External Governance Mechanisms: Systemic Accountability

Abstract

Now that some background has been provided on the nature of internal governance mechanisms, we turn our attention to the governance forces operating outside a corporation. National governments are typically responsible for establishing, enforcing, and enhancing mechanisms that support external governance. From a financial markets perspective, a proper system permits efficient mobilization of capital, management of risks, identification of investment opportunities, and exchange of assets. All of these functions support and benefit governance. From a structural perspective, a proper system creates authorities that enforce rules and regulations, including a judicial process to handle legal and bankruptcy issues, and supervisory bodies to oversee local capital markets,¹ external auditors, and credit rating agencies. These also benefit the governance process.