The third line sets two failures side by side and prefers one of them. Legge's translation shows the members of the family treated with stern severity, and gives occasion for repentance, peril and good fortune together; then it describes a household where wife and children are smirking and chattering, and gives regret at the end of it. The classic is not recommending harshness. It is comparing harshness with indulgence and saying which of the two a household can be brought back from.
The stroke is strong and correctly placed at the top of the lower trigram Li, past the centre and therefore past moderation, which is exactly where a figure about order would site excessive strictness. The position produces the fault and the classic records the fault honestly: there is cause for repentance and there is danger in it. What it declines to do is treat those as decisive, because a household governed too hard still has a shape, and a shape is something that can be corrected.
The second half is where the real verdict lands. Smirking and chattering are given no danger, no cause for repentance and no peril at all, and they end in shame regardless. The line is built so that the softer failure carries the worse outcome and the reader has to notice it happening, which is a more demanding piece of construction than a straightforward warning against laxity would have been, and a more useful one.