IT Governance vs Corporate Governance: What’s the Difference?
You may hear about IT governance and corporate governance many times. However, explaining these terms is challenging when it comes to comparison. To help you get clarity about governance, its different forms, and roles, we have prepared the difference between IT governance and corporate governance that you can check below:
What is IT Governance?
IT governance is a kind of corporate governance, and it is the responsibility of executive and board management in which they focus on managing IT activities and promise to increase the ROI (return on investment). It also ensures that technologies will leverage efficiently and effectively to help the organization meet its unique objectives.
Moreover, in IT governance, the framework is established to create an alignment between IT and business strategies. With this framework, it is also possible for the organization to get desirable results.
What is Corporate Governance?
Corporate governance is defined as the structures, processes, and mechanisms in which corporations are directed and controlled. Furthermore, it is a system of rules, practices, and policies that guide how the operations are organized and managed by the company’s board of directors. In this process, the principles of security, accountability, and transparency are included to help companies achieve their goals. In case of poor corporate governance, the enterprises or stakeholders can experience a huge financial loss.
Apart from that, considering information technology is necessary to solve corporate governance issues. At a high level, you can understand that it is the entire management system of internal controls, which involves policies, processes, customs, laws and regulations that govern how an enterprise is administered, directed, or controlled. It also includes the organization’s relationships and goals with several stakeholders, including the board of directors, customers, employees, creditors, stakeholders, and the general public.
Similarly, it enables the company’s boards and directors to work based on the interests of their customers or stakeholders and helps the suppliers deal with finance in such a way so that they can get an easy return on investment.
Typical corporate governance and IT governance questions are as follow:
Corporate Governance Questions:
- How do finance suppliers ensure that the managers don’t steal the capital they invest or supply it in bad projects?
- How do finance providers convince managers to return a share of the profits?
- How do service providers of finance manage managers?
IT Governance Questions:
- How do the board and executive management ensure that their IT and CIO organizations don’t steal the capital they invest or supply it with bad projects?
- How do the board and executive management help IT organizations and CIOs generate some business value?
- How do the executive management and boards control their IT companies and CIOs?
Importance of IT Governance
- Allows an organization to display measurable results against broader goals and business strategies.
- Bring confidence in stakeholders regarding the IT services of the organization.
- Ensure the high ROI and fulfill the regulatory and legal obligations, such as those outlined in the general data protection regulation (GDPR) or the companies act 2006.
- Help you comply with public listing rules, specific corporate governance, or requirements.
Importance of Corporate Governance
Corporate governance is essential for financial institutions and other organizations in the long run because it has a set of practices and rules that reveal how the company will run and how it can work in the interest of all stakeholders. It also includes the 4 Ps, such as people, performance, process, and purpose, and helps direct and manage the company.
Good corporate governance necessitates transparent processes and disclosure to provide accurate and precise information about the company’s operations, finances, and other factors to the general public and stakeholders, and regulators.
Shareholder Privacy is a Key Principle of Corporate Governance
Recognizing the shareholders is one of the essential principles of corporate governance, and this recognition can be divided into two folds.
First, the shareholders of any company are prioritized or recognized because these are the people who buy the company’s stocks and work on its operations. Moreover, equity also plays a crucial role in the funding of any business. Secondly, the responsibility of the shareholders originates from its basic recognition and importance.
On the other hand, allowing the shareholders to elect a board of directors is challenging as per the policy. The “prime directive” of the board is to always look out for the best interests of shareholders. Similarly, the board of directors must appoint and supervise the executives who perform and manage the company’s day-to-day operations. It means the shareholders have the right to say how the company will run directly.
Security
Security is an important factor of corporate governance. It brings confidence in customers and stakeholders that their personal information will never be authorized by any other users or leaked by any parties or hackers.
It also focuses on providing security to the company’s trade secrets and proprietary processes. However, you may know that the data breach makes it difficult for your audience to trust your company. It is even very expensive and can significantly drop its stock price.
That’s why it is recommended that from the board members to entry-level staffers, every person in the company must be familiar with enterprise security procedures, such as authentication methods and passwords.
Transparency
Taking care of shareholders’ interests and their protection is another aspect of corporate governance because shareholders can consult with the community members who may not take an interest in the company’s finances but ensure that they can gain benefits from its goods or services.
This personal interaction and communication between community members and shareholders help the company become transparent and let the members have clarity about the company’s tactics and goals and how it is performed in general. This process helps build trust, encourages more people to purchase its products, and allows them to become shareholders.
Difference Between IT Governance Framework and Corporate Governance Framework
IT Governance Framework is a framework that aims to define the methods and ways that a company can execute, handle, and monitor IT governance. This framework also provides the insights to measure the effectiveness and performance of IT governance processes and the IT department and ensures that IT complies with regulatory and legal compliance requirements.
Besides, an IT governance framework offers reference models for IT processes, key process objectives, input and output of operations, and performance measurement techniques.
Commonly used IT governance frameworks are:
- AS8015-2005
- ISO/IEC 38500:2008
- COBIT.
Corporate Governance Framework on the other hand, has several quadrants. This framework is designed as a wheel to focus on the key areas and helps in the engagement of each director from board, individual, and organization to stakeholders.
The 4 quadrants in Corporate Governance Framework are as follows:
- The individual quadrant represents each director’s practices in their role. Likewise, the leader’s responsibility is to act as a chairman and a director.
- The board quadrant includes the practices to build the relation between individual directors and the whole board, and these experts ensure the smooth functioning of their responsibilities.
- The organizational quadrant concentrates on the director’s responsibilities and their relation with the organization’s performance as well as those who are senior executives. It also helps in identifying the operations of the director level that support the organizational performance at peak level, including risks, governance, finance, strategy, and management relations.
- The stakeholder quadrant helps directors interact with stakeholders and ensures that directors will perform their duties as directors and allow shareholders to transform into a wide variety of stakeholders.
Wrapping Up
Above, we have explained the definitions and the comparison between IT governance and corporate governance. However, you can understand that IT governance definitions are based on information technology, or there is a strong relationship between IT and the present and future objectives that businesses need to meet.
Undoubtedly, it is true that the distinction between IT governance and IT management is not clear because the purpose of IT management is to focus on the internal supply of IT products and services in the most efficient and effective way and how the IT operations need to be managed.
Whereas IT governance focuses on implementation and IT transformation in order to fulfill the present and future requirements of businesses (internal focus) and customers (external focus). This doesn’t minimize the complexity or importance of IT management.
Nonetheless, it is easy to outsource some aspects of IT management and the commodity (supply of) IT products and services. Accordingly, you can have clarity that IT governance is the unique service that every organization should consider to direct and gain control over IT. Otherwise, it would not be easy to outsource IT direction and control in the market.
Alareeb ICT is a corporate governance organization and offers one of the best IT governance services to businesses planning to get the 2022-2030 development plan in Saudi Arabia and want to achieve their IT objectives by bringing digital transformation to their industries.
For more information, book a quick consultation with one of our IT experts at Alareeb ICT and get IT governance services.
