Governance, risk and compliance (GRC): Definitions and resources
GRC, short for governance, risk and compliance, is a system that can make or break modern corporations. Organizations with effective GRC tools synchronize their risk management and regulatory compliance processes; organizations without may struggle with board effectiveness and overall corporate performance.
Entities across industries can benefit from a well-planned GRC strategy. GRC can help you align performance activities to business goals, manage enterprise risk and meet compliance regulations, all of which are make-or-break functions for corporations today.
In this article, we’ll answer the following questions:
- What is GRC?
- Why does your organization need GRC?
- What does a strong GRC strategy look like?
- What does a weak GRC strategy look like?
- How can the right tools help your GRC strategy?
What is GRC? Governance, risk and compliance explained
GRC stands for governance, risk and compliance. GRC is a system that organizations use to structure governance, risk management, and regulatory compliance. The concept is to unify an organization’s approach to risk management and regulatory compliance. Strengthening and rationalizing these processes can help improve business performance and enhance decision-making within corporate governance boards.
The OCEG coined the term GRC and formally defined it in 2007 as “the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity.” As the name suggests, the discipline has three main components: governance, risk management and compliance. Before we dive into what makes a GRC strategy effective, we’ll define and explain each of these three components individually.
1) Governance
Governance is the process of ensuring that all organizational activities (IT operations, training, etc.) align to support and advance the organization’s overall goals and objectives. Governance typically involves the organization’s key decision-makers, such as board members or high-level executives. It defines and enforces activities like:
How executives gather data, make strategic decisions, communicate with key stakeholders and determine who joins the board, all depend on governance. An example of poor governance in an organization might be a group of executives engaging in insider trading or a director whose business decisions and strategies consistently reflect a lack of interest in environmental, social or legal guidelines.
Effective governance uses data, information, and hard evidence to develop strategies and make decisions. Key sources include:
- Internal audits
- Assurance reports
- Compliance monitoring results
- Risk assessments
- Robust governance helps keep the organization on track and aligned with defined objectives.
2) Risk management and GRC security
Risk management involves identifying, assessing and controlling threats and risks to the organization. These threats could be financial pitfalls, legal consequences, cybersecurity threats, commercial liabilities, management errors, natural disasters, and other accidents.
Risk management processes typically rely on internal audits and risk assessments to identify critical gaps and areas of significant uncertainty. Risks can arise internally, within essential business operations and processes, or externally, out on the broader market.
Organizations often task many individuals with various elements of risk management, including IT security leaders, business analysts, finance officers and the governance board. A robust GRC framework can help ensure all risk management activities align with the organization’s ultimate goals and objectives.
3) What is GRC compliance?
GRC compliance involves aligning organizational activities with the laws and regulations that impact them. These regulations could be legal mandates, like privacy or environmental laws, or voluntarily established company policies and procedures.
For example, a compliance officer at a software company might work to ensure that their systems abide by regulations like GDPR. In contrast, an environmental inspector might search a construction site for environmental code violations and take the necessary steps to address them.
GRC frameworks encourage organizations to centralize compliance monitoring and stay on top of any laws or regulations that could affect their processes. Breaking compliance could result in devastating financial, legal and reputational consequences. These could include fines, time and money spent in court, and a tarnished reputation.
Why is GRC important?
GRC is important because it offers a holistic view of risk that streamlines decision-making regarding issues that aren’t always unified. From regulatory changes to stakeholder demands, boards are under pressure to manage interrelated priorities that can be difficult to align.
GRC is one of the best tools boards have to integrate GRC functions and ensure that all operations align with strategic objectives while also adhering to legal and regulatory requirements. Yet, in a 2023 survey of those who either manage or oversee their organization’s risk and compliance strategy, only 53% said their programs were mature — making effective adoption of GRC tools and strategies an imperative.
What does a weak GRC strategy look like?
Unfortunately, a suboptimal approach to GRC can cause many issues. A weak strategy is typically founded on a host of disjointed activities and poor processes, including:
- Unclear objectives
- Lack of effective oversight
- Lack of access to crucial information
- Organizational and functional silos
- High costs
- High rates of duplication
- Wasted resources, data and information
- Unnecessary complexity
The downsides of a poorly planned GRC strategy
When organizations haphazardly create departments and arbitrary programs instead of implementing GRC best practices, they can expect to face drawbacks like:
- Lack of visibility into key threats and risks to the organization
- Higher costs
- Difficulty measuring risk-adjusted performance
- Reduced ability or total inability to manage third-party risks
When GRC activities are siloed and relegated to specialized departments and programs, it’s more likely that substandard strategies are chosen, activities are duplicated, and day-to-day business operations are slowed down considerably.
It’s also helpful to note that doing GRC “wrong” is common. As organizations expand, keeping track of all the people and processes involved becomes more challenging. As the business grows, the severity and frequency of governance, risk and compliance issues also grow.
It’s natural to want to silo GRC activities and relegate them to a specialized department instead of building a strategy to incorporate them throughout your organization seamlessly. However, for your strategy to be more scalable, sustainable and cost-effective, focusing on the latter approach is more likely to give you the results you’re looking for.
As the business grows, the severity and frequency of governance, risk and compliance issues also grow. It’s important to implement scalable GRC frameworks and processes that can flex to meet the organization’s needs so growth doesn’t come at the cost of regulatory compliance and ethical standards.
Organizations should perform risk assessments when considering wider business aims and objectives. Risk assessments identify potential issues throughout the business operation. Some of the more serious risks include:
- Financial risks
- Cybersecurity threats
- Commercial liabilities
These risks can impact teams differently throughout the organization. Teams most impacted by the issues above include:
- Business analysts
- Finance officers
- IT security executives
- The governance board
A GRC framework ensures these different teams work towards the same objectives.
Why does your organization need GRC?
Organizations face a rapidly changing and increasingly complex business climate. Whether you’re part of a large corporation, government agency, small business or nonprofit, you’ll face numerous challenges, including:
- Constant changes to regulations and enforcement that severely impact business operations
- Stakeholder demand for strong performance outcomes, consistent growth and transparent processes
- Growing costs of addressing compliance requirements and managing risk
- Increase of third-party relationships and associated governance challenges
- Potential legal and financial consequences resulting from lack of effective oversight and overlooking critical threats
A disorganized approach to GRC can slow down an organization and cost more — all while achieving less, missing requisite compliance requirements and misidentifying threats to your revenue or reputation.
Too often, organizations believe that buying a single GRC platform or forming a specialized department will help resolve all of their GRC-related concerns. However, a robust GRC strategy is more than a specific tool or set of roles. An effective implementation involves:
- Defining the right objectives for your organization
- Ensuring smooth communication and that the right information always reaches the right people at the right time
- Establishing and enforcing the right set of actions and controls to address risk and compliance needs
GRC breakdowns aren’t a thing of the past. Recently, regulators uncovered employees at one of the largest banks in the U.S. attempted to meet sales targets by opening millions of unauthorized accounts and credit cards for customers. Opening accounts without consent was unethical and exposed the bank to significant legal and regulatory action.
While employees may have opened the accounts, the bank created an aggressive culture where short-term profits reigned over ethical conduct. Corporations today are under scrutiny from regulators, shareholders, and the public to uphold ethical values, intensifying the need for GRC practices that prioritize long-term performance and detect risks before they escalate.
Benefits of well-planned GRC management and strategy
Focusing on the above can help you prioritize your needs and select the right array of tools and processes that support your goals without slowing down or overcomplicating day-to-day operations.
Organizations that can implement a cohesive, integrated set of processes and technologies can expect benefits like:
- Reduced costs
- Reduced duplication of business activities
- Faster, easier access to information
- Higher quality and accuracy of information and communications
- Greater ability to consistently repeat key processes
The standard components of a strong GRC strategy include, but are not limited to:
- Effective oversight
- Integrated reporting and analytics
- Organization-wide ethics and integrity requirements
- Integrated information, risk and control activities
- Unified vocabulary across departments and disciplines
- Standardized practices for core processes like hiring, training, investments, evaluation, etc.
Many organizations approach GRC management by constructing overly complex and specialized programs in risk management, performance management, compliance, internal auditing and corporate social responsibility. The danger in this is creating too many disconnected silos that slow down communication, limit access to critical information and duplicate activities due to a lack of transparency and knowledge across the organization.
The best GRC strategy may be invisible. The goal is for your selected tools, technologies, and processes to become “baked into” the fabric of your organization so that any GRC standards and practices become a natural part of doing business.
GRC framework
A governance, risk and compliance framework is a structured approach to implementing GRC processes. An effective framework offers a systematic way to identify, assess, prioritize, and mitigate risks, ensuring that business operations follow a consistent set of ethical and security standards and are in compliance with laws and regulations.
While a GRC framework can stand on its own, organizations can also integrate it with other risk management standards to broaden their risk management strategy, including:
COSO framework
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework is a reputable ERM framework businesses across industries use to create a more holistic view of risk. Integrating COSO principles into a GRC model helps corporations layer accepted risk management best practices over their governance and compliance objectives.
NIST framework
The National Institute of Standards and Technology (NIST) Cybersecurity Framework is a repeatable process for managing and improving cybersecurity. Within GRC, it offers a structure for identifying, responding to and recovering from cybersecurity threats — a must, given that cyber-attacks spiked in 2023.
ISO framework
The International Organization for Standardization (ISO) offers guidance on various business needs, including information security and risk management. These standards complement GRC by offering documented approaches organizations can leverage to improve risk management and compliance.
ISACA framework
ISACA is a global professional association that develops frameworks for IT governance and risk management, including the Control Objectives for Information and Related Technologies (COBIT). These frameworks can guide how an organization’s GRC model aligns IT governance practices with their overall objectives and regulatory landscape.
OECG GRC capability model
The OECG GRC capability model is a comprehensive framework offering a unified approach to organizational management across risk, governance, audit, ethics, IT, and compliance. Organizations can use the capability model to enhance any of the above frameworks to serve as their sole methodology for developing and improving GRC practices.
Developed from a study of nearly 300 large corporations, the model offers GRC best practices organized into four components:
- Learn: This component involves building a deep understanding across the organization of GRC concepts, regulations and practices, including through education and training.
- Align: Organizations should build upon what they have learned by aligning GRC activities and strategic objectives and developing clear governance structures.
- Perform: The third component of the model, “perform,” means executing GRC processes and activities to begin proactively managing risk, monitoring performance and maintaining compliance through audits, internal controls and more.
- Evaluate: Organizations must continuously assess the effectiveness of their GRC efforts through monitoring and measurement, which requires establishing performance metrics.
While these components are steps organizations can take toward a robust GRC strategy, they are also a formula for modern GRC software. For example, technology like the Diligent One Platform integrates a learn/align/perform/evaluate approach to offer organizations powerful, immediate and actionable insight into GRC entity-wide.
5 tips when implementing GRC
Implementing a GRC model can seem complex, as it generally includes internal auditing of existing processes and procedures. Each established area of the organization will likely have its own way of performing risk assessments or compliance monitoring. However, a unified approach with shared expertise is the best way to achieve the overall aims of the organization.
With this in mind, there are ways to make launching the GRC program more straightforward. Here are five tips for implementing a GRC framework in an organization.
1. The discovery phase is important
Spending time taking stock of existing processes is vital if the GRC program is to be a success. Organizations should perform an internal audit of the processes and procedures used by the risk assessment and compliance teams.
Approaches in departments and teams’ fields will differ, but the aim is to establish similarities and shared processes. The results of the internal audit will help shape the direction of the whole GRC project.
It’s also important to define all relevant regulations, contracts, laws, and legislation the organization may need to comply with. For example, organizations that process cardholder data will likely need to be compliant with the Payment Card Industry Data Security Standard. Once highlighted, the scale and scope of the GRC program can be decided.
2. Senior management should be fully onboard
The benefits of a unified GRC approach should be clear to any members of senior management. After all, it means better access to reports, analytics, and evidence, which help shape strategic decisions. Plus, improved risk management processes mean those strategic decisions are well-informed in the first place.
Senior management should provide a clear idea of the organization’s overall aims and strategy, which in turn will set the tone of the GRC project. If the board can decide on a unified GRC strategy, it will be easier to embed the project in the wider organization.
3. GRC tools can streamline the process
GRC tools such as compliance software or reliable board management software will help streamline the project. GRC software will provide one area to record all the different risk assessments and internal audits. In addition, it can help with compliance monitoring. This centralized data can then be accessed and visualized remotely for instant access to trends and records.
The GRC software will also help trace processes and procedures used within different teams or roles. By centralizing processes and software within one platform, organizations can explore the trends found within different silos.
4. Make improved business performance a core project aim
Assessing existing processes and procedures should answer the question: Can it be improved? The main aim of a GRC program is to drive improvements to risk assessment and compliance monitoring. Both aspects are integral to the ongoing success of an organization.
Risk management directly informs decisions on the organization’s growth or the improvement of services and products. A project to unify GRC programs should aim to improve risk assessment and management processes. This can be through efficiency savings by sharing resources across teams and departments or refining processes. The overall performance of the business should improve as a result.
5. Define objectives and keep communication channels open
Circling back to the goals of your GRC initiative is critical. There should be regular communication and clarity with all of the organization’s members about the objectives. GRC, by its very nature, is far-reaching and comprehensive, as the process will review the breadth of an organization.
Launching a new GRC system will require training and engagement campaigns, so project communication is important. Questionnaires, surveys and interviews are useful for gaining insight into different processes across teams and departments. Plus, any changes in the process will need to be announced and managed.
This is particularly true if the organization introduces a new tool or piece of software to deliver the GRC system. Any changes in technology will require an element of engagement or training.
Diligent One Platform helps you keep track of everything and stay ahead of the curve
After you have clearly defined organizational objectives, established an effective communications strategy and enforced the best set of controls for your organization, the right tools and technology can help you stay on top of your GRC activities.
The Diligent One platform can help you get a consolidated view of risk across the organization to help your board make more strategic decisions. Boards and GRC teams can access the platform anytime, anywhere, and on almost any device.
This unified solution allows organizations to:
- Tap into an exclusive, proprietary data feed with insights into a range of GRC issues
- Integrate data from 100+ leading providers
- Make decisions grounded in accurate data and seamless collaboration
- Illuminate mission-critical risks and identify how to mitigate them
- Uncover opportunities before the competition becomes aware of them
- Develop a credible, defensible compliance program
- Turn to a single source of truth for managing all GRC activities
Interested in learning more? Learn more about how a centralized governance solution can accelerate your GRC strategy.
FAQ
What is GRC in simple words?
GRC, in simple terms, refers to the integrated approach of managing governance, risk, and compliance within an organization to achieve its objectives effectively.
What are the fundamentals of governance, risk and compliance?
The fundamentals of governance involve establishing structures and processes for decision-making and accountability. Risk management entails identifying, assessing, and mitigating potential threats to the organization’s objectives. Compliance ensures adherence to relevant laws, regulations, and standards.
What is GRC software?
GRC software is a technological solution designed to streamline and automate an organization's governance, risk management, and compliance processes. It helps centralize data, track activities, and facilitate reporting to ensure adherence to regulatory requirements and internal policies.
What are GRC tools?
GRC tools encompass a range of software applications, platforms, and methodologies used to support governance, risk management, and compliance activities. These tools may include risk assessment software, policy management systems, compliance tracking tools, and audit management platforms.
Is GRC cybersecurity?
While GRC encompasses various aspects of cybersecurity, it is not solely focused on cybersecurity. Instead, GRC provides a broader framework for managing risks across all areas of an organization, including cybersecurity. Effective GRC practices incorporate cybersecurity measures to protect against threats and ensure compliance with relevant regulations.
