Regulatory trade-offs between codes and law: The case of UK gentlemanly capitalism in comparison.

Recent policy debates over corporate governance have taken a growing interest on the implications of legal vs. voluntary approaches to regulation rooted in law and codes respectively. The UK case on codes is argued to offer the advantage of not imposing a 'one size fits all' approach to corporate governance and thereby promotes considerable flexibility. Meanwhile, the more legalistic US approach may offer certain advantages in terms of coverage, greater powers of enforcement, and ultimately high levels of compliance. Given the growing diffusion of both new legislation and corporate governance codes throughout the world (Aguilera and Cuervo-Cazurra 2004), this paper examines the trade-offs between these different types of regulatory arrangements. We propose a theoretical model outlining two inter-related sets of trade-offs exist around the coverage and content of regulation. But using the case of the UK as an exploratory starting point, we seek to show that such trade-offs are mediated by the wider character of social institutions such as the "gentlemanly capitalism" of the City of London. Finally, we seek to extend our analysis of 'gentlemanly capitalism' as three 'dimensions' for cross-case comparison: a historical set of ideas about the boundaries of state vs. private action, formal business associations, and informal social networks. We argue that one possible outcome is strong/weak codes and strong/weak law, and a resulting regulatory trade-off. [ABSTRACT FROM AUTHOR]