How does it have zero checks and balances?
Good question. This kind of depends on your viewpoint, but from a systematic perspective I consider Honor to be the opposite of reporting. In a perfect (and way over-simplified) world, you report people for being bad and you honor people for being good.
If we look at these systems, there is one key difference: reports are checked for validity. People aren't just punished when they reach a certain threshold of reports, they are punished when they receive a certain threshold of true reports. As far as I'm aware, Honor doesn't function this way at all; if you reach a threshold of Honor value per game, you receive the appropriate Crest. No Tribunal, no Rioters looking over report logs, nothing checking reports to see if they are actually valid, etc.
Of course, because otherwise it would be "easier" for people to figure out how to abuse the system, and then it might turn into a milestone issue, which is something they want to avoid.
While I see what you're saying, I also think the negatives here outweigh the positives. With the system the way it is currently, everyone's Honor is visibly worth exactly the same despite being completely different under the hood. My Honor could be worth 0.4 of someone else's Honor, but they look exactly the same to the player receiving it and other players looking at his/her profile.
It's kind of like the difference between LP and MMR, to be honest (a whole 'nother can of worms), where you could be Diamond 4 but playing consistently with Gold/Platinum level players due to your MMR. A layer of ambiguity might help with edge abuse cases, but ultimately everyone has to deal with this unclear and relatively muddy system.
What I meant was that if you play a lot with friends, you shouldn't be "punished" for it by having your honor-to-games ratio diminish.
This is a somewhat limited viewpoint (not yours, just in general). Basing a positive reward on a per game ratio is, frankly, ridiculous; it encourages people to beg each other for Honor, and it values other people's consistency over your own. I understand that consistency is important, but making it a constant race against how other people want to use the system just does not feel compelling.
I don't think it should really end up feeling like a punishment at all. It should be a reward to receive Honor, not a punishment to not receive it. This one is a little complex, because it's really hard to make a system like this have value without making either premade play or solo play more enticing.
I just don't think it makes sense to honor people with whom you're in a premade, because you wouldn't be in a premade with them if you didn't think they were good to play with. This gets into the territory of what Honor means to you, so it's really subjective.
I personally would like to see Honor as a regionally recognized prestigious reward, something bestowed on pillars of the community that make it a point to interact with people in fantastic ways. The current implementation honestly feels to me like it's either unreasonably impossible or just rewards people for not being toxic, which really isn't the point in my mind.
How do you find it to incentivize cheating?
In the current implementation, it is almost impossible to get a Crest without either cheating or playing specific game modes. How often do you see someone with a Crest nowadays, and how awesome do you generally consider him/her to be when playing with him/her?
When Honor first came out, back when it wasn't almost impossible, there was rampant abuse of the system. People were constantly asking to trade Honor, honoring everyone in the game, queuing exclusively with friends and honoring each other every game, etc. It's a lot easier to get high Honor if you beg for it and try to squeeze it out of your friends rather than just being awesome and playing the game, which is why I consider it to incentivize cheating.
Think of piracy, for example. Quite a few studies have shown that many people pirate content not necessarily because they want it free but because it's easier to pirate than it is to legitimately obtain. What is some of the most pirated content on the internet? Game of Thrones? To my knowledge it was HBO exclusive throughout 2014, and in order to get a subscription you had to have a TV plan or some sort of bundled internet package. That's a pain in the ass, and it is a lot easier to just go to a torrent site and click "gimme".
What I'm trying to say is, in a lot of ways it's harder to use Honor in the way it's meant to be used than it is to just dick around with it or abuse it. This is a systematic problem, and no amount of incentives or rewards will change that.