Most karate organisations have a system of grades, and many of them with an associated syllabus including prerequisites in order to promote individuals to the next grade. This holds true not only for black-belt (dan) grades, but also coloured-belt (kyu) grades, though the differences in syllabus and prerequisites are more broad for kyu grades, with many organisations leaving it up to the local dojo instructor to award any grades up to first kyu. Indeed in some countries where there is a strong governmental influence (or rather, micro-management) of the martial arts under the guises of sports federations, they are only really concerned about dan grades, and local dojos instructors handle all grading through the kyu ranks.
For the dan grades, there are several "schools of though" on how they should be awarded. Which system is more legitimate than another? My response: "who cares?!?". If one's intent is to train diligently and improve oneself, there is no need to worry about grades at all. The story changes somewhat if one intends to instruct others, or assist others in their progression because regulatory implications and organisational requirements come into play. For example, in order to instruct professionally (i.e. for remuneration) in France, one must hold the rank of Nidan or higher, and must hold a teaching diploma issued by the government.
Okay, so when it comes to grading, which is more efficient? Continuous assessment, or a grading examination? This is a hard question to answer, and it depends entirely on the purpose of the grading and the organisation. Over the past 27 years that I have been involved in the martial arts, I have seen both systems. I have no real personal preference for either, since both systems have their merits as well as their pitfalls. Nevertheless, once the grade is stamped in your grading record or sports passport, it's yours to keep -- you have earned it. This leads to the next problem -- mutual recognition of grade across organisations. What happens if you have acquired 1st kyu, and move to a new state or country. Will your grade be recognised? This is a more psychological (and indeed in many cases, "commercial") issue. Chances are, a kyu grade will always be recognised. A dan grade, however, will be less likely to be recognised by another organisation. If, however, the grade itself only has meaning to the individual who earned it, then why should it matter so much? Business is business, irrespective of the milieu! I have heard of some organisations who insist that any dan grade transferring into their organisation from another group must pass "validation exams" for each of the grades they previously held - often with an associated hefty grading and registration fee. Remember, however, that any grade is really only significant to the individual.
Let us take the case of international organisations first, such as the JKA, SKIF, JKS, etc. These organisations often have a grading syllabus which sets out standards for the various grades. This in and of itself is perfectly acceptable, and indeed necessary, in order to have a common reference for everyone to work to. This does not mean, however, that one organisation's syllabus will be the same as another's. Having said that, while most organisations hold formal grading examinations, there are often exceptions in which the senior instructors/examiners award grades based on continuous assessment and "time in practice". It is up to the individual, really, if this latter method of conferring grades is acceptable or not. An advantage of continuous assessment is that the individual is seen regularly in his progress in his discipline or style, rather than just how or she presents himself for an examination (which in and of itself for may is a stressful experience).
Next, let's take the case of national systems, often regulated by governmental sports federations. In these systems, grades are almost always conferred based on examination with strict attention to prerequisites, such as "time in previous grade" etc. The disadvantage to this is that, as we all know, once a government starts to be involved in something in which it has no real knowledge or expertise, it introduces a hornet's nest of bureaucracy and regulation. The other disadvantage to this kind of system is that often the grading syllabus is strictly adhered to (and published). This results in candidates for a grade actually training for the syllabus, rather than just training in their discipline or style. Often, the only way to pass a grade in these systems is to "impress the judges" rather than to do ones' best. After all, one person's "nidan standard" may not be another's. This kind of system does not take into account the abilities of the individual, their personal progression and philosophy, and their physical limitations. Further, this kind of government controlled system is regulated by a sporting federation, so inherently has a strong bias towards competition. There are, however, some styles or disciplines that are against the notion of competition, so such emphasis is entirely out of place.
How can one reconcile the differences in grading systems and syllabi across multiple organisations, countries, and groups? Again, my answer is "who cares?". Grades are of importance only to the person receiving it, and only of importance to others in the case where the individual is (or wishes to become) an instructor or examiner, in which case there are some grade dependencies. But again, the grades conferred will only really have significance within the organisation concerned.
Of the various systems, formal examination for all, formal examination only for dan, continuous assessment, etc., I have personal experience of most of them. I have even heard stories of senior level japanese instructors, for example 5th dan, being awarded 7th dan on the plane overnight enroute to take up their assignment as the representative for the organisation in a new country. It doesn't seem to happen as much anymore, but it has happened in the past. I have even heard a story of one high-level aikidoka who was conferred 8th dan by master Ueshiba, but the individual personally never really accepted it when he was sent to his European assignment at the end of the 1960s, and to this day still only considers himself 5th dan... do you think that grade really matters to him? I don't think so...