Sunday, 11 November 2012

What is Governance, Risk & Compliance?

Governance, Risk & Compliance, though being distinctive, are three independent components of an organization. It is vital for a company to incorporate efficient and effective policies regarding the three crucial areas of the business, namely corporate governance, risk management and legal compliance. Failure to do so may lead to a loss of confidence of the various stakeholders. 

If the company does not comply with the policies relating to governance, risk, and compliance, it is most likely that the stakeholders will lose confidence in the company’s activities and the shareholders may not be willing to invest any further in their business. This will eventually have a detrimental effect on the growth potential of the company as they will not have the necessary funds to invest in their expansion plans.

Therefore, it is essential for any company to have effective regulations or frameworks in place for overlooking these crucial aspects. This can either be done internally or it can be outsourced as well. Outsourcing means availing the services of firms or companies specializing in creating, maintaining and monitoring such policies for Governance, Risk & Compliance.

Corporate governance rules are standard business practices that have to be followed by all the companies in a particular industry. These rules may or may not vary according to the type of industry, for example, mining industry, IT industry, etc. Compliance with these standard rules is essential for companies to be able to achieve their respective missions and goals. A compliance management committee or framework can be incorporated by a company, if deemed necessary, to assess and monitor any governance risk that may become evident.

Failure to comply with corporate governance rules and regulations may even mean that the company lacks a proper risk management framework. There are many different types of risks that a company can face during its lifetime and to be able to detect and eliminate these risks, a company needs to incorporate risk mitigation strategies for each possible risk. Most importantly, a financial risk management strategy should be in place as the company lacking risk management framework may tend to make bad investments, which may eventually lead to financial distress.

Lastly, compliance relates to all the rules and regulations governing the various business practices and activities undertaken by a particular company. For any company to be successful in the short and long term, compliance with these laws is deemed essential. Moreover, failure to comply with corporate governance rules and guidelines by companies may tempt their respective governments to verify whether these companies are operating within the boundaries set by the respective laws.

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