Governance, risk, and compliance (GRC) brings business goals and industry regulations into alignment using a systemic approach. GRC encompasses a wide array of systems and processes designed to reduce risk, streamline operations and, ultimately, reduce uncertainty. Learn more about the GRC framework and best practices.
What Is Governance, Risk and Compliance?
Let's look at the terms encompassed within GRC to get a better understanding of what each area means, and how important these are to companies:
- Governance means the management of an organization, in accordance with business plans and ethics.
- Risk refers to risk management strategies geared toward reducing and controlling risks that would negatively impact the company's ability to operate, or its public perception.
- Compliance means the way a company follows all laws and regulations to which it is subject, including state laws, federal laws, or industry regulations.
Governance, risk, and compliance are interconnected. Companies that lack strong compliance measures or good governance expose themselves to unnecessary risk. Conversely, risk-averse companies tend to have safeguards in place assuring compliance with regulations, and place a priority on governance matters.
Regardless of the industry, companies should care about improving their GRC from an organizational strategy and operations point of view.
Governance
Governance can seem like an abstract topic at first. At its heart, this term refers to all the policies, procedures, and frameworks that a company puts into place to support its work. Governance matters include aspects of operations such as corporate ethics, corporate accountability, resource management, communication, and conflict resolution.
Stakeholders at every level are impacted by governance matters, even if they don't realize it. For example, governance outlines the policies to which management and boards of directors must adhere. Likewise, governance outlines ESG commitments that companies work toward and how they communicate the information to shareholders.
Without effective governance, companies may not have clear directives or well-documented business practices. This makes it more difficult for teams to do their work. It also hampers the company's ability to comply with regulations, plan and ensure consistency of operations.
Risk Management
Effective risk management helps companies identify and plan for risks. While there are always unknowns that impact scenarios, and not every crisis can be planned for, effective risk management helps to protect companies and promote internal stability.
Companies have several risk management tools at their disposal, which they can use to identify and address risks. One of the most well-known risk management tools is the SWOT assessment, a staple of strategic planning. SWOT assessments guide companies through outlining their strengths, opportunities, weaknesses, and threats — such as risks that could hamstring the business.
Once companies understand their risks, they can rank and prioritize them to address the biggest risks first.
Risk management entails planning for worst-case scenarios which may never come to pass. However, these practices also support the organization's continuity and can even lead to competitive opportunities. For example, the SWOT assessment weaves risk management into the strategic planning process as part of enterprise threats to avoid or opportunities to pursue.
Companies can adopt risk management software to track and manage risks in different areas of the organization. Because software like this helps keep topics at the top of mind, it may increase follow through.
Compliance
Compliance means rules and regulations a business needs to follow. These differ widely by industry and location.
A healthcare company will have different rules and regulations to follow than a finance company, for example. Healthcare businesses must protect patient privacy and adhere to HIPAA laws. Financial organizations must verify the accuracy of their financial data and follow SOX.
There are geographic regulations, such as GDPR, to which all players operating within a particular area must adhere.
The key to effective compliance is understanding the laws, regulations and standards that must be followed and developing practices that support compliance.
Compliance challenges tend to come up when companies don't understand the full scope of regulations they must follow, or don't have systems in place to promote compliance.
Some of the common compliance challenges that may come into play with GRC management include:
Businesses might face challenges when they integrate GRC components into organizational activities.
- Managing the pace of change: When overhauling businesses for GRC, companies must master a fast pace of change. This can often feel overwhelming, particularly if the underlying systems are not in place.
- Data management: Before companies can address GRC, they need to dive into the relevant business data. This is often a large hurdle at the outset, since data is typically siloed by departments. As part of the early stages of GRC, companies will need to amass and deduplicate data from across departments.
- Data privacy and protection: Data privacy and protection is resource-intensive, but must be done to safeguard sensitive data. Businesses may experience difficulty if they lack the resources or technical support to implement protection strategies.
- Incomplete GRC framework: As mentioned above, each element of GRC interacts with and reinforces the other. Companies that over-invest in some areas and underinvest in others will struggle with their GRC program until balance is sought.
- New corporate culture: The transparency required by GRC best practices can be a shock to the existing corporate culture. Clear and inspired leadership from the top will ease the way for the level of transparency required to move the needle.
A system can be as simple as a checklist that is followed when onboarding every new client, so a step is never skipped, or as complex as multipage documentation that serves as the single source of truth for how something is done.
Businesses can get support from auditors, risk management professionals, and other specialists who understand how to guide organizations through the ever-changing regulatory landscape with an eye toward systematizing and simplifying.
Benefits of Integrating GRC
Knowing what is governance risk compliance, you might be wondering how GRC investments can benefit an organization. With so many things competing for attention, what makes this a priority over other deliverables?
Although changes can be difficult to implement, the benefits of governance risk and compliance far outweigh the challenges. Some of the main benefits companies will discover by investing in governance risk and compliance include:
Organizational Resilience
Due to the overlap between risk management, strategic planning, and operations, effective GRC makes companies more resilient. This, in turn, creates a stronger company that can better adapt to changing headwinds.
Competitive Advantage
The GRC process can surface information that gives companies a competitive advantage in the marketplace. For example, companies that better manage their risk may be able to realize cost savings and become more profitable than competitors.
Improved Decision-Making
Companies that commit to improving GRC will have a wealth of data at their fingertips. This data can be used to improve corporate decision-making and streamline departments for operational efficiency.
Increased Shareholder Confidence
Since GRC includes accountability and transparency, it has a direct connection to shareholder confidence. Businesses that invest in GRC and report on this information publicly may find themselves rewarded with increased confidence and loyalty from shareholders.
Implementing GRC Frameworks
There is no "one size fits all" GRC framework. Instead, a GRC framework reflects the governance, risk and compliance needs of the organization.
The first place to start is with an audit that examines all aspects of GRC, followed by a benchmarking process that charts a course forward for the organization.
With these goals identified, the organization can then begin to develop and implement processes that reduce risk, improve compliance and governance, and steer the company in the direction of its goals.
Software and tools play an important role in organizing information regarding GRC planning. For example, artificial intelligence software can comb through information gathered from departments, clean up duplicates and organize data, so it can be worked with efficiently. Data protection solutions can be implemented as a risk management safeguard.
In some cases, companies may have strong policies and procedures in place that need a small amount of tweaking to serve GRC needs. In other cases, companies may need to identify a new solution or tool that can handle GRC matters that were previously not a priority for the organization.
Developing a GRC framework is ultimately a team effort. However, it does need support from senior leadership to move the culture shift necessary to support the GRC focus. Without the support of senior leadership, there is a risk of backsliding or incomplete adoption of best practices.
Companies that commit to GRC have several competitive advantages over organizations that do not make this a priority. Put simply, GRC initiatives allow businesses to manage risk, support better decision-making, and align with other organizational priorities that appeal to shareholders, such as ESG.
If your company has been considering adopting a GRC framework, learn more about the components of a successful framework and how to personalize a system for your organization. Then, follow through and invest in the tools and resources that will support not only GRC implementation, but the continued success of your business in a fast-paced, constantly changing competitive environment.
