Governance, risk, and compliance, or GRC for short, refers to a business’ strategy for managing a broad range of issues relating to corporate governance, enterprise risk management, and corporate compliance.
What is governance, risk, and compliance designed to do exactly? These three pillars help companies better understand stakeholder expectations, set and achieve objectives to optimize the organization’s risk profile, operate within legal and ethical boundaries and measure performance over time.
GRC has the power to foster growth, aid employees in their development, and help an organization maintain regulatory compliance.
What Is Corporate Governance?
Corporate governance refers to the system of rules, processes, and practices by which a company is governed. Companies generally follow a corporate governance model that outlines the distribution of rights and responsibilities of individuals within an organization.
Governance impacts how a company is directed and managed. It can help ensure that everyone follows transparent and appropriate decision-making processes and that all stakeholder interests are protected.
A company’s board of directors plays a critical role in influencing corporate governance.
Good corporate governance helps businesses:
- Build trust with their community and investors.
- Create long-term investment opportunities and promote financial viability.
- Minimize risks, mismanagement, and corruption.
What Is Enterprise Risk Management?
Enterprise risk management (ERM) involves identifying and addressing hazards, risks and other potential dangers that could interfere with a company’s operations and goals. Although nearly every business practices risk management at some level, a formal ERM process puts practices and methodologies in place to increase the organization’s chance of success.
Internal Risk Factors
The most significant risks that threaten any business are the ones that are hidden. A governance, risk and compliance framework can be a highly effective way for a business to mitigate risks that they might not have been aware of in the past.
Internal risk factors within a business are common and can create catastrophic problems if not swiftly identified and addressed. Most internal risk factors are separated into three main categories:
- Human factors such as dishonesty from employees and ineffective leadership.
- Technological factors and physical factors that include outdated operating systems or disruptions in inventory.
- Physical risks such as damage or loss of assets in a company.
External Risk Factors
External risks can also threaten businesses and often consist of economic events outside a company structure. These risks cannot be directly controlled by a company. Because these threats are external, it makes it difficult to forecast these risks with a high level of certainty.
The three main types of external risks include:
- Economic risks
- Natural factors
- Political risks.
Economic risks typically include changes in market conditions that result in unplanned financial impact.
Natural risks can arise from natural disasters that affect a company, such as an earthquake that causes substantial damage or results in a steep decline in sales.
Political risks typically include changes within a government policy or political environment, such as changes in taxes, tariffs, export laws and other regulations.
What is Corporate Compliance?
Corporate compliance encompasses all internal policies and external federal and state laws that ensure your company operates ethically and lawfully, avoiding fines and lawsuits. Assessing corporate compliance may involve implementing new policies or modifying existing ones to ensure that a business meets all regulatory laws.
Companies must comply with all business policies, rules and guidelines relating to information technology and how it is used and implemented both internally and externally. Regulatory and compliance laws often pertain to data collection, business operations and competition. When a company works alongside an experienced executive advisor, they can help ensure their business is meeting compliance regulations.
Create a GRC Plan
Creating a GRC plan is not as easy as simply developing a program. While a GRC plan can be implemented by both private and public organizations of all sizes, it is important to actually support and execute GRC activities successfully. This may require a business to evolve its workplace culture.
When developing a GRC plan, defining what can be achieved and what a business stands to gain from the plan is vital. There are many resources to assist in creating this plan, like How to Build an Information Security GRC Program Overview.
Creating a GRC plan can be challenging, so many businesses rely on an experienced executive advisor’s guidance. Businesses can benefit from a GRC strategy that increases productivity and reduces risks by scheduling a consultation with a GRC consultant.
Contact Hartman Executive Advisors For More Information
Today’s complex digital environment makes it difficult for businesses to remain in compliance and drive performance. Fortunately, GRC can help organizations protect their brand, secure their assets and achieve compliance. To learn more about governance, risk and compliance or for assistance creating a GRC plan, contact the risk management consultants at Hartman Executive Advisors today.