What does the regulatory pillar primarily involve?

The regulatory pillar primarily involves the coercive power of governments. This aspect of regulation refers to the formal rules, laws, and regulations that governments establish to guide, monitor, and control the behavior of businesses and individuals within their jurisdictions.

Governments implement these regulations to ensure compliance with legal standards, protect public interests, maintain order, and promote fairness in economic interactions. These laws can take the form of trade regulations, labor laws, environmental standards, or financial regulations, among others. The enforcement of these regulations is backed by the authority of the state, meaning that failure to comply can result in legal action, penalties, or other ramifications.

Cultural norms, voluntary actions of firms, and informal practices, while impactful in shaping business practices, do not possess the same formal, enforceable characteristics as government regulations, which is why they do not fit within the definition of the regulatory pillar. Such elements may influence corporate behavior and societal standards but lack the coercive power that legal and regulatory frameworks provide.