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When the Cat's Away, the Mice Will Play: A Model of Corporate Regulatory Compliance.

The introduction of new regulatory requirements creates a context in which organizations must adapt their current routines in an attempt to comply (i.e., Haveman et al., 2001; Tushman and Romanelli, 1985; Wholey and Sanchez, 1991). However, since a new regulation or rule may be costly or ineffective, a firm may be resistant to embrace the new regulation to protect its core routines. Overall, firms may desire to continue in previously established routines due to cognitive efficiency and reduction of complexity (Cohen and Bacdayan, 1994; March and Simon, 1958). Acknowledging this suggests that even if regulatory requirements are decreed from a regulating institution, management may not desire to immediately assimilate them into previously established routines to retain security and ease of operation (Meyer and Rowan, 1977).

Decoupling is understood as a choice when, in formally announcing adoption of a certain practice, managers choose not to internalize new regulations or rules within the practices of the firm (Meyer and Rowan, 1977). This process involves adoption of formal structures while skipping the internalization of critical elements of the new regulation into the daily routines (MacLean and Behnam, 2010). This decoupling has been found to be a form of "window dressing or symbolic gestures designed to give the appearance of satisfying regulatory requirements and enhance external audiences' perceptions of organizational legitimacy," while the firm is likely to continue with its daily routines (MacLean and Behnam, 2010: 1499).

An important assumption in the decoupling literature is that firms can avoid the scrutiny of external regulators who are not aware of the misalignment between policies and practices (Pache and Santos, 2013). This major assumption is likely to be challenged in contexts where a firm is likely to be audited for compliance with new regulations. Surprisingly, however, despite a recent focus on decoupling processes by management scholars (see Bromley and Powell, 2012 for a recent review), limited attention has been paid to the mechanisms through which this decoupling process unfolds (Tilcsik, 2010). The limited research that has explored the process of decoupling largely emphasizes how firms instrumentally use artifacts or symbols in order to gain legitimacy or societal support (e.g., Ashforth and Gibbs, 1990; Dowling and Pfeffer, 1975), but this research has ignored how the regulatory review for compliance impacts the way decoupling unfolds. In fact, this decoupling literature has largely been restricted to investigation of voluntary firm compliance to various institutional norms (Bromley and Powell, 2012) while giving insufficient attention to decoupling from governmental regulations that are mandatory and followed by a regulatory review. This lack of theoretical development is particularly troubling given that mandatory regulations placed on organizations continue to grow with Crain and Crain (2014) suggesting that federal regulations in the U.S. cost firms $2.028 trillion in 2012 alone.

Considering this dramatic rise in governmental regulation, Jaeger states that "almost one-third of all compliance teams spend more than one day every week tracking and analyzing regulatory developments" (2011: 51). This expansion of regulatory requirements makes a more detailed understanding of the decoupling process uniquely salient to management scholars. As Parker and Nielsen (2011: 64) state, "in an age of both proliferating regulation and capital, many of the political, economic, and social research questions that social scientists see as most significant will raise issues of regulatory compliance." As such, the purpose of this paper is to further the theoretical understanding of decoupling by moving beyond a simple focus on antecedents and outcomes of this process and addressing the growing calls for "a richer conceptual understanding of how decoupling occurs" when a firm has to undergo regulatory review for compliance (Bromley and Powell, 2012: 485).

Deterrence-based enforcement models assume that regulatory reviews are probabilistic--that is, a regulated entity knows the likelihood that regulatory review may occur but not whether one is or is not going to occur with certainty during any particular period (Fischer et al., 1992). In practice, however, regulatory reviews may at times be predictable given the past regulatory review pattern (Stafford, 2013). For example, it is reasonable to believe that the probability of a regulatory review may depend on how long it has been since the last audit or inspection, particularly if regulatory guidelines specifically suggest compliance reviews at least once every two years (e.g., see guidelines of Environmental Protection Agency (EPA)). Although not all regulators comply perfectly with their own stated guidelines, the predictability of regulatory review for firms may vary based on past regulator behavior. Thus, this paper argues that if the timing of a regulatory review depends on the length of time since the last inspection, firms may be able to roughly predict when a regulatory review will occur and adjust their compliance behavior accordingly, i.e., engage in periodic coupling, which involves switching between compliance and non-compliance depending on the timing of regulatory review. In cases when the timing of the regulatory review cannot be predicted, however, firms may pursue anticipatory coupling, which involves a gradual increase in compliant behavior as time unfolds since the last regulatory review. This suggests that firms that pursue decoupling under periodic review will enact the previously established non-compliant routines that are most beneficial when temporal requirements allow, but these firms will alternate to compliant routines when the possibility of regulatory review is imminent.

However, this switching between compliance and non-compliance behavior is applicable for process regulation only, a form of regulation that primarily stipulates behavioral requirements for the prescribed organizational actions (e.g., how patients are transported inside hospitals, how information is passed through the organization, how production waste is calculated, etc.). Process regulation stands in contrast to product regulation which deals with the specification of documentation or product requirements (e.g., SEC filings, employee training logs, quality control documentation, etc.) or other input/output factors. Regulatory review of product regulation involves not only the timing but also the scope of regulatory review (e.g., the extent of products, documents, input/output factors that may be considered.) Thus, in product regulation, compensatory and targeted coupling strategies may be more relevant depending on the predictability of the timing and scope of regulatory review. While targeted coupling involves producing compliant documentation and input/output to demonstrate compliance (knowing what will be audited and when), compensatory coupling involves re-adjustment of firm activities to loosen the goal of the regulation from its means (attempting to break core goals of the regulation without jeopardizing compliance) because predicting regulatory review time and scope seems impossible. These decoupling strategies become less pronounced over successive regulatory reviews, however, because portions of the new practices involved in meeting regulatory requirements will be assimilated into firm routines until continual compliance is established or until new regulations are enacted, restarting the process. Thus, firms that choose to comply symbolically may actually become fully compliant over time. This is consistent with Bromley and Powell's (2012: 485) argument that decoupling can "trigger a chain of reactions that have real organizational effects."

Thus, the model presented in this paper suggests that decoupling from the newly instituted or adopted regulations is more dynamic than previously thought. Based upon regulation characteristics (process or product regulation) and the predictable aspects of most regulatory requirements (timing or scope), a dynamic model of the decoupling process is developed. Through this theory, this paper extends institutional theory insights on decoupling processes by suggesting that firm decoupling practices can evolve into full compliance following temporal punctuations motivated by strategic concerns. This model suggests that the form and predictability of regulatory review (time or scope) will dictate the decoupling process a firm pursues. Thus, this model of decoupling under conditions of periodic regulatory review aims to explain better the scope of actions firms take to insulate internal activities from the burden of federal regulation. Before doing so, it is important to note that when considering regulatory compliance, this paper is specifically referring to compliance with the regulatory requirements instituted through mandatory legal means and this paper omits the accreditation standards to which organizations voluntarily engage to achieve legitimacy. While instances of voluntary commitments by firms to accreditation standards may involve decoupling (e.g., Westphal and Zajac, 2001; Westphal and Zajac, 2013), this paper limits consideration to mandatory legal regulations so as to specifically suggest an alternative to deterrence models which presume that firms can only choose between compliance and noncompliance.

REGULATORY COMPLIANCE AND ROUTINES

Regulatory compliance is a burdensome activity for many firms, especially when new regulations or rules may hinder efficiency targets and objectives. Regulations are known to be primarily of two forms: product or process regulation (Ashford et al., 1985). In product regulation, regulators may set the ultimate production, input or output standards that an entity must meet. This approach does not specify the processes to be followed but instead focuses on the standards that need to be met. Product regulation involves specific requirements of a potential product or service, such as the stipulation of product qualities or designation of input/output measures. For example, carbon monoxide emission regulations implemented under the Clean Air Act do not require the use of specific technologies or processes, but the regulations leave those choices to the regulated industries and instead mandate that emissions cannot exceed a set limit. The EPA issues guidelines to industries regarding how much sulfur dioxide they can legally emit into the air and what the penalty will be if they emit too much. Similarly, Department of Energy rules prohibit firms from selling manufactured products that do not meet certain energy efficiency standards. Thus, in product regulation, regulatory review involves verification of whether a firm is meeting a certain standard stipulated by a governmental agency.

Alternatively, process regulation involves issuing guidelines aimed at altering the routines of a firm's behavior. Under process regulation, the regulator sets forth methods and the processes by which the regulated entity must operate. For example, the Food and Drug Administration in the U.S. mandates that pharmaceutical companies comply with certain manufacturing practices through the issuance of stipulations regarding the frequency and type of quality testing. Similarly, Occupational Safety and Health Administration (OSHA) standards dictate how firm employees must behave with precise instructions on safety procedures and equipment inventory rules. Under this form of regulation, regulatory review involves verifying whether a firm is complying with these behavioral guidelines. In summary, any new regulation facing firms will be either process or product regulation or even some combination of both.

Managing the efficiency of internal activities while simultaneously handling the increasing demands of these forms of regulation, however, is a critical endeavor for firms. Institutional theorists have long suggested that firms may achieve those objectives through decoupling, or formally adopting new regulations and rules but never internalizing them. This strategy of decoupling would address institutional demands for compliance while maintaining the purity of internal firm operations (Meyer and Rowan, 1977; Oliver, 1991; Scott, 1995). Organizational mission alignment with the regulation as well as the legal (or legitimacy) penalties incurred by the firm are suggested to affect managerial decisions to decouple (Durand et al., 2017). While the penalties for noncompliance are not likely to have a direct effect on any individual manager, the negative outcomes for the firm may provide indirect negative outcomes for individual managers (e.g., termination for allowing non-compliance, reputational damage, etc.). Therefore, management may not pursue decoupling if the penalty for non-compliance increases. Nevertheless, the stress and inefficiencies created through changing routines to comply with regulatory requirements could impact the decision to decouple. Important to this argument is the amount of inefficiency created. As regulatory requirements create greater operational inefficiencies in practice, an organization will be more adversely affected, and this increases the likelihood that management will tolerate the risk of noncompliance by reverting to previously established non-compliant routines. Put another way, onerous regulations that cause great inefficiencies are less likely to gain compliance, but easy regulations that do not exacerbate inefficiencies may foster increased compliance instead.

Institutional theorists contend that firms gain legitimacy from the environment by creating visible, largely symbolic, compliance programs that satisfy legal requirements while decoupling those regulations from core routines (MacLean and Behnam, 2010). The disconnection from actual practice indicates that these formal rules were never meant to be implemented. As such, decoupling involves avoiding internalization of new regulations and rules into the daily routine processes of the organization (Meyer and Rowan, 1977; Bromley and Powell, 2012). Most studies of decoupling processes have focused on impression management to maintain legitimacy with the assumption that firms can avoid the scrutiny of regulators who are unaware of the misalignment between a firm's policies and practices (Weaver et al., 1999; Pache and Santos, 2013). Other studies have examined how formal announcements of adoption of a new mandatory practice can be used to gain legitimacy for some subjects and challenge the legitimacy of other subjects (Phillips et al, 2004). For instance, formal initiatives such as stock repurchase programs (Westphal and Zajac, 2001; Zajac and Westphal, 1994), total quality management (TQM) programs (Westphal et al, 1997), diversity expansion programs (Mun and Jung, 2017), or management of strategic change (Fiss and Zajac, 2006) can be formally announced without actually being implemented.

However, many firms do need to periodically demonstrate compliance. To confirm compliance, firms must undergo regulatory review by regulators to certify compliance. Typically, each regulatory agency establishes unique guidelines on both the length of time between reviews and whether those reviews are scheduled or unannounced. For example, Section 3007 of the Resource Conservation and Recovery Act requires that the EPA or an authorized state conduct a program to "thoroughly inspect" every hazardous waste treatment, storage, or disposal facility "no less often than every two years" (Stafford, 2013: 3). Similarly, external auditors review financial statements of public firms annually for compliance with Securities and Exchange Commission (SEC) guidelines.

Greater insights for understanding decoupling processes also emerge from comparing the time frames in which a firm operates with when they must demonstrate regulatory compliance. These existence periods are analogous to the length of time between the ending of the previous regulatory review and the start of the next, or what subsequently referred to as the regulatory horizon. The importance of the regulatory horizon is that during this period, explicit compliance to regulatory requirements is not directly enforced. As such, the regulatory horizon provides a specific period in which the firm recognizes that regulatory review will not likely occur.

An important aspect of the regulatory horizon is whether the length of time incorporated into it is explicitly developed: is the next regulatory review scheduled or unannounced? Through the explicit scheduling of regulatory reviews, the regulatory horizon is predetermined, providing certainty for the length of time in which noncompliance could go unnoticed should it occur, such as in the examples of EPA or SEC above. However, while scheduled regulatory reviews do occur, regulatory reviews can often be unannounced. Even in this circumstance, there is still a regulatory horizon that occurs and is somewhat predictable albeit less certain. For example, directly following regulatory review, a firm is confident that there will be some amount of time until the next review occurs. Even though the length of the regulatory horizon is not explicitly predetermined, based upon prior experience or the fact that previous reviews usually occurred during a specific time frame (e.g., in the spring, or during October, etc.), the firm will have some expectation of when the next regulatory review will occur. Many different factors may enter into the prediction of the next regulatory review, from experience to "gut feelings" (Hayashi, 2001) or intuition (Dane and Pratt, 2007), but management knows that future reviews will come.

Additionally, predictability of the scope of regulatory review is of paramount importance, especially for product regulation. The scope of regulatory review involves knowing what documents are likely to be investigated, what batches of inventory are likely to be observed, and what input and output factors are likely to be subject to a review. While the scope of the audit may involve all forms of compliance in terms of firm input and output factors, it may additionally include the probable time horizon for those factors. For example, based on past auditor behavior, a firm might predict that only the last three months of inventory might be subject to audit because the product that has been produced earlier than three months horizon has either already been sold or consumed. Thus, while firms may not know which input or output factors will be reviewed for specification compliance, they may have some insights into potential time horizon of those products. While the form of a regulation and timelines and scope of a regulatory review described above seem like a basic aspect of regulatory review and compliance, it is precisely what establishes the "rules of the game" and has been largely overlooked in previous studies that consider decoupling. As such, understanding how a form of regulation and regulatory review impact the decoupling process (such as remaining compliant while protecting internal core routines) is critical for advancing an understanding of decoupling in general. The next section describes how this decoupling process unfolds in process and product regulation respectively (Figure I).

Periodic Coupling

The nature of newly instituted regulatory requirements--process regulation--allows a context in which regulatory compliance must only be demonstrated at a single, discreet point in time. In other words, the process regulation aspect of a regulation as well as the temporal aspect of regulatory review in decoupled firms is likely to be instrumental in balancing competing demands for compliance and efficiency. Specifically, there are two distinct periods of regulatory compliance marked by engagement in non-compliant routines: during the regulatory horizon, and during the specific and finite time in which regulatory review is occurring. These two distinct periods create the conditions for periodic coupling in which alternation between compliant and non-compliant routines is feasible, and the firm does not exhibit fear of retribution by regulators. As such, during a scheduled regulatory horizon, the firm can fall back on previously established, noncompliant actions that minimize stress (Giddens, 1984; Oreg, 2003) and provide the increased efficiencies associated with those developed routines while avoiding the threat of being caught for non-compliance. Thus, engagement in periodic coupling involves adopting new regulations while deviating from those rules through its daily routinized actions. This helps firms achieve overall compliance with the newly instituted norms while maintaining efficient routines.

Thus, although the firm policies may signal the formal adoption of new regulations, temporal balancing through periodic coupling may require non-compliant daily operational routines aimed at efficiency to be retained when new regulations conflict with firm aspiration levels or if they are found to be otherwise problematic (Rerup and Feldman, 2011). This suggests that an organization may appear compliant via the presence of formal policies that align with the requirements of the new regulation, but in actuality, the organization may remain non-compliant as it implements incumbent routines that do not comply with the new rules and regulations (Pentland and Feldman, 2005). This happens because the nature of process regulation requires that firms retain flexibility to frequently adjust their daily routines to balance temporal competing demands (Oliver, 1991). As such, in a manner that is contingent on the perceived impact on the core routines of the firm, an intentional alternation between a mode of compliance and a mode of non-compliance may be enacted. Different non-compliant actions may be carried out during other time periods, but the firm remains compliant at the specific time of regulatory review. This allows firms to avoid internalizing new regulations while signaling compliance.

In other words, when possible, firms involved in decoupling from newly instituted rules and regulations will play to their self-interests by reverting to previously established routines, even if those routines do not meet new regulatory requirements. For example, the U.S. government agencies, such as OSPLA or the Department of Agriculture (USDA) specify certain processes be followed in the process of poultry slaughtering by meat processing plants, such as noise levels, quantity of poultry to process per minute, and the amount of hazardous chemicals to use as a refrigerant or to kill bacteria. Yet, firms may choose to not comply with these process rules in the regulatory horizon for fear of losing in efficiency, but as the regulatory review date draws near, they may have to switch to compliance. As such, although the organization remained non-compliant for the period up to the point of review, it remained compliant while the regulatory review was conducted. Taken together, the above discussion leads to the first proposition, which is graphically represented in Figure II.

Proposition 1: Decoupling firm facing a process regulation and. a scheduled regulatory horizon will pursue periodic coupling.

Anticipatory Coupling

A key aspect of the above discussion is the certainty of scheduled regulatory review on the firm's ability to alternate between established non-compliant routine actions and new compliant behavior with minimal threat to legitimacy or accrual of legal penalties. When a firm has a clear date that has been established before which compliance must be demonstrated, it is feasible to have the ability to fall back on previous routine actions for an extended amount of time without altering them (until immediately before the regulatory review) and being caught for non-compliance.

However, some regulatory reviews can also be unannounced which makes the regulatory horizon much less certain and periodic coupling nearly impossible. In these cases anticipatory coupling is more relevant for firm decoupling strategy. In unannounced regulatory reviews, the regulatory horizon can only be predicted with limited certainty. This prediction may be determined by knowledge of when other organizations in the industry underwent regulatory review, by the regulatory agency providing guidelines (as in the example of EPA above), through prior experience in the industry, or from simple "gut feelings" (Hayashi, 2001) or "intuition" (Dane and Pratt, 2007). However, because this prediction is uncertain, the ability and length of time a firm can perform prior, noncompliant routine actions is minimized, and the implementation of more compliant routine actions will begin earlier in the regulatory horizon with gradually increasing frequency as proximity to the predicted regulator)' review date looms near. Thus, while regulatory requirements are ever present, as the regulatory review draws near, the focus of the firm will be directed away from performance and efficiency of routine actions towards compliance with regulatory standards.

This gradual increase in compliance, or anticipatory coupling, may occur because the possible threat of legal sanctions increases with the probability of regulatory review over the regulatory horizon. Similarly, managerial risk aversion will likely increase with the length of time since the prior regulatory review (Sutinen and Kuperan, 1999), and the emerging situation will create the need for compliance in an attempt to avoid the risks of an unannounced review. Thus, to minimize the chance of incurring penalties, management is likely to increase compliance as time since the last review increases.

For example, a meat processing firm that only symbolically complied with poultry processing requirements of OSHA or USDA in the example above may completely halt its compliance after the first regulatory review, but it may gradually revert to those policies over time out of fear of being found to be non-compliant. This happens because as additional time lapses since the last regulator)' review, the probability of the next regulatory review increases. Management is increasingly likely to trade off avoiding getting caught non-compliant for achieving efficiency and savings in poultry processing by remaining non-compliant (allowing higher than permitted noise level, processing more chicken than permitted, or using higher/lower amount of chemicals for refrigeration and dis-infection). As such, as more time lapses since the last review of organizational compliance with diversity targets, meeting these objectives gains more salience than efficiency or effectiveness goals. In summary, compliance with process regulation during regulatory horizons that are punctuated by unannounced or unpredictable regulatory reviews will begin low but gradually increase throughout, the regulatory horizon (see Figure III).

Proposition 2: Decoupling firms facing a process regulation and an unannounced regulatory horizon will pursue anticipatory coupling.

Targeted Coupling

Process regulation creates certainty for a firm that displaying compliant behavior during a regulatory review will be sufficient for a firm to demonstrate regulatory compliance. Thus, this form of regulation makes it relatively easy for a firm to switch between compliance and non-compliance. However, when regulation deals with product or input/output specifications (product regulation), the regulator does not dictate the processes but rather sets ultimate production standards that the entity must meet. Thus, the ability to revert to previously established non-compliant routines will be constrained by the historical documentation and product/output specifications that is required for compliance. As such, switching back and forth between compliant and non-compliant routines becomes much more difficult. If each document traces compliance to standards, the possible sanctions related to enacting non-compliant routine actions would certainly be more difficult to avoid. For example, newly instituted rules on emission standards set by the EPA may require monthly or even daily documentation from the firm's tracking software to achieve compliance. In this case, the ability to operate with two different sets of simultaneous routines would be diminished because of the documented trace of daily activities. As such, the scope becomes just as important as the timing of the review.

When both the length of the regulatory horizon and the amount of required documentation or evidence at the time of the audit are known, a firm is likely to pursue targeted coupling. The relative predictability of both the timing and scope of regulatory review provides a firm ample opportunity to remain non-compliant with undesirable regulations. Targeted coupling may involve the use of various mechanisms to satisfy auditor or inspector requirements at the time of the audit because both the scope and timing of a regulatory review is known. This may involve the production of a limited batch of products that meet regulator criteria, adjustment in a firm input or output to meet compliance criteria, or the design of special techniques to obfuscate misspecifications. Thus, in the example above with EPA standards, a firm not complying with emission standards may switch to compliance for the months in which it will be audited. As such, the announced nature of regulatory reviews allows foreseeing which physical evidence is likely to be subject to regulatory review. In these instances, a firm may decide to produce compliant products or even create special documentation to satisfy the requirements of the regulatory review. In doing so, a firm will be able to decouple from the undesirable effects of regulation while protecting the core operating routines. While many practitioners and scholars consider the Volkswagen emission scandal fraud (e.g., Siano et al., 2017; Rhodes, 2016), it could also equally be interpreted as the firm's attempt to decouple from an undesirable regulatory burden. Advanced knowledge of the compliance testing methods allowed firm employees to design software that could detect when a vehicle was being tested and manipulate the performance results (Hotten, 2015). On one level, the firm solved a regulatory compliance problem and optimized operational efficiency. On another level, this example illustrates how ethical questions about targeted coupling may arise. In any event, targeted coupling is the process of resolving a regulatory review when a firm faces a product regulation with a predictable regulatory review (both the timing and scope of audit is predictable). Thus,

Proposition 3: Decoupling firms facing a product regulation with a predictable timing and scope of regulatory review will pursue targeted coupling.

Compensatory Coupling

Regulatory reviews with unannounced timing or scope, however, do not allow firms the flexibility of targeted coupling for process regulation. For example, when a regulator dictates that a particular product must be produced according to certain specifications to remain compliant, it is difficult for a firm to pursue non-compliance because it does not know which input or output standards are likely to be audited nor does the firm know the timing of the regulatory review. Given the impossibility of predicting regulatory review timing, a firm is likely to pursue compensatory coupling, defined as loosening the goal of a regulation from its means, or "means ends decoupling" (Bromley and Powell, 2012: 2).

Although predominantly focused on policy-practice decoupling, seminal works by Meyer and Rowan (1977) have also described the internal buffering of business units from one another as a mechanism to protect the firm's technical core from institutional demands. Largely limited to research on how certain organizational units are insulated from the rest of the organization (e.g., Boynton and Zmud, 1987; Leatt and Schneck, 1984), "means-ends decoupling" can also be observed in a firm's attempt to limit the basic goals of the regulation with a compensatory coupling strategy. With compensatory coupling, a firm is capable of insulating its core operating activities from damaging externalities by promoting new interpretations of how existing rules should function so as to limit the intended goal of the regulation. For example, a firm that is mandated to maintain a certain carbon emission level may actually increase the hazardous emissions of other products or materials to compensate for the loss in profitability or productivity. This action on the part of the firm protects the core goals of an organization while it weakens the core regulatory purpose to attenuate the firm's negative environmental impact . In a similar example, while regulators may desire a reduction of excessive risktaking in the financial industry through increasing the regulation of a certain financial service, firms may continue to engage in similarly risk behavior by alternating their routines in relatively unregulated areas. After implementing Dodd-Frank's derivatives rules, financial firms found a way to transform their business practices to loosen the impact of the regulation. Transactions that had been conducted as "swaps" and subject to new regulations were transformed into "futures" because the latter were less regulated than the former (Philips, 2013; Rosenberg and Massari, 2013). Compensatory coupling can also be seen in the automotive push to classify minivans and SUVs as "light trucks" after the Energy Policy and Conservation Act of 1975 mandated higher fuel efficiency standards for passenger cars. In other words, firms can find ways to reduce the intended effect of the new regulation by altering their core business practices (Funk and Hirschman, 2017). This is akin to the concept of "policy drift" in political science which involves "changes in the operation or effect of policies that occur without significant changes in those policies' structure" (Hacker, 2004: 246). In summary, compensatory coupling involves changes in interpretation of the law as well as innovation in products to avoid the effects of a regulation that are perceived by firms to be harmful to their core business. Thus,

Proposition 4: Decoupling firms facing product regulation with an unpredictable timing and scope of regulatory review will pursue compensatory coupling.

Successive Regulatory Reviews

A key aspect of this model is the focus on decoupling of newly adopted rules and regulations from a firm's internal processes when there is an impending regulatory review and a single, discrete regulatory horizon. However, regulatory reviews generally occur on a successive basis in which firms must demonstrate compliance over multiple consecutive regulatory horizons. Throughout these decoupling strategies discussed above, firms are expected to repeatedly demonstrate compliance and will repeatedly venture into either non-compliance immediately following each regulatory review or otherwise compensate for the negative perceived impact of the regulation. However, this process is likely to revert to eventual "recoupling" for three reasons (Espeland, 1998).

First, the cumulative actions required to continually alternate between noncompliance and compliance for upcoming regulatory reviews is likely to be taxing to the firm. While relying on previously established routines during the regulatory horizon may mitigate some of the inefficiencies due to complying with the new regulation, continual adjustment or "simulating" compliance will also create risk and stress for management which could make the desire to update routines with compliant behavior more salient. Second, a firm is likely to become, over time, more tolerant to new changes and find ways to implement regulatory compliance without impairing efficiency. Since routines are emergent (Cohen and Bacdayan, 1994) and occur "as a result of participants reflections on and reactions to various outcomes of previous iterations of the routine" (Feldman, 2000: 611) and develop through repetition and recognition (Feldman and Pentland, 2003), new compliant routines will slowly begin to evolve. Rerup and Feldman (2011) suggest that routines are repetitive and develop through "trial and error" learning over successive repetition. Therefore, by achieving compliance throughout successive regulatory reviews, through engaging in similar actions, a firm is more likely to learn to limit the detrimental impact of a new regulation on efficiency. Last, internal power shifts are likely to occur within the management team of a firm (Tilcsik, 2010). New managers that may not be as experienced in the non-compliant routines, so they may have an easier adjustment to new practices that are compliant with regulatory requirements or see them as less of a threat to organizational efficiency. For example, both Tilcsik (2010) and Hallet (2010) describe how a policy that was purely symbolic can, over time, become fully implemented when the internal power structure within an organization shifts or as managers are replaced. Similar qualitative assessment is provided by Kelly and Dobbin (1998) who studied the process of implementation of antidiscrimination laws since the 1960s. They argued that as federal anti-discrimination laws increased, organizations began to adopt anti-discrimination policies. In many cases, these policies were instituted symbolically and only to avoid non-compliance penalties, but as the employees that were hired for symbolic compliance rose through the ranks, they sought greater internalization of those rules. Thus, over successive regulatory reviews, a firm will likely continue to adapt routine actions to include greater amounts of compliant behavior, constructing new compliant routines, and eventually achieving almost continual compliance. This process leads to the next proposition which is graphically depicted in Figure IV.

Proposition 5: In decoupling firms, successive regulatory horizons will weaken the declines in regulatory compliance following regulatory review for both process and product regulations.

DISCUSSION

This paper develops a model of how firms decouple from newly instituted rules and regulations while undergoing periodic regulatory review. While firms are increasingly inundated with regulations from national and global regulators (Bernstein and Cashore, 2007; Braithwaite and Drahos, 2000), the management literature has been relatively silent on how firms should engage in decoupling when they have to undergo periodic regulatory review. To address this lack of development, this paper advances a conceptual model that integrates the temporal aspects of the regulatory review. This model attempts to expand understanding of the decoupling process by highlighting several factors that contribute to firm compliance with regulations that are not internalized into core routines.

In developing this model, this paper posits that decoupling from regulatory compliance is a dynamic process that involves different strategic responses (periodic, anticipatory, targeted, and compensatory coupling) based on whether regulation is a process or product regulation as well as whether it is predictable in timing and scope. The primary contribution of this paper lies in the advancement of a conceptual understanding of the decoupling process, not as a stable phenomenon in which an organization is continuously in ritualistic compliance, but instead that it is a dynamic process in which organizational managers continuously use differing coupling strategies to remain compliant though non-compliant in routines. A more direct interpretation would suggest that organizations which successively achieve regulatory compliance over many regulatory horizons appear to the outside observer or regulatory agency as implementing routines conducive to compliance, giving the appearance of stability. However, a more in-depth perspective may provide evidence of the alternation between compliant routines and non-compliant routines between different and distinct regulatory horizons. Taking this into account provides ample direction for future research on the decoupling process. It will be important for researchers to ask and answer questions such as: What characteristics of regulatory requirements affect the fluctuation of compliance? What duration of the regulatory horizon is optimal for compliance? Are there other temporal punctuations in addition to periodic regulatory reviews that affect compliance fluctuation for decoupling organizations?

Exploration of the regulatory horizon in this paper also brings to the forefront the possible differential effects of scheduled/predictable versus unannounced temporal patterns of the fluctuation and adaptation of the decoupling process. This is the first direct argument for how regulatory horizons, punctuated by a regulatory review, will unfold in the decoupling process and affect the overall switch between compliance and non-compliance. Through not only the consideration of the regulatory horizon but also how it is determined to end, this paper presents a more involved discussion with regards to regulatory compliance and the decoupling process. For example, having a predetermined and explicit deadline for when compliant behaviors must be performed provides the flexibility for the firm to enact actions that may not be compliant with regulations before the explicit deadline. Moreover, the non-compliance that is allowed, and even strategically promoted by managers, in the regulatory horizon is minimized when the regulatory review is unannounced because of managerial risk aversion and the ambiguity surrounding the timing of the next regulatory review. Through this understanding, a firm may be better able to manage employee adherence to regulatory requirements, and public policy could also be adapted to consider not only the regulations being developed and enforced but the temporal patterns in which enforcement occurs. It may also help to provide a deeper understanding of how decoupling processes actually occur.

In general, the model suggests that organizational decoupling changes over time to fully internalize new regulations and rules when advantageous. This paper posits that the ebb and flow of past routines in response to regulatory requirements will weaken over time as new compliant actions are integrated into the daily routines of the organization. The changes of daily routines occur as efficiency gains evolve, and they also occur as a result of internal power shifts as managers with less commitment to past routines rise in the organization leadership structure. Recognizably, this is but one of many underlying reasons for changes in routines, but it provides insights into possible future avenues to understanding overall organizational routine change. Overall, this model helps to explain the process by which the evolution of routines can create a continuously compliant organization.

Future research with this model could also benefit the CSR literature. This literature focuses on how organizations can achieve good corporate citizenship outcomes and benefit a broader coalition of social groups (Matten and Crane, 2005). Some scholars argue that CSR pertains only to organizational actions beyond the legal requirements (Waldman et al., 2006), yet the relevance of this model may still apply. For example, the underlying perspective of this model focuses on the desire of organizational members to revert to previously established non-compliant routines in the face of regulatory requirements that hurt efficiency or decrease overall organizational performance. While some CSR actions may not have direct legal, regulatory requirements, there are likely internal requirements that are expected to be performed to achieve a certain level of CSR. Organizational members may revert to previously established routines instead of meeting internal CSR standards, and they may continue to do so until an internal CSR audit, or other such "regulatory review," is performed.

Practical Implications

The dynamic model of decoupling under periodic review in this paper provides practical implications for the structuring of regulatory requirements as well as corporate governance considerations. Through the understanding that the decoupling process is not a linear process but instead dynamic and alternating between regulatory horizons, policy prescriptions must consider both the length of the regulatory horizon and whether regulatory reviews should be scheduled or unannounced in timing and scope. By minimizing the length of the regulatory horizons, the process of alternating between compliant and non-compliant routines may be diminished. Further, by creating regulatory reviews that are based upon unannounced rather than scheduled periods, regulatory compliance will likely become more consistent. From a managerial perspective, the desire to remain committed to their previously established routines should be considered and internal compliance surveys should be based on this understanding.

Additionally, understanding that an organization is likely to be resistant to enacting new actions into its daily routines based upon new regulatory requirements provides implications for how regulatory review agencies may structure their work. For example, regulators may need to request additional documentation that goes beyond regulatory requirements to attempt to document continual compliance, i.e., focus on product regulation. By having additional requirements, even if an organization does attempt to decouple new rules and regulations from its internal core routines, those requirements could eventually necessitate permanent compliance. The above suggestions and the new understanding of regulatory compliance developed in this paper begin to address the criticism of previous regulatory compliance research having few policy prescriptions (Sutinen and Kuperan, 1999).

A majority of people demand efficiency from corporations to get competitive prices for products, stable employment, and great returns on investment. However, they also want a clean environment, safe workplace and food standards, and effective investment climate--goals in the best interest of society but that may lead to firm inefficiency. This happens because firms must often lower costs to meet customer pricing demands, beat competition, and increase profits, but regulatory compliance often involves myriad cost increases (Karmel, 2005). Thus, to meet these conflicting goals firms must choose how and when to comply with the demands of the regulators. As such, the nature of the regulatory review process may create unintended consequences and other effects that contradict efficiency and effectiveness goals as firms make activity choices in response to the actions of the regulators. As a result, the same need to balance activities that constituent firms face can also be felt by the regulators themselves. That is, the desired outcome of the regulatory review for society will not obtain if the regulator causes imbalance for the firms being regulated such that firms become inefficient, customers are priced out of markets, or employees are terminated. Similar to the decoupling firms managing the compliance of their core routines along an uncertain regulatory horizon, regulators can more effectively achieve their goals for society by balancing their activities and moderating their interactions along the regulatory horizon for review as they seek to gain compliance of constituent organizations with newly instituted rules and regulations. As the conceptual model suggests, the firms that pursue decoupling under periodic regulatory review will eventually achieve compliance as the organizational routines evolve in response to the regulatory horizon. Overzealous or impatient regulators may derail this evolutionary process and obscure the benefits sought for society if their activities are not balanced as well.

Conclusion

This paper attempts to move beyond the surface level understanding of why and when firms pursue decoupling from newly instituted rules and regulations but instead provide a more in-depth model of how this process unfolds. In doing so, it touched on reasons why an understanding of the decoupling process should hold a larger role in management research. Hopefully the model presented in this paper will help spur greater interest into understanding the process of decoupling under periodic review as well as provide a greater understanding of the regulatory review process. Firms and their regulators can both benefit from understanding this model and its dynamic implications.

Mirzokhidjon Abdurakhmonov

PhD Candidate

University of Arkansas

mabdurakhmonov@walton.uark.edu

Joel F. Bolton

Assistant Professor

University of Southern Mississippi

joel.bolton@usm.edu

Jason W. Ridge

Associate Professor

University of Arkansas

jridge@walton.uark.edu

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Caption: Figure I Coupling strategies by type and predictability of regulatory review

Caption: Figure II Scheduled regulatory review compliance curve

Caption: Figure III Unannounced regulatory review compliance curve

Caption: Figure IV Effect of successive regulatory reviews on organizational compliance
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Author:Abdurakhmonov, Mirzokhidjon; Bolton, Joel F.; Ridge, Jason W.
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Date:Mar 22, 2019
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