Abstract

The importance of good corporate governance has been recognised by international financial institutions as an important component in the promotion of a more stable financial system and in the reduction of systemic risks associated with financial crises. The mechanisms to facilitate corporate governance, however, are of an incredible variety, encompassing the provisions of international treaties, regional blocs such as the European Union, domestic legislation and securities' regulation, professional standards and requirements of private institutions and associations. This variety undoubtedly reflects the breadth of the definition of corporate governance itself, which can now be taken to include almost all mechanisms to ensure corporate accountability. It is unsurprising, therefore, that research into this institutional architecture of corporate governance reform tends to be fragmented, with little attempt to provide an overall assessment of its efficiency. This paper surveys the institutional architecture of corporate governance reform in the UK by reference to conventional economic analysis, commencing with an assessment of the economic rationale for state intervention in the area of corporate governance, followed by an evaluation of the institutions for state intervention themselves and concluding with an analysis of the forms of intervention adopted. It was seen that many forms of institutional architecture adopted for corporate governance reform in the UK were flawed in some way in terms of their consistency with economic efficiency. Despite this, there were promising signs that the widespread adoption of mechanisms for extensive consultation and regulatory impact assessment, if sufficiently rigorous, might go some way towards counteracting this. The 'comply or explain' approach to regulation had the potential to present an innovative form of efficiency-enhancing rule. Overall, the paper raises fundamental questions as to how corporate governance institutions might be effectively evaluated between countries.