What is meant by the term "governance risk"? What is the most important type of governance risk?

Question

What will be an ideal response?

Answer 1

Answer: Governance risk is the ability to exercise effective control over an MNE's operations within a country's legal and political environment. For an MNE, however, governance is a subject similar in structure to consolidated profitability–it must be addressed for the individual business unit and subsidiary, as well as for the MNE as a whole.
The most important type of governance risk for the MNE on the subsidiary level arises from a goal conflict between bona fide objectives of host governments and the private firms operating within their spheres of influence. Governments are normally responsive to a constituency consisting of their citizens. Firms are responsive to a constituency consisting of their owners and other stakeholders. The valid needs of these two separate sets of constituents need not be the same, but governments set the rules. Consequently, governments impose constraints on the activities of private firms as part of their normal administrative and legislative functioning.