The Evolution of the Firm's Regulatory Affairs Office.

In the UK in the last fifteen years, independent regulators have increasingly monitored privatised companies in utilities, transport and telecommunications: both to oversee the natural monopoly elements of service provision and to foster competition and innovation where feasible. Within these companies, a managerial function has emerged specifically to cope with relationships with regulators. Coming to terms with the role of the regulator and the demands of the various regulatory frameworks has been a central part of the process of turning public sector monopolies into public companies responsive to shareholders and customers. This article chronicles and analyses the development of the "regulation function" within firms and concludes with four recommendations for managers.

While the UK regulatory system has in recent years striven for more accountability and transparency (Hansard Society 1997 and Thatcher 1998), it is still questionable whether it has the same openness as the US regulatory system. Important issues include the degree to which the UK's institutional opacity acts as a hindrance or benefit to regulatory governance and the degree to which the regulated firm has evolved so as to participate fully in the regulation process.

The regulators' published decisions are not always a clear guide to what really occurs in the policy process. This article reports a pilot study of "regulatory directors" in firms in the water, electricity and rail sectors which explores the firms' relationship with their regulators and assesses the implications for the way regulatory affairs are managed within the firm. We also discuss the effects of the institutional environment on interactions between regulated firms and the regulator and formation of regulatory policy objectives within the firm.

One purpose of the study was to assess the degree to which firms acted as responsible actors in the UK regulatory regime. On the assumption that litigation was less generalised in the UK than in the US, we sought to understand how far business/regulatory relations developed from institutional arrangements and the informality of negotiations in the UK (Vogel 1986, Stelzer 1996, Wilks 1997). We made no prior assumptions about relations between the firms and regulator: unlike Wilks (1997), who argues that firms become `amoral negotiators' with the regulators, we merely investigate the nature and evolution of the regulatory relationship. As the following discussion demonstrates, the flexible and somewhat closed nature of the UK regulatory environment may have given both regulators and firms an opportunity to negotiate and thus to move through iterative processes towards "win win" regulatory solutions within a bounded regulated environment.

The UK regulatory regime has created an institutional environment that requires firms to establish sophisticated regulatory responses. This project explores how firms have evolved to deal with the regulators, how regulatory departments within companies operate, where they are located within the organisation and what is potentially the best practice when dealing with regulators. The pilot study involved interviews with members of regulatory departments in three firms within each of the three sectors mentioned above. Based on impressionistic evidence from press reports, an attempt was made in each sector to include firms with good, moderate and relatively poor regulatory records. The interviews were conducted in late 1997 and early 1998. Guarantees of …