Accommodating Power: the `Common Sense' of Regulators
| Author | Laureen Snider |
| Published date | 01 June 2009 |
| Date | 01 June 2009 |
| DOI | http://doi.org/10.1177/0964663909103634 |
| Subject Matter | Articles |
THE ‘COMMON SENSE’ OF
REGULATORS
LAUREEN SNIDER
Queen’s University, Canada
ABSTRACT
This article examines the perspectives, strategies and practical ‘common sense’ of
those charged with regulating and enforcing securities laws in the post-Enron era. It
argues that crackdown periods following stock market disasters disrupt dominant
patterns of governance and empower regulators to proactively enforce laws against
powerful financial actors. The article shows how officials negotiate their regulatory
terrain and accommodate the economic and social capital of the ‘stakeholders’ they
are charged with regulating outside crisis periods and how they re-interpret and re-
define their mission in response to political, economic and ideological change.
Empirically the article is based on 21 interviews with regulators and enforcement staff
in securities commissions and law enforcement, and on the discourses and directives
found in key regulatory documents.
KEY WORDS
corporate crime; governance; habitus; regulation; stock market fraud
A system of governance is most effective when governed subjects voluntarily adopt
and internalize its norms, values and ambitions as their own. (Rose, 1989: 50)
The OSC seems not to have been captured by the sector it regulates but handed
over to them. (Andrews, 2006: 86)
SOCIAL & LEGAL STUDIES © The Author(s), 2009
Reprints and Permissions: http://www.sagepub.co.uk/journalsPermissions.nav
0964 6639, Vol. 18(2), 179–197
DOI: 10.1177/0964663909103634
180
SOCIAL & LEGAL STUDIES 18(2)
INTRODUCTION
THEARTICLEexamines the perspectives, strategies and practical ‘common
sense’ of those charged with regulating and enforcing securities laws in
the post-Enron era. It is an empirical study of stasis and fluctuation,
of habitus, the practical/common sense regulators acquire, practise and live
(Bourdieu, 1987, 1993), and its fine-tuning. Using 21 interviews with regu-
lators and enforcement staff in securities commissions and law enforcement,
and key regulatory documents (legislation, commissioned research reports,
in-house policy directives), the article shows how officials negotiate their
regulatory terrain, both accommodating the economic and social capital of the
powerful financial players they regulate, and re-situating their mission as ideo-
logical currents change. Two interconnected arguments are made: first, the
compliance-oriented rationale that guides the day-to-day activities of the regu-
latory agency constitutes, reinforces and reproduces the asymmetric power
relations of its operational field; that is, agencies have institutionalized, and
securities regulators have interiorized certain structurally mandated realities
of the relations of power they operate within. Second, the habitus thus formed
is constantly responding to alterations in the regulatory field. Thus crackdown
periods following stock market disasters empower regulators – particularly
staff charged with prosecuting and sanctioning offenders – to act on the
always simmering internal contradictions between the compliance mission of
the agency overall and the enforcement missions of Enforcement/Litigation
branches. At these junctures agencies receive a short-lived cultural permission
to pro-actively scrutinize the practices of dominant economic actors. Under-
standing how corporate power interacts with habitus is particularly urgent
in light of the collapse of world markets today (2009–10), because these forces
shape the very parameters of reform.
In 1992, Nancy Reichman pointed out that business actors exercise power
in ways blue-collar criminals do not, through their ability to influence the
form, shape and meaning of regulatory law. Enforcement policy, she argued,
emerges from the ‘informal arrangements, tacit agreements and pressures for
conformity’ exercised by ‘complex networks of clients, legal and accounting
personnel and market competitors’ (Reichman, 1992: 245). The corporate
sector, through its political, social, ideological and economic capital, is thus
legitimized as an inside player with the cultural authority to shape the meaning
and interpretation of formal regulatory law. Putting empirical clothes on these
claims, Mary Condon’s (1998) study of stock market regulation in Ontario
from 1945–90 showed how key business players used their cultural capital
and inside-player status to shape securities legislation. Recent work has
further documented the innovative strategies corporate actors devise to stretch
legislative controls further still (McBarnet, 2004, 2006). Thus as each newly
discovered financial disaster generates another flurry of reform legislation,
corporate lawyers, accountants, consultants and bankers begin devising new
ways to shape, stretch and legally circumvent it. ‘Screwing the (financial
regulatory) system’ is culturally celebrated and very lucrative.
SNIDER: ACCOMMODATING POWER
181
This article examines the formative role played by the targets of regulation
in constituting the regulatory terrain (see Haines and Sutton, 2003; Parker,
2006). Following Bourdieu, it argues that the habitus of regulators – the
strategies and techniques, the formal arrangements and informal expectations
regulators employ – is produced by ‘the dialectical interplay between
incorporating . . . objective features of the organization of social fields’ and
‘externalizing . . . this through . . . the subject’s reproductive labour’ (Bourdieu,
1993: 54). As regulators and regulated populations create and reproduce ‘the
structural conditions of [their] social fields’, this process of internalization
generates the mentalities, sensibilities and practices of both groups (Frauley,
2005: 181–5). Becoming a successful regulator is all about incorporating these
structurally generated, taken-for-granted realities of business/government
interaction. But while the frame of the regulatory field is relatively constant,
its boundaries are constantly renegotiated in response to a myriad of global,
national and regional events (Gunningham and Johnstone, 1999; Parker,
2002; Gunningham et al., 2003; Haines, 2003; Hutter and Jones, 2006).
Crackdown periods following major financial disasters – here, the collapse
of the technology-fuelled stock market bubble in 2000–1 – shift the balance
of power between agencies and business in a pro-regulatory direction.
Stock market regulation in Canada, the empirical focus of this article, illus-
trates another set of influences, showing how local/regional intersect with
global/universal forces to shape regulatory terrain. Canada’s resource-based
economy (mining, forests and oil), its history of French/English compromise
(native peoples always excluded), and its federal-provincial struggles have
produced several unique features. Canada is the only developed nation-state
without a national stock market regulator, power is fragmented across 13 juris-
dictions and securities commissions (Phelps et al., 2003). Rivalry is particularly
fierce between the pre-eminent commissions in Ontario, Quebec, Alberta and
British Columbia. Canada’s regulatory environment is distinctly bimodal:
most public companies are small, but the few major multinationals, primarily
located in Ontario, typically dual-listed and therefore dual-regulated, dom-
inate the financial landscape (Nicholls, 2006). But large issuers comprise only
10 per cent of the 3000 plus companies listed on the 13 Canadian exchanges
(Nicholls, 2006).1 Nationally, 40 per cent of companies offering shares are
worth less than $10 million (Sibold, 2005), family ownership and concentrated
control are common.2 However, Canada’s economic, political and cultural
dependence on the world’s pre-eminent superpower, the United States, is a
feature shared today by most of the developed world. Canada has the largest
number of non-American companies listed on the US-based Securities and
Exchange Commission (497 of 1240 foreign companies as of 1 January 2005).
Section 1 of the article presents a mini-genealogy on the origins of regu-
lation and their significance today. Section 2 outlines the latest stock market
crisis, the ‘crackdown’ and its regulatory legacy. Section 3 presents the empir-
ical findings from interviews and document analysis. The final section links
the empirical to the theoretical, showing stasis and fluctuation, constancy and
change.
182
SOCIAL & LEGAL STUDIES 18(2)
SECTION 1: ORIGINS
Two centuries ago, the basic principles of stock markets – dispersed owner-
ship and publicly sold shares through the vehicle of the corporation – were
heavily contested. Incorporation was a privilege granted by the nation-state
in exchange for services and/or cash (Snider, 1993; Glasbeek, 2002). Adam
Smith, the very father of capitalism, warned against separating ownership
from control, arguing that incorporation should only be allowed for ‘excep-
tional economic undertakings’, where the discretion of management is ‘so
limited that it cannot help but coincide with the investors’ interest’ (Glasbeek,
2002: 72, quoting Smith, 1776/1994; see also Berle and Means, 1932). Stock
trading was viewed as ungentlemanly, the ‘free’ market was similarly suspect
(Shearing, 1993). Every major precept – the ‘common sense’ of the financial
domain today – had to be conceptualized, argued as a problem-solving solu-
tion by the authorities of the day, and legitimated through business schools,
think-tanks and select public media (for example, The Wall Street Journal)
(Shearing, 1993; Pearce and Tombs, 1998; Garland, 2001; Snider, 2004).
By the dawn of the 20th century this ideological task...
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