What is a governance framework?
A governance framework, also called a governance structure, is essential for modern governance and legal operations. Governance frameworks direct how people interact with the organization, regulators and stakeholders to guide and monitor operations closely. Yet, 48% of companies have no formal corporate governance procedures.
A governance framework is a supporting structure for entity management and compliance, providing the trunk from which the various branches of compliant operations can grow. Along with entity management technology, governance helps companies and other organizations stay on the right side of regulators regarding filing requirements and aspects such as company culture, remuneration methods and transparency of operations.
A corporate governance framework helps to center an organization’s approach around common themes, including who has a voice, who makes decisions and who has accountability. The governance framework acts as an essential supporting structure, a framework of rules and practices by which the board ensures accountability, fairness and transparency in how the company runs and communicates with its stakeholders.
Here, we’ll explain the key concepts that underpin corporate governance frameworks, including:
- Governance framework vs. governance structure
- The elements of a strong corporate governance framework
- Five benefits of an effective corporate governance framework
- Why governance frameworks are important
- How to build your framework
- Software that can strengthen your governance approach
What is a governance framework?
A governance framework is the system of rules, practices, processes and relationships that direct and control an organization. It defines which participants — the board of directors, management, shareholders and stakeholders — have which rights to set objectives, make decisions, monitor performance and promote accountability.
Governance framework vs. governance structure
The terms ‘governance framework’ and ‘governance structure’ are interchangeable. They both describe the system of an organization’s governance, particularly the rules, procedures and roles of responsibility that influence the organization.
These frameworks or structures most often govern people in positions of authority, such as executives and the board of directors. They dictate how they will complete the activities that drive the organization forward.
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Download the guideTypes of governance frameworks
Organizations should have a single governance framework that views roles, responsibilities and decision making holistically. However, within that framework, organizations can tailor governance to specific domains, ensuring critical functions have proper oversight.
- AI governance focuses on the responsible development, deployment and oversight of artificial intelligence systems. It ensures that AI is ethical, transparent, fair, secure and aligned with legal and organizational values.
- Data governance establishes policies and standards for managing data assets across an organization. It ensures data quality, consistency, security and appropriate access.
- Technology governance promotes IT investments and practices that support the organization’s strategic goals while managing risk and optimizing resources.
- Knowledge management governance dictates how the organization creates, shares, maintains and uses knowledge to drive learning, innovation and efficiency.
- Risk governance structures how the organization identifies, assesses, manages and communicates risk across departments. It supports informed decision-making and organizational resilience.
How governance frameworks differ regionally
Governance frameworks aren’t universal. How an organization governs itself depends heavily on the cultural norms, laws and regulations of its jurisdiction. Here are some key ways governance frameworks can differ.
- Shareholder versus stakeholder orientation: Shareholder orientations are common in the U.S. and UK, where the primary duty of the board and executives is to maximize value for shareholders, primarily investors and owners. Stakeholder orientation takes a broader view of value creation, considering the interests of employees, customers, communities, the environment and shareholders. This model is more common in Europe and some parts of Asia.
- One-tier versus two-tier board structures: Your board structure influences the role of independent oversight and how you manage conflicts of interest. One-tier boards have executive (company management) and non-executive (independent) directors; this is typical in Anglo-American systems. On the other hand, two-tier boards establish a management board to run the company and a supervisory board to oversee management. This is the structure of choice in Germany and some European countries.
- Governance maturity and standardization: Governance in some countries is more mature and consistent than in others. The U.S. and UK are known for their formal governance practices with clear, codified rules and best practices that lead to consistency; this includes well-documented codes like the UK Corporate Governance Code and the Sarbanes-Oxley (SOX) Act in the U.S.. Others, like countries in the Asia-Pacific Region, are maturing rapidly, though practices still vary widely across countries.
- Legal enforcement versus voluntary codes: Governance worldwide also varies by how it’s enforced. The U.S. relies heavily on legal compliance and litigation risk through the Securities and Exchange Commission (SEC) and legislation like SOX. The UK, Canada and Australia, meanwhile, use comply-or-explain governance, which is less punitive and more principles-based. Governance frameworks in countries like Japan and Korea are newer and, therefore, still evolving.
- Digital and AI governance readiness: Governance must also be responsive to changes in the business landscape, but some countries are better at keeping pace than others. The EU AI Act sets the gold standard for risk-based AI regulation, and related governance frameworks are developing fast. AI regulation in the U.S. has so far been fragmented, which has supported vast innovation. In the Asia-Pacific region, governance for AI is less of a priority as many countries are still developing basic digital infrastructures.
International governance frameworks
The above cultural, regulatory and legal differences spill over into the distinct frameworks that apply to the region. Many of these are voluntary or on a comply-or-explain basis, but they remain critical guides to integrating strong governance practices.
Global, cross-regional frameworks
- OECD Principles of Corporate Governance: This is among the most widely adopted global governance standards. It focuses on transparency, accountability, shareholder rights and board responsibilities. As of 2023, it also touches on sustainability and digitalization.
- IFC Corporate Governance Methodology: This framework, which is key for emerging markets, helps assess governance structures, particularly in development finance contexts.
- G20/OECD Principles for State-Owned Enterprises (SOEs): This framework offers best practices for governance within SOEs, including transparency, stakeholder treatment and competitive neutrality.
Americas
- United States: The SOX Act is the U.S.’s landmark regulation promoting financial transparency and accountability. NYSE and NASDAQ listing standards also emphasize board independence and strict disclosure requirements.
- Brazil: The IBGC Code of Best Corporate Governance Practices is influential yet voluntary, aligned with international governance standards.
Europe, Middle East, Africa (EMEA)
- United Kingdom: The Corporate Governance Code’s widely cited comply or explain approach emphasizes board leadership and shareholder engagement.
- European Union: The Corporate Sustainability Reporting Directive (CSRD) mandates ESG disclosures, representing a new era in governance across Europe.
Asia-Pacific (APAC)
- Japan: As of its 2021 update, the island nation’s Corporate Governance Code focuses on board independence and sustainable growth.
- Singapore: The Code of Corporate Governance is a high-maturity framework with a principles-based approach and strong regulatory enforcement.
- Australia: ASX Corporate Governance Principles offer comprehensive governance guidelines widely adopted by listed companies.
Governance structure examples
Good corporate governance structures can make organizations more competitive. With good governance, organizations ensure all their activities are consistent and up to regulatory standards, assuring the board that their rules and systems improve the business.
Examples of strong governance structures include:
- Integrating board activities: Boards — and their organizations, along with them — can easily slip into silos. These silos are not only inefficient, but they also leave the board vulnerable to costly oversights. Good governance structures will integrate all board activities, most often through entity management software.
- Strategic internal audit: Boards need data to make effective decisions. This makes the internal audit function indispensable. A strong governance structure will prioritize regular and ongoing internal audits to ensure they catch risks and keep the board up-to-date.
- Industry and regulatory standards: Compliance is integral to all board and organizational activities. It ensures all processes and procedures follow critical regulations, such as ISO certification. Meeting these types of standards is foundational to any good governance structure.
- AI principles and oversight: Boards should consider how to integrate AI responsibly and efficiently. “The explosion of AI has really caused boards and companies to take a step back and really assess how they’re managing their data-related risks,” said KPMG Board Leadership Center Co-Leader John Rodi on a recent podcast episode. Google, for example, has published AI principles prioritizing safety, fairness, privacy and accountability.
- Data protection: How organizations use, manage, and store data is directly tied to their governance framework. Rodi said, “Data-related risks have been on the board agenda for quite some time now, really focusing around cybersecurity and data privacy.” The General Data Protection Regulation (GDPR) is a legal example of strong data governance enforcement. In line with the regulation, companies must implement data protection officers, privacy-by-design principles and rigorous consent management.
What makes a strong corporate governance framework?
A strong corporate governance framework organizes operational, risk management, reporting and financial processes to ensure the board is continually updated. Rules and systems create a robust framework for governance, and the framework provides the structure that drives the strategic plan. A strong governance structure can:
- Help boards make considered, data-based decisions
- Expose gaps or weaknesses within the board or management
- Support the company in numerous ways to effectively connect leadership with operations
- Serve as an essential tool for effective board oversight; the process of building the framework is often just as important and meaningful as the result
- Bring authority and accountability while enabling effective decision-making in an organization
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Download the guide5 benefits of an effective corporate governance framework
A sound governance framework can have a far-reaching impact. Though governance is most commonly a topic in the boardroom, it has a ripple effect internally and externally. Organizations that successfully execute a governance framework can expect:
- Effective risk management: A robust governance framework includes processes for identifying, assessing, and managing risks, contributing to better risk management practices. Robust compliance mechanisms, ethical guidelines and risk management practices can steer companies away from regulatory violations and litigation and toward sound performance.
- Enhanced transparency and accountability: A corporate governance framework promotes transparency by offering stakeholders clear insight into the company’s operations, finances and decision-making. Transparency builds trust, which in turn engenders loyalty to the organization.
- Better decision-making: Organizations with a sound governance framework define the roles, responsibilities and processes that guide informed decision-making. Timely board decision-making leads to a better allocation of resources and long-term sustainability.
- Protection of stakeholder interests: Stakeholders are central to corporate governance frameworks, particularly the stakeholder model. Organizations can prioritize stakeholder interests, ensure ethical treatment, and build trust with an effective framework.
- Stronger financial performance: For investors and consumers, corporate governance is a calling card for a well-managed, ethical company. That reputation benefit makes it easier for organizations to attract capital and loyal customers, boosting their long-term performance.
The importance of governance frameworks and structures
Corporate governance structures are essential in today’s progressive and aggressive business environment. Corporate governance allows companies to put their positive traits firmly on display. With these intentions visible to all, companies are more likely to be held accountable for their behavior and actions, and thus more willing to distance themselves from duplicity.
Businesses today are held to incredibly high standards by investors and customers alike; honesty and openness about processes and operations count for a great deal. Both shareholders and consumers want to see companies operating with integrity and transparency.
What are the key components of a governance structure?
Business advisory firm PwC calls corporate governance “a performance issue” as it provides a framework for how the company operates, stating that corporate governance frameworks should encompass the following:
- The company’s performance and the performance of the board
- The relationship between the board and executive management
- The appointment and assessment of the board’s directors
- Board membership and responsibilities
- The “ethical tone” of the company and how the company conducts itself
- Risk management, corporate compliance and internal controls
- Communication between the board and the C-suite
- Communication with the shareholders
- Financial reporting
This list provides a bird’s-eye view of corporate governance in action and conveys how it can influence business. To help organizations navigate corporate governance, Deloitte offers a governance framework that outlines the board’s objectives and responsibilities and how they relate to the corporate governance infrastructure.
How to start building your own corporate governance framework
Governance frameworks exist to ensure that a company remains in compliance and operates within legal boundaries, meaning that any governance structure must consider the local regulations wherever the organization has entities. The governance framework then dictates the governance operating model appropriate to the organization's aims.
To start building your own governance framework, aim to answer these questions:
- Who are the people with authority in your organization?
- What information do those people need to access, and when?
- What does the organizational structure look like?
- How does the structure influence how decisions are made?
- What are the organization’s reporting obligations?
- How does information need to flow around the business?
- What is the relationship between entities, and does this present any challenges in terms of accountability, authority or responsibility?
- What is the relationship between departments and stakeholders?
- Where does the organization have entities based, and does that influence obligations?
- How does the organization manage compliance risk?
Step-by-step guide to creating a governance framework
A well-designed governance framework should bring structure and clarity to your organization’s decision-making. Here, we’ll walk you through the key stages of building a governance structure, whether you’re creating an enterprise-wide framework or focusing on a specific area like AI or data.
- Define the purpose and scope: Start by asking, “Why are we building this framework, and what will it cover?” Identify the motivators — regulatory compliance, ethical concerns, risk exposure — and determine whether your framework applies organization-wide or to a specific function.
- Identify stakeholders and assign roles: Map out the people and functions that will design, implement and uphold the framework. This could be board members, executives, technical team members or compliance officers. What matters is that you clarify who is responsible, who is accountable and who should stay informed. In documenting this, you will have developed an organizational chart with role definitions.
- Develop guiding principles and policies: Now that you know who will make decisions, you need to define how they will make them. Consider the values and rules that shape decision-making: fairness, transparency, accountability or something else. Your policies can also spell out acceptable data use, ethical AI deployment or board composition requirements.
- Design processes and decision-making protocols: Define the processes that support the decision-making you’ve outlined. How are new initiatives approved? What happens when issues arise? Who has the final say? Document these workflows to ensure accountability and reduce ambiguity.
- Establish controls, metrics and accountability: Put tools in place to measure effectiveness, monitor risks and ensure compliance. This includes key performance indicators, audit mechanisms and remediation workflows.
- Communicate and train: No governance framework is effective unless people understand and adopt it. Build internal buy-in through training, transparent communication and easy-to-access documentation. Help teams understand the why and how of governance so it becomes part of the culture.
- Review and improve: Governance should evolve over time. Regularly review policies, roles and effectiveness using audits and feedback to refine your governance model as our organization grows or the landscape changes.
Governance structure for small and mid-sized businesses
Governance for SMBs may not involve a formal board of directors or complex committees, but that doesn’t make it any less important. A clear, well-designed governance structure can help SMBs make better decisions, reduce risk, build credibility with investors or partners and scale more sustainably.
A growing business might have a governance structure that includes:
- Owner or founding team oversight of decision-making roles
- Advisory boards that provide strategic insight and oversight without the legal burden of a formal board of directors
- Simple internal controls like clear approval workflows, separation of duties and documented policies for ethics and decision-making
- Consistent governance processes that could include quarterly leadership meetings, annual business plan reviews or documented hiring policies
Governance structure for portfolio companies
A robust governance framework guides an organization in achieving accountability, authority and sound decision-making. By contrast, a weak corporate governance framework will cause a breakdown in the stages of the investment process and affect overall economic growth. For portfolio companies, a governance structure should ensure that all shareholders can vote on governance matters. All shareholders should have a voice and foundational rights.
Portfolio companies should conduct business concerning both the shareholders’ interests and the capital entrusted to them. A portfolio company’s governance structure should take the following into account and demonstrate:
- The company’s ability to create value, and yield long-term profits, in response to demand
- The ability to facilitate investors’ predicted earnings as a result of accurate and timely disclosure
- A commitment to ethical conduct as a member of society
- A commitment to fulfilling corporate social responsibilities, including, but not limited to, the organization’s environmental impact
A portfolio company’s governance structure should ensure adherence to the above commitments as the organization carries out its responsibilities as a market participant.
Governance structure for subsidiaries
It’s natural for corporations to seek to establish new entities to fuel business growth and deal with increasingly complex regulations, but with each new entity comes a heightened need for entity management and robust subsidiary governance.
Globalization raises legal and corporate governance issues at the subsidiary level that need constant attention. To deal with this, many company secretaries and legal operations professionals turn to a subsidiary governance framework template to help get things under control.
Corporate governance framework templates provide guidelines and ideas to ensure both downstream and upstream corporate governance flows are robust and compliance-proof.
A subsidiary governance framework template can help to align processes while allowing wriggle room for local action. It provides the framework to allow those responsible for subsidiary governance and entity management the space to figure out what works best for them and their needs while ensuring the policies and practices generally conform to what the parent company expects.
This means that the parent company can focus on group-level requirements and issues, work to grow the business further and devise long-term strategies. At the same time, the subsidiaries can work out the part they need to play and how that works at a jurisdictional level.
It’s not practical to assume the parent will take care of every subsidiary’s regulatory and compliance needs; any subsidiary governance framework template must lay out the roles and responsibilities of both the parent and each subsidiary. The Chartered Governance Institute (CGI) has developed an “at a glance” subsidiary governance framework template checklist to help corporations operating across multiple jurisdictions and business areas.
Governance structure for public entities
Once an organization decides to list and go public, its compliance and governance burden increases significantly. Now, it’s no longer just a company’s stakeholders and potentially the local authorities keeping an eye on how the organization is running; once it is listed, that organization becomes public property. It’s opened itself up to intense scrutiny.
Market fluctuations will impact its share price, but scrutiny can also impact the price. The movements and decisions of the board will be publicly available for access by anyone with a genuine interest, and investors will have the opportunity to ask questions and express concern about business operations. This is why public entities need robust and sound governance practices.
Strong governance structures can help mitigate some of those risks, ensuring that everyone in the business — as well as the market and investors — knows the organization’s steps. It means transparency around compliance and operations is supported by clear communications, and a paper trail can lead back to the reasons for any decisions and the ultimate consequences.
A public entity must report to the market regularly. A schedule of reporting on board meetings and accounts, management changes, security breaches, and more will be expected, as will a detailed annual report. If they don’t get filed with the exchange, then the public entity, and potentially its parent, will face sanctions and fines.
As public entities develop and monitor their governance structures, they are, in essence:
- Ensuring there are assigned roles and responsibilities
- Seeing that the above responsibilities are carried out in the right way at the right time by the right people
- Taking care that the appropriate record is filed to keep track of what has happened
And, of course, any corporate governance framework should be subject to regular audits to ensure it’s still fit for purpose, providing the proper checks and balances.
Integrating AI and data into your governance framework
Data has long been central to how businesses operate and make decisions. However, AI has made data even more essential. Embedding both into your governance framework is critical to ensure both the responsible use of data and AI and that you’re well-positioned to reap the rewards.
To truly modernize your governance framework, you need to leverage the power of AI and data to make your structures smarter, faster and more adaptive. Here’s how:
- Predictive insights: AI can flag emerging risks or compliance issues before crises occur. Think automated anomaly detection, forecasting tools or risk scoring.
- Decision support: Machine learning models can surface patterns or tradeoffs that help boards and executives make more informed decisions.
- Real-time dashboards: Integrated data platforms can provide up-to-the-minute reporting on governance KPIs, such as board diversity, cybersecurity readiness or ethical sourcing.
- Automation of oversight: AI can help enforce rules automatically, like triggering alerts when access policies are violated or approvals are bypassed.
Strengthen your corporate governance framework with entity management software
Entity management software supports the governance framework by bringing stakeholder information and entity data to a central repository that’s easily accessed from anywhere in the world. This is critical because more board members, executives and employees work remotely, meaning that they need to be able to follow the governance structure no matter where they’re logging on from. Boards not only require ways to digitize their governance systems, but they also need software that can turn their governance structure into a competitive advantage.
Diligent’s Entity Management software, part of the Diligent One Platform, allows boards to keep up with today’s fast-paced climate, facilitating the swift, data-based decisions that modern business requires. Request a demo to see how software can future-proof your governance framework.
FAQs
Why is a governance framework important?
A governance framework provides the structure, policies and processes that guide how organizations make decisions, manage risks and uphold accountability. It helps organizations align strategy with ethical standards, regulatory requirements and stakeholder expectations. Strong governance frameworks improve transparency, reduce risk and foster long-term sustainability, making them essential for organizations of any size or sector.
What are the components of a governance framework?
A typical governance framework includes:
- Purpose and guiding principles
- Defined roles and responsibilities (e.g., board, executives, committees)
- Policies and procedures
- Decision-making and escalation processes
- Risk management and internal controls
- Monitoring and reporting mechanisms
- Training and communication strategies
How do governance frameworks differ by country?
Governance frameworks vary globally based on legal systems, cultural norms and market structures. For example:
- The U.S. favors shareholder-driven, rules-based governance.
- The U.K. uses a “comply or explain” model focused on transparency and board accountability.
- Germany adopts a two-tier board structure separating oversight and management.
- Japan and South Korea have historically emphasized consensus-based governance, with growing independence.
- South Africa’s King IV promotes integrated thinking, ethics, and sustainability.
What is the difference between OECD and King IV?
The OECD Principles of Corporate Governance are global, policy-oriented guidelines emphasizing shareholder rights, board effectiveness and transparency.
South Africa’s King IV is a principles-based framework focusing on ethical leadership, sustainability and inclusive stakeholder governance.
While both aim to strengthen governance, the OECD is more structural and investor-centric, while King IV is holistic and values-driven.
What is the difference between a rules-based and a principles-based framework?
Rules-based frameworks prescribe specific, legally binding requirements (e.g. Sarbanes-Oxley in the U.S.).
Principles-based frameworks provide flexible, high-level guidance (e.g. the U.K. Corporate Governance Code or King IV), allowing organizations to tailor implementation based on context.
Rules-based models prioritize compliance; principles-based models emphasize accountability, transparency and values.
How do I create a governance framework for my organization?
To create a governance framework:
- Define the purpose and scope of governance.
- Identify key roles and responsibilities (e.g. board, committees, executives).
- Develop guiding principles and policies.
- Establish decision-making processes and risk controls.
- Implement monitoring, reporting, and training protocols.
- Review and evolve the framework as the organization grows
- Tailor the framework to your organization’s size, sector, and regulatory context.
What governance framework is best for multinational companies?
Multinational companies benefit from a hybrid governance framework that aligns global best practices with local regulatory requirements. Many use:
- The OECD Principles for high-level consistency
- COSO for risk and internal controls
- Local codes (e.g., U.K. Code, German DCGK, Singapore Code) for jurisdictional compliance
A strong multinational framework is flexible, culturally aware and capable of scaling across legal and operational contexts.
Can governance frameworks include ESG, AI, or data governance?
Yes, modern governance frameworks increasingly integrate ESG, AI governance and data governance.
- ESG governance ensures oversight of sustainability, ethics and social impact.
- AI governance guides the responsible, transparent and ethical use of artificial intelligence.
- Data governance ensures data quality, privacy and compliance across systems.
Including these elements strengthens risk management, builds stakeholder trust and future-proofs the organization.
