Governance vs Compliance: Key Differences and Similarities

In the world of corporate regulations, laws, and policies, two terms are used commonly and often interchangeably – compliance and governance. While these components of GRC have some overlapping objectives, their applicability is far from the same. 

In this article, we discuss what governance and compliance means and the differences between the two.

What is governance?

Governance is a framework consisting of processes, policies, and principles developed to align with an organization’s goals and objectives. These internal structures enable the management to make better decisions, comply with regulatory requirements, and meet stakeholder expectations.

There are three elements to an effective governance system: 

• Structuring of the entire organization comprising the reporting format, hierarchical responsibilities, functional interdependencies, and committee structure.
• Management responsibilities relating to oversight of activities across key business areas like risk strategy, accountability matrices, budgeting decisions, and skill evaluation.
• Infrastructure and culture comprise policies, procedures, performance measurement, evaluation metrics, communication, IT support, and training and development programs. 

What is compliance?

Compliance refers to abiding by a set of established internal or external policies, government regulations, or industry standards. Corporate compliance includes a process to make sure employees fall in line with the practices and regulations that are critical not just for the organization’s growth but also to avoid legal penalties due to non-compliance. 

In other words, compliance means you actually follow and adhere to the governance framework. 

Key elements of a compliance framework consist of:

• Risk assessment to identify the gaps against the compliance requirements and implementing the right controls to minimize its impact. 
• Policies and procedures detailing your organization’s security practices, vendor assessment process, ethical responsibilities, access control, etcetera 
• Collecting evidence of corrective actions, access logs, risk assessments, training records, and incidents. 

Difference between governance vs compliance?

While governance helps to implement organizational goals and objectives and build a strategy for streamlining workflows. Compliance, on the other hand, focuses on changing existing processes to align it with the requirements of a framework. 

Let’s understand the key difference between these key elements of  GRC: 

Governance vs compliance: Source of requirement

While both compliance and governance fall under the broad category of regulatory requirements, the source of requirement is one of the key differentiators. 

Governance frameworks primarily focus on streamlining, aggregating, and improving the internal set of processes, policies, and legislation. This internal strategy also extends to stakeholders and business partners. Adherence to governance structures helps set the ethical and cultural tone, which is crucial to long-term sustainability and workflow efficiency. Governance rules are defined by top management.

Compare this to compliance, where the requirement stems from external regulatory bodies. This may include common industry standards like PCI DSS (Payment Card Industry Data Security Standard) or government regulations like HIPAA (Health Insurance Portability and Accountability Act of 1996). Compliance rules are predefined by the external body responsible for overseeing instances of violation or non-compliance. 

Governance vs compliance: mandatory vs voluntary

The term “law” conjures up images of something that is compulsory. Since both governance and compliance are related to laws, it is not uncommon to mistake both as mandatory requirements. 

As governance activities are developed by the company and apply primarily to internal resources, not following them strictly will not land you legal thick soup. This does not imply that corporate governance rules are not to be taken seriously – the management may enforce corrective actions depending on the severity of the violation or the importance of the policy in question. 

Compliance frameworks are generally mandatory requirements set forth by external bodies. These bodies oversee instances of violation and have the authority to penalize organizations that fail to comply. Note that compliance frameworks are not always mandatory. In many cases, an organization can implement them to win customer trust and expand into new markets. 

For example, if you run a business in California and collect customer data, CCPA is likely mandatory. If you provide healthcare services in the US, the HIPAA law is not optional. 

But let’s say you want to demonstrate a strong security posture to your customers. You can implement SOC 2, ISO 27001, or NIST RMF to break more sales deals. Now if you want to be certified for a voluntary framework, adhering to its requirements is compulsory. 

Governance vs compliance: the key objective

The last key difference between corporate governance and compliance relates to your goals and objectives.

Governance is strategic in nature because the framework’s objective is to improve internal processes and add efficiency to workflows. These help to scale the company’s growth through increased accountability, better communication, and systematic implementation of directives – it is more of a long-term commitment.  

Compliance frameworks are somewhat strategic in nature, only if they are voluntary. The objective is more tactical for compulsory frameworks, as the focus is on meeting the requirements of a predefined set of policies. Compliance is a continuous process that goes beyond certification, as falling out of compliance will attract legal penalties.

Add momentum to your GRC program

Creating an effective strategy for governance and compliance is challenging. Even with the right direction, implementing and managing can be daunting. One needs a strategic approach that eliminates the manual process, ensures compliance at a fraction of time, and reduces the cost. 

Sprinto is a compliance, risk, and governance solution that helps organizations implement any compliance framework, ensure effective governance, and mitigate risks. This tool helps you meet the business goals, implement a governance structure, and manage compliance requirements in keeping with industry standards. Sprinto can help: 

• Implement a structured approach to identify and mitigate potential risks
• Enable your compliance teams close security gaps by continuously monitoring your internal controls for security risks
• Implement governance and compliance policies using a library of fully customizable policies 

Book a demo now to see how we have helped thousands of organizations implement robust GRC modules. 

FAQs

What is the relationship between corporate governance and compliance?

Corporate governance practices help organizations adhere to their internal policies and prove their commitment to ethics. Compliance is necessary to adhere to external regulations and avoid legal issues. 

What are the key aims of governance and compliance?

The key aims of governance and compliance is to improve internal controls, streamline business processes, increase transparency with stakeholders, meet government regulations, and manage risks. 

What are some examples of governance frameworks?

Some common governance frameworks are the Sarbanes-Oxley Act, COSO (Committee of Sponsoring Organizations of the Treadway Commission), and COBIT (Control Objectives for Information and Related Technologies). 

What is the relationship between corporate governance and compliance?

Both corporate governance and corporate compliance are a set of laws and policies that help businesses streamline functions, increase accountability, and improve transparency.