Codes of Good Governance Worldwide: What is the Trigger?

This article examines the mechanisms underlying the worldwide diffusion of organizational practices. We suggest that the two main theoretical explanations in the diffusion literature, efficiency and legitimation, can be complementary. More specifically, we argue that endogenous forces seek to enhance the efficiency of existing systems, while exogenous forces seek to increase legitimation. To assess our argument, we explore the worldwide diffusion of codes of good governance. These codes are a set of ‘best practice’ recommendations regarding the behavior and structure of a firm’s board of directors issued to compensate for deficiencies in a country’s corporate governance system regarding the protection of…