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Changing stakeholder perspectives: Regulators

In this Changing Stakeholder Perspectives series, we investigate the ways in which the New Normal – media anarchy, hyper-transparency, and interconnectivity – has fundamentally altered the relationship between businesses and their stakeholders and what this means for corporate reputation and external communications.


In the previous blogs in this series, we have looked at how the New Normal has shifted the balance of power between businesses and various stakeholder groups, including investors, employees, NGOs and consumers. Another primary stakeholder for any organisation, are its regulators – and in this case the scales are also being tipped by the ability to instantly disseminate information, and raise awareness of issues that once might have been shielded from the public eye. 

Contrary to the trend observed with other stakeholders, however, the scales can be seen to have swung in favour of the regulated, as the actions of the regulators themselves have come under greater scrutiny, and they are required to justify their own behaviours. 

This shift was most clearly seen in following the financial crisis of 2008, when a failure in oversight was seen as an underlying cause of the global downturn. With billions of pounds of taxpayers’ money used to bail out banks in the UK, the US, and across Europe, it’s little surprise that the public became acutely aware of the activity of financial institutions that had previously been considered infallible. 

Greater regulation had to be put in place: the regulators were expected to get tough. Restrictions were placed on bonuses paid to bank staff, delaying payments to deter risk taking and short-term profit policies; in the UK the Financial Services Compensation Scheme required banks to protect savers’ nest eggs; and potential bank CEOs were interviewed by the Financial Services Authority (FSA). 

But the regulators themselves are not safe from being brought to book. In 2012, the UK’s Financial Services Act saw the replacement of the FSA with three new bodies, including the Financial Conduct Authority (FCA). And following a series high profile audit failures in 2018, blamed on regulatory failures, the Financial Reporting Council (FRC) is being replaced with the more powerful Audit, Reporting and Governance Authority (ARGA)

Cataclysmic events result in a tightening of regulation in every sector: the 2001 foot and mouth crisis, for example, saw the Ministry of Agriculture, Fisheries and Food (MAFF) replaced by the Department for Environment, Food and Rural Affairs (Defra). Measures such as stricter hygiene rules for the transportation of animals and improved checks to find smuggled animal products were then introduced. 

But where does this leave the businesses whose activities are being regulated? 

While the public may sleep better knowing that checks are in place to protect their food, money and health, in many cases, increased regulatory burden means smaller profits, higher prices, and damage to the economy. 

Given the aforementioned post-crash context, we might have anticipated a sustained, steady increase in the regulatory and compliance burden for businesses. But much more so than other stakeholders, regulators are prey to socio-political shifts, so their power and influence waxes and wanes depending on the prevailing political climate. US President Trump is a strong advocate of de-regulation, while post-Brexit Britain looks likely to embark on a process of reducing its regulatory burden as it seeks to enter into new trade deals. We are also, crucially, 12 years on from the financial crash, time enough for memories to have dimmed. And so the pendulum swings back. Rather than being bound to unchanging rules, businesses, both directly and via their increasingly vocal industry bodies, now wield greater power to influence regulatory policy. 

In the hyper-connected world, regulators themselves are required to be much more transparent in their dealings: not least because oversight and regulation have become part of common parlance in a way they never were before the financial crash. Regulators have been shown to be fallible, over-regulation is increasingly a political target and businesses are able to make their case more clearly via the channels and connectivity enabled by the New Normal.

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