Increasing regulatory oversight to control shareholders is bound to underperform. This is because it rests on an invalid assumption, namely that shareholders are better controlled and better steered when regulatory stringency is increased. The assumption runs counter to the conditions that a regulation must require of shareholders, owing to those conditional requirements being unevenly matched by shareholders. Specifically, since shareholders vary in what is required of them by a regulation, the increase of regulatory oversight necessitates that some shareholders will fail to respond, some will comply with what is required, and others will do more. Increasing regulatory oversight does not therefore address the fundamental problem of there being pre-existing deficiencies in stakeholder capacities to comply. To better address the problem, a minmax approach to regulation is proposed. The main benefit of minmax is that it aligns itself to shareholder differences, helping to reduce non-compliance while simultaneously encouraging beyond-compliance behaviour.

Introduction

In this chapter we argue that forms of regulation vary in their capacity to influence behaviour. This is because the receptive capacity to particular forms of regulation varies between different actors. As a consequence, the successful application of regulatory approaches will only be secured if they are correctly aligned to these receptive capacities. This is a critical issue, particularly as the focus within the literature on regulatory compliance has tended to be on the relative effectiveness of different regulatory strategies and tools, without considering in any depth this question of differential capacity to respond. In a sense, our argument constitutes an extension and elaboration of the idea of responsive regulation (Ayres and Braithwaite 1992; Grabosky, Chapter 4, this book): we argue, in effect, that regulators should be responsive not only to the conduct of those they seek to regulate but also to their capacities to comply and internalize different approaches. This has some important implications for regulatory strategies.

To develop this argument and substantiate our claims, we focus on one specific substantive area, namely, environmental regulation directed at private sector businesses. This is, of course, an important area in its own right but we suggest that our argument has wider implications, including for the criminal justice arena, and we return to consider these in our conclusion.