GRC typically encompasses activities such as corporate governance, enterprise risk management (ERM) and management compliance.

--BY RABIN SHAKYA

In today’s market economy, monetary value alone does not create and support the financial domain of the corporate sector which is corporate business and banking.

A Virtue in Corporate Arena
Governance, risk and compliance (GRC) are three aspects that help to assure an organisation achieves its goals and objectives and acts with integrity and professional propriety. It addresses uncertainty with respect to risk and vulnerability, thereby checking compliance issues. Governance is the combination of a process established and executed by directors (or the board of directors) which is reflected in an organisation's structure and how it is managed and led while achieving its goals. Risk management is predicting and managing risks that could hinder an organisation from reliably achieving its objectives under uncertainty. Compliance refers to adhering within mandated boundaries (laws and regulations) and voluntary boundaries (company's policies, procedures and guidelines, etc.)
GRC is a discipline that aims to synchronise information and activity across governance and compliance in order to operate more efficiently, enable effective information sharing, more effectively report activities and avoid wasteful overlaps. Although interpreted differently in various organisations, GRC typically encompasses activities such as corporate governance, enterprise risk management (ERM) and management compliance with applicable laws and regulations.
In the corporate world, governance results in corporate governance which encompasses,
 
Role
In the current corporate sector, corporate governance is the system by which companies are directed and controlled. The shareholders’ role is to appoint directors and auditors and to satisfy themselves that an appropriate governance structure is in place.

Pillars of Corporate Governance:
All of the above features are significant and critical when it comes to successfully running a company and forming a solid relationship with stakeholders which include the board of directors, senior management and executive officers, managers, employees and most importantly, shareholders.
Among all of the above eight pillars of corporate governance, the three pillars that are very significant are,

• Transparency
• Accountability
• Security

IMPORTANCE
Many articles been published about corporate governance in the business and commercial sector. However, the importance of corporate governance can be seen in the several international legislations such as the Sarbanes Oxley Act (SOX), 2002 and OECD (Organization for economic co-operation and development) Principles of 1999.
 
With proper corporate governance standards, codes and guidelines, a corporation will be able to generate a sound internal control system.

EXTERNAL ENVIRONMENT
A company’s performance does not happen in a vacuum but within a certain environment which has challenges and opportunities. Additionally, regulations are important measures which prevent decision-making that takes inadequate accountability of the public interest. The legal framework is a key element of the corporate governance system of a country because it shows that accountability and transparency cannot be achieved unless there are appropriate rules and regulations in place. It provides legal protection for investors and ensures their ability to exercise their rights.

Risk
Risk is an influence affecting strategy caused by an incentive or condition that inhibits transformation to quality excellence. Our companies are guided by the risk mitigation plan drawn out by Nepal Rastra Bank under the Basel norms. An organisation mobilises its bye-laws, regulations and policies to reduce the expected risk. Some of these risks which are inevitably generated are: Credit risk, operational risk, human resource risk, exchange risk, reporting risk, security risk, systemic risk, control risk, opportunity risk and legal risk, etc.

COMPLIANCE
The term compliance describes the ability to act according to an order, set of rules or request and can be broken down into:
Level 1:    Compliance with the external rules that are imposed upon an organisation as a whole.
Level 2:    Compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules.

Good corporate governance practices are regarded as important in reducing risk for investors, attracting investment capital, and improving the performance of companies and financial institutions. Companies need financial resources and better earnings to promote their objectives. Equally, a firm’s characteristics play a pivotal role in determining the performance of the firm. In this regard, firms that are able to align certain firm features with the characteristics of the environment outperform other firms. Therefore, firm characteristics are essential determinants of firm performance and success.

Furthermore, financial institutions today are facing extraordinary challenges in maintaining commercial survival and success. Arising from rapid changes happening in today’s marketplace and emerging business practices, it is more likely for financial institutions to fall behind by not keeping up with tendencies of their external environments.

For financial institutions in developing countries like Nepal a financial crisis should serve as a powerful reminder that financial institutions are unique, and as such they demand different paradigms for evaluation and different measurements for corporate governance, firm characteristics, external environment, and subsequently performance over time. The inherent principal–agent problem can be solved by making management explicitly responsible for the value maximisation of the firm. Executive directors are also responsible to a board of directors, whose constituents are the shareholders of the firm. However, as long as there are profitable opportunities for financial institutions that do not directly improve their performance as a whole, the interests of shareholders and the public may be at odds. Hence, the board of directors should be attentive as far as financial decisions regarding firm characteristics and external environment of the financial institution are concerned since they face the added dimension of specific regulations and supervisory actions.

Broadly, financial institutions could increase firm performance and achieve value maximisation through the pursuit of the best practices of corporate governance, firm characteristics, and external environment that would ultimately improve the overall firm performance.