Fit, Proper and Capable: How Regulation Shapes the Drivers of Dynamic Managerial Capabilities in the EU

Dynamic managerial capabilities (DMCs) theory offers a powerful lens for understanding how managers drive strategic change. Yet its practical relevance is constrained when institutional influences are overlooked. This article addresses that limitation by examining the fit and proper regulations governing managerial appointments in the European Union’s financial sector. Through this analysis, the article reveals three distinct mechanisms by which these regulations influence the three drivers of DMCs, namely managerial human capital, managerial social capital, and managerial cognition. By embedding DMCs theory within the legal reality of the highly regulated EU financial industry, this article not only deepens our theoretical understanding but also extends our understanding of the fit and proper regulations as observed from the frame of reference of strategic management. These regulations do more than define suitability – they are a formative force that molds leadership and, ultimately, organizational adaptability.