers to the autonomy and control an entity has in working toward a goal (Deci and Ryan, 2012). When applied to organizations, self-regulation involves self-monitoring and adherence to internal standards rather than external factors such as the law (Mendoza et al. , 2020).…”

“…There are two forms of self-regulation: economic control of markets and other economic instruments; and social, which are “mechanisms whereby firms or their associations, in their undertaking of business activities, ensure that unacceptable consequences to the environment, the workforce, or consumers and clients, are avoided” (Gunningham and Rees, 1997, p. 365). Self-regulation is known to elicit higher standards of behavior when compared to external regulation that typically only reinforces minimum standards (Mendoza et al. , 2020).…”

“…Self-regulation refers to the autonomy and control an entity has in working toward a goal (Deci and Ryan, 2012). When applied to organizations, self-regulation involves self-monitoring and adherence to internal standards rather than external factors such as the law (Mendoza et al, 2020). Industry self-regulation differs from individual self-regulation where a groupprofessional association, corporations, business network or communitiesagree to cooperate to maintain a standard (Gunningham and Rees, 1997).…”

“…There are two forms of self-regulation: economic control of markets and other economic instruments; and social, which are "mechanisms whereby firms or their associations, in their undertaking of business activities, ensure that unacceptable consequences to the environment, the workforce, or consumers and clients, are avoided" (Gunningham and Rees, 1997, p. 365). Self-regulation is known to elicit higher standards of behavior when compared to external regulation that typically only reinforces minimum standards (Mendoza et al, 2020). Governments can also play a role in self-regulation by encouraging or mandating that industry organizations develop self-regulatory codes, support compliance with the codes, monitor their effectiveness and endorse activities (OECD, 2015) (see Web Appendix, Table 7).…”

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“…Entonces, la función de cumplimiento se encuentra en el medio (por ponerlo de alguna manera) de las exigencias normativas de los reguladores, las presiones de otros actores (sean o no competidores) (Mendoza, Dekker y Wielhouwer, 2020) y los intereses del directorio de la organización que, por supuesto, están atravesados por la necesidad de generar valor a sus accionistas y pueden ir desde la voluntad de imprimirle ética a los negocios, hasta generar legitimidad ante la sociedad (y de paso una mejor reputación) o dar sólo una apariencia de legalidad con el fin de evadir los cuestionamientos de las autoridades (Parker, 2000;Peterson, 2013; Ben Khaled y Gond, 2020). La variedad de intereses frente a la adopción de un programa de cumplimiento, y el hecho de contar con un área responsable, depende en gran parte del punto de vista de la empresa, el cual puede oscilar entre adoptar un mero mandato y obligación y, por ende, responder a la amenaza de un castigo por hacer las cosas mal, o una elección relativamente más libre e independiente que emerge del entendimiento según el cual se trata una necesidad moral justificada en lo que es correcto y necesario (Roberts, 2009;Sampson 2016;Mendoza et al, 2020). Entonces, la función de cumplimiento debe construir significado y lidiar con un proceso interpretativo, balanceando necesidades confrontadas (pero en algunos casos, complementarias y hasta necesarias).…”