My partner used to work in an office of 10 people. When someone would step out of line, instead of the boss confronting this person, they would establish a new rule. Needless to say, there were an awful lot of controls and restrictions in place for such a small staff.
First of all, Level 5 leaders (i.e. the best leaders according to Jim Collins in his book Good to Great) should wisely confront associates who are exhibiting bad behavior. Second, remember that job-seekers would rather work for a company that does not burden its associates with hundreds of unnecessary rules. If they’re considering several offers, they’ll choose the business that seems to respect its employees most.
The fewer the rules, the better — “Speaking the truth in love” equals higher profits and as Jim Collins would say, a business built to last.