Corporate Governance vs. Compliance

The terms "governance" and "compliance" have become buzzwords in today's corporate practice. Most corporate paralegals and lawyers mention them together, and there is a good reason for that. Both governance and compliance are an integral part of the overall Governance, Risk Management, and Compliance (GRC) agenda implemented through the legal entity management system.

However, those who are interested in getting a better understanding of governance and compliance can benefit from reviewing each of these frameworks separately. It helps define the goals of governance and objectives of compliance, establish specific approaches to achieve those targets, and select the most effective tools and entity management software to assist corporate paralegals and lawyers in GRC practice.

Governance

Governance is a term to describe a framework of procedures and guidelines to steer an organization to achieve its goals. It can relate to a company's overall objectives and other targets at each organization's level, including a department or a project. Governance ensures that corporate strategy is implemented while the company's internal policies are effectively carried out.

In addition, governance encompasses the following function:

  • aims to increase accountability,
  • ensures effective communication at each level,
  • establishes controls for systematic implementation of directives.

Compliance

Compliance is another set of processes designed to ensure that the company's activities and practices meet the requirements of law. Through compliance activities, companies make sure that all employees and entities fulfill the requirements of external regulating authorities.

Corporate compliance also includes:

  • identifying existing or anticipated applicable regulations,
  • enforcing fulfillment of laws and regulations within an organization,
  • any other corrective actions to ensure fulfillment of laws and government requirements.

Differences Between Governance and Compliance 

Although governance and compliance have the common goal to help businesses achieve their objectives and manage risks, these practices have different aspects which should be kept in mind.

Internal vs. External

Corporate governance includes policies and rules created within organizations by the shareholders, the board and the C-suite members to achieve companies' objectives. These policies may include setting standards for the company's ethics and other internal rules existing only within each organization.

At the same time, compliance rules are defined externally by governmental and other regulatory authorities. They are adopted irrespective of the goals and visions of an individual company and relate to all organizations which fall under their scope.

Optional vs. Obligatory

This distinction is related to the origin of governance and compliance and their enforceability.

Since governance activities and policies are established by an organization itself, they can be viewed as optional because they are enforced only within that particular organization. The consequences of violating governance standards are established internally and can include termination of employment or other corporate penalties.

Meanwhile, compliance is not optional. Organizations must ensure compliance to fulfill the requirements of laws and regulations and be allowed to run their businesses. Failure to provide for compliance can lead to legal action against the company or its employees, revocation of licenses, monetary penalties, and even closing a business.

Strategic vs. Tactical

Governance is always strategic because its main focus is on the goals of an organization reflected in its internal policies. Through governance, shareholders aim to implement their vision for the company and shape its approaches and progress.

On the other hand, compliance-related activities focus on more immediate changes which are needed to meet the requirements of law. Compliance concentrates on limited goals, reporting and filings to meet these requirements. As such, these activities are closely interrelated with legal entity management processes aimed to enable compliance.

Importance of Holistic Approach to Governance and Compliance

Although governance and compliance relate to different aspects of an organization, they should be viewed as elements of the overall Governance, Risk and Compliance (GRC) agenda. A siloed approach to governance and compliance proves ineffective and can lead to redundancies and omissions.

On the other hand, an effective GRC program, which addresses both governance and compliance, provides for collaboration and ensures the integrity of the enterprise. A holistic approach to ensuring the implementation of corporate strategies and internal policies based on compliance with the laws provides for synergies among different levels of an organization and helps to enhance the company's activities. 

Ensuring Governance and Compliance with Entity Management Software

Effective practice of governance and compliance is facilitated by the legal entity management system. Ensuring compliance is impossible without bringing all corporate data together and providing for all necessary filings, licenses and permits. Meanwhile, robust legal entity management is also a key for implementing governance and managing overall business strategy.

If you are interested to learn more about the relationship between governance and compliance and how legal entity management can enable effective GRC processes, make sure to check other useful resources on our website. You may also want to speak to our experts to find out how entity management software like Athennian streamlines the work of corporate paralegals and lawyers and changes the traditional approaches to implementing governance and compliance.

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