This paper develops an organizational approach to corporate governance and assesses the effectiveness of corporate governance and implications for policy. Most corporate governance research focuses on a universal link between corporate governance practices (e.g., board structure, shareholder activism) and performance outcomes, but neglects how interdependencies between the organization and diverse environments lead to variations in the effectiveness of different governance practices. In contrast to such closed systems approaches, we propose a framework based on open systems approaches to organizations, which examines these organizational interdependencies in terms of the costs, contingencies, and complementarities of different corporate governance practices. These three sets of organizational factors are useful in analyzing the effectiveness of corporate governance in diverse organizational environments. We also explore the impact of costs, contingencies, and complementarities on the effectiveness of different governance aspects through the use of stylized cases and discuss the implications for different approaches to policy such as soft law or hard law.
