In virtually all transactions, whether with customers or with colleagues, we rely on the word of those with whom we do business. If we could not do so, goods and services could not be exchanged efficiently. Companies run by people with high ethical standards arguably do not need detailed rules to act in the long-run interests of shareholders and, presumably, themselves.
But, regrettably, human beings come as we are--some with enviable standards, but others who continually seek to cut corners. Yet there can be only one set of rules for corporate governance, and it must apply to all. Crafting the rules to provide the proper mix of regulatory and market-based incentives and penalties has never been easy.