It's a fairness thing at scale. In a small org, when you trust people to behave as adults they will generally fall within some band of normal that everyone sees as "reasonable". In a large org, you get outliers that do things someone else would consider unacceptable, and then they set the tone for the organization ("if they can do it, why can't I?"), and soon it's a race to the bottom in behavior.

The "cities" metaphor is actually pretty apt. In small towns everybody polices each other, and you don't behave badly because your life will become pretty difficult if you do. In a big city, you either have lots of rules in the form of municipal codes, or people start behaving badly along some dimension, eg. crime in SF or zoning in Houston.