What exactly is Governance, Risk & Compliance (GRC)?

Internationally active large companies have a complex structure, and need to work (if they are listed) not only in their own economic interest but also in the interests of their shareholders. This requires responsible management and easy cooperation between large departments and various business locations. GRC (Governance, Risk & Compliance) exists to keep all these aspects in mind and to manage the company responsibly.

The GRC model helps to maintain an overview of complex business processes and to manage them conscientiously so that the company can both be economically successful and operate in compliance with all laws and regulations.

Corporate governance, risk management and compliance are three aspects of corporate management that often look at the same areas and processes from different perspectives and can therefore hardly be distinguished from each other.

In order to understand more precisely what GRC's objectives are and what methods are available, it is helpful to look at the three subject areas independent of one another, to see what their similarities and differences are, as well as their focus points.

The area of Corporate Governance refers to responsible leadership for the benefit of the people associated with the business, and the various external interest groups (e.g. shareholders). Special emphasis is placed on the consideration of mandatory internal regulations and compliance with national and international legislation.

Transparency, efficiency and trust are the cornerstones of good leadership, and for this reason the regulations for corporate governance incorporate this as well. Good  corporate governance therefore provides the framework for every single management decision, regardless of whether these decisions relate to internal or external processes.

The aim of risk management is not a small task. Risk management aims to identify any risks that could jeopardise corporate goals being achieved successfully, and to get rid of, or at least limit issues which could stand in the way of business as usual by taking appropriate measures at an early stage.

These can be internal risks that arise, for example, due to communication errors, lack of employee competence or rivalries between departments or locations. However, risk management also deals with possible external risks that may be caused by changes in the market (falling demand, increasing competition, economic crises).

The aim is to ensure the continued existence and economic success of the company in the long term.

Compliance deals with laws and regulations that regulate the flow of all business processes. For this reason, it is difficult to distinguish the two terms from corporate governance and they are often used synonymously. However, there is a reason why the two terms are listed separately in GRC.

In contrast to governance, however, compliance is not only about the relationship between companies and interest groups or between corporate management and employees, but about the entire ethical and moral canon of values on which a company bases its activities.

Although compliance with legal requirements and the avoidance of criminal proceedings are also the primary concerns, corporate social responsibility also plays an increasingly important role. This concept aims to ensure that companies assume responsibility for society and the environment beyond the minimum legal requirements.

Within a business, all departments and management levels are obliged to act in accordance with the principles of governance, risk and compliance. Nevertheless, above a certain company size there is a risk that departments may pursue their own interests or make mistakes due to misunderstandings in communication. To check this and correct it if necessary, an Internal Audit may provide a good solution. An internal audit checks all company processes for their optimal and rule-compliant course; this also includes the GRC measures themselves. Ideally, the employees entrusted with internal auditing report exclusively to the management, so that they can report neutrally and independently of processes.

When it comes to business, there is rarely a ‘one size fits all’ option. Using tools to help you is usually only necessary when the task at hand is something that needs a lot of organisational input, or if it would take a lot longer without one. A lot of businesses will use an integrated GRC approach to streamline their own business, and optimise its function. Additionally, using lots of different systems can sometimes cause confusion rather than help it, so using an integrated GRC process approach can whittle down unnecessary frills, and help you focus on the task at hand. Using a single system across your company, rather than different styles in different departments, means that you might find that your business is better organised because you have a single process and therefore reference point for your business. It also means that you probably will cut down on the software you use, because you will use one solution. The integrative, single process approach may be favourable as it could be more straightforward and unambiguous.

Please note the legal disclaimer relating to this article.