Compliance isn’t just about avoiding fines. It’s about building a trustworthy, well-run business.
What is Compliance and Governance, and what are the differences?
Compliance and governance are closely related but address different aspects of a company’s operations. Compliance refers to the full range of actions a company takes, regardless of its size, to ensure it operates in line with local and global standards. These include binding legal obligations (often called ‘hard law’), like tax, labor, and data protection laws, as well as internal codes of conduct or policy frameworks (known as ‘soft law’) that help define the company’s own standards of behavior.
Governance, on the other hand, focuses on how decisions are made, who is accountable, and how your company ensures transparency and ethical behavior across all levels. Governance, on the other hand, refers to how decisions are made within your organization, who holds responsibility, and how leadership ensures accountability, fairness, and transparency in how the business is run.
Together, compliance and governance form the backbone of a well-run organization. They reduce risk, build trust, and create systems that help your company confidently scale. Compliance ensures you’re playing by the rules, while governance keeps your leadership and culture aligned.
Compliance vs. Governance: What’s the Difference?
While these two concepts often overlap, it helps to think of them as addressing different levels of responsibility:
- Compliance is the practice of ensuring that a company operates in alignment with all applicable external rules, such as laws, regulations, and industry standards, as well as internal ones, like company policies, procedures, and codes of conduct. These internal rules may not be legally binding, but they represent the organization’s own standards for ethical and consistent behavior.
- Governance refers to the system of principles, practices, and processes by which a company is directed and controlled. It includes how decisions are made, how leadership is held accountable, and how resources and risks are managed. Good governance ensures an organization operates efficiently, responsibly, and in alignment with its values and goals.
A company might be compliant without being well-governed, for example, ticking all the boxes legally, but lacking transparency or strategic oversight. Great companies do both: they meet their obligations and lead with integrity. They reduce risk, build trust, and create systems that help your company confidently scale. Compliance ensures you’re playing by the rules, while governance keeps your leadership and culture aligned.
Why Compliance and Governance Matter to Growing Teams
Compliance matters because it protects your business from costly and avoidable problems. By following external regulations and internal policies, your company can avoid legal penalties, maintain customer trust, and keep operations running smoothly. Good compliance practices help prevent data breaches, ensure fair hiring, support clean financial reporting, and reduce the risk of violating labor laws.
In short, compliance means knowing the rules—whether they come from laws, contracts, standards, or your own internal policies—and building systems to make sure they’re followed. It’s not just about legality, but about reliability and responsibility. Done right, compliance management creates a company that’s honest, consistent, and able to prove it.
Governance, on the other hand, ensures there’s a clear structure for who decides what, how decisions are made, and how people are held accountable. It prevents issues like unclear leadership, poor resource allocation, or unmanaged risk. Strong governance supports growth by aligning teams, clarifying roles, and building trust with stakeholders.
As your team scales—from a few people to dozens or more—the need for clear governance grows. More people means more decisions, more complexity, and a greater need for structure. Good governance reduces friction, streamlines oversight, and helps your company act decisively—even during uncertainty.
The Compliance and Governance Process
Compliance Process
This process doesn’t need to be complex. But if you’re aiming to follow formal standards, ISO 37301 offers a globally recognized framework for compliance management systems.
It’s a good idea to start slow:
- Risk Identification – Know which regulations, internal policies, and contractual obligations apply to your business.
- Policy Development – Document clear internal policies and procedures.
- Training & Communication – Ensure your team understands what’s expected and why.
- Monitoring & Auditing – Track compliance, usage, and risks regularly.
- Reporting & Remediation – Log incidents and respond with documented actions.
- Review & Improvement – Regularly assess your system for gaps and growth opportunities.
Governance Process
- Clarify roles & responsibilities – Define who makes which decisions
- Establish decision frameworks – Set standards for how key decisions are made
- Create oversight structures – Assign accountability to leadership or committees
- Ensure transparency – Document decisions and communicate them clearly
- Monitor performance & risk – Track the outcomes of decisions and resource use
- Adapt as you grow – Evolve structures as your organization scales and changes
Learn more about what internal policies you need in this guide to 9 essential company policies.
Common Governance and Compliance Challenges
Many of these challenges come from a lack of structure or clarity. Deloitte offers practical advice on how to write policies that are actually followed.
Even companies with the best intentions struggle to put these systems in place. Here are a few common traps:
- Nobody owns it – If no one is responsible for compliance, it gets ignored
- Everything’s scattered – Policies live in different folders, files, or inboxes
- People don’t follow them – Employees skip policies they’ve never seen or don’t understand
- No way to raise issues – Without a reporting system, problems stay hidden
- Always playing catch-up – If compliance only kicks in when there’s a problem, it’s too late
Setting up a lightweight, centralized system (like using Humadroid) helps fix these issues before they cause trouble.
See how shared ownership improves internal compliance in this post on what it really means. (like a central hub, automated acknowledgments, and regular reviews) can prevent most of these issues before they grow.
What Areas Should You Focus On First?
ou don’t have to cover everything at once. Start with what matters most—and understand how both compliance and governance shape each area:
HR & Employment
Compliance includes:
- Hiring fairly and in accordance with labor laws
- Time-off, leave, and benefits policies aligned with legal standards
- Proper classification and payroll practices
Governance includes:
- Setting clear roles and responsibilities
- Defining decision rights in hiring, promotions, and disciplinary actions
- Establishing review cycles for employment practices
Data & Privacy
Compliance includes:
- Following privacy laws like GDPR, CCPA, or HIPAA
- Secure handling of employee and customer data
- Defined breach notification protocols
Governance includes:
- Assigning data protection ownership and accountability
- Deciding who has access to what data (and why)
- Regular reviews of risk posture and privacy strategy
Finance
Compliance includes:
- Timely and accurate tax reporting
- Preventing fraud or expense abuse
- Meeting audit and reporting obligations
Governance includes:
- Establishing financial oversight structures (e.g. approval chains)
- Budget planning and control frameworks
- Transparent financial reporting to stakeholders
Contracts & Operations
Compliance includes:
- Honoring contracts, SLAs, and legal obligations
- Ensuring vendor and third-party compliance
Governance includes:
- Formalizing vendor selection criteria and contract approval flows
- Aligning operations with company-wide priorities and risk appetite
- Monitoring fulfillment and performance
Internal vs. External Compliance and Governance
Here’s a simple way to look at it:
- External compliance and governance: Legal and regulatory requirements, shareholder or board oversight, external audits
- Internal compliance and governance: Internal policies, team accountability, cultural norms, leadership systems
Common Mistakes to Avoid
Even with the right intentions, many companies fall into the same traps:
- Thinking it’s just HR’s job – When compliance and governance are seen as admin tasks, they lack the strategic weight they deserve.
- Writing policies but never sharing or tracking them – A beautifully written document is useless if no one reads or follows it.
- Assuming people will “just know” what to do – Without clarity and documentation, expectations become assumptions, and assumptions lead to risk.
- Only focusing on compliance during audits or crises – Treating compliance as an afterthought often leads to last-minute stress, errors, or missed obligations.
The solution? Build lightweight processes into your daily operations. Make policies accessible, assign ownership, and create a culture of clarity, not just compliance.
Want to see what happens when you ignore the risks? Read this breakdown of real-world compliance failures.
How to Start Building Governance and Compliance Systems
Getting started doesn’t have to be complicated. Think of it like laying the foundation for how your team works. Begin by identifying the key rules and regulations that apply to your business, whether that’s related to employment law, data protection, or contracts. Then, document your expectations clearly in the form of internal policies.
Assign ownership for each area so someone is responsible for keeping things up to date and followed. Make sure your policies and governance structures live in one place that’s easy to access—not spread across inboxes or folders. And just like you would with your product roadmap or OKRs, revisit your compliance and governance practices regularly to keep them fresh and relevant.
