186 Never enough regulation versus too much regulation.

Despite the promising potential for legal reform, I argue that the rule-based approach to corporate governance offered by the institutional perspective implies two important caveats. The rational and formal ordering achieved by a rule-based corporate bureaucracy embodies important virtues, such as increased fidelity to responsibilities, accountability towards stakeholders, including their formalized consultation, and a mitigation of arbitrariness in decision-making.1 However, despite these achievements of bureaucracy over more informal forms of governance, bureaucratic governance also has a notorious darker side. On the one hand, the ideal of completely capturing all relevant social and ecological aspects in regulation may prove difficult in relation to the complexity and unpredictable nature of social and ecological problems. Some board discretion in relation to the legitimate impact of its decisions on social and ecological interests remains inevitable.2 The rule-based approach of the institutional perspective therefore faces the prospect of never being able to provide the complete regulation that is necessary to guide corporate boards in all circumstances. Meanwhile, this pursuit of a complete regulation would risk overburdening and stifling the board with too much regulation, leaving too little room for change in the face of new circumstances. Already in 1904, Weber famously warned against the risk of bureaucracies imposing an “iron cage” on society, which would “determine the lives of all the individuals who are born into this mechanism”, perhaps “until the last ton of fossilized coal is burnt”.3 Requiring boards to comply with extensive formal legislation might create a situation in which the rules swallow the values they were intended to uphold.4 Instead of enabling boards to assess what is best in the given circumstances of their specific enterprise, boards may end up drowning in legal compliance without sufficient autonomy to do what is required.

The rule-based approach of the institutional perspective implies inevitable limits and a need to find a balance between board discretion and legal compliance. Within the institutional perspective, such a balance could be achieved by designing corporations as responsive institutions guided by open norms and a clear sense of purpose.5 Such a binding corporate purpose could function as an overarching standard for criticizing established rules and practices, opening ways for necessary change while limiting board discretion.6 By thus providing guidance to boards in response to changing demands from their environment, a binding corporate purpose could help to overcome the limits and risks of rule-based corporate governance. Beyond this, I would argue that the limits of bureaucracy invite other suggestions for reform offered by the other perspectives, particularly the ecosystem perspective. Echoing my earlier comment above, such a complementary approach to the inclusion of social and ecological interests in corporate governance would build on the existing influence of the institutional view (institutionele opvatting) in Dutch corporate law while allowing for key insights from other perspectives to equally contribute to proposals for legal reform.