COSO and NACD Propose New Corporate Governance Framework

SUMMARY

Last week, the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and the National Association of Corporate Directors (“NACD”) released a public exposure draft of their Corporate Governance Framework for U.S. public companies (the “COSO/NACD Framework”).

According to COSO, the COSO/NACD Framework is intended to provide an integrated and comprehensive governance framework that unifies and enhances existing corporate governance practices. The COSO/NACD Framework is organized around six core components: (1) Oversight; (2) Strategy; (3) Culture; (4) People; (5) Communication; and (6) Resilience. The draft is open for public comment through July 11, 2025.

THE PROPOSAL

A. Background

COSO is a private sector initiative sponsored by five accounting- and auditing-related associations. NACD is a member organization for corporate directors that provides corporate directors education, resources and best practices. In May 2024, COSO awarded PwC U.S. Consulting the role of lead author of the COSO/NACD Framework. COSO has also sponsored the COSO Internal Control—Integrated Framework, the COSO Enterprise Risk Management Framework and the COSO Fraud Risk Management Guide, and the COSO/NACD Framework is intended to complement and align with these prior publications.

COSO intends the COSO/NACD Framework to be a first-of-its-kind, integrated, and comprehensive corporate governance framework to guide boards, management, and stakeholders. The articulated goals are to enable companies to: (1) enhance their competitive advantage by strengthening reputation and driving long-term value creation; (2) safeguard organizational value through proactive risk management and oversight; (3) confirm that a company’s governance model is fit for its current and future purpose(s); and (4) uphold ethical business practices and corporate responsibility, promoting integrity and accountability.

B. Six Core Components

The COSO/NACD Framework is built around the six core “components,” which COSO suggests facilitate a holistic approach to corporate governance and provide key principles that support sound decision-making, accountability and performance across diverse entities. The COSO/NACD Framework describes the six core components as follows:

1. Oversight – Organizations should define the board’s role in governance structure, fiduciary duties, committee responsibilities, CEO selection, and accountability to shareholders. This is intended to promote clarity, independence, and constructive board management dynamics.
2. Strategy – Governance must be aligned with enterprise strategy such that oversight encourages the development, communication, execution, and measurement of strategic objectives.
3. Culture – An organization’s culture, ethical norms, and behavioral standards must align with its purpose and promote the dissemination of shared values across organizational layers.
4. People – Organizations must prioritize talent management, compensation, and succession across governance roles to align people strategies with overall governance and long-term objectives.
5. Communication – Transparency and effective information flow is key to the health of organizations. Quality, timely information and clear communication with internal and external audiences support sound decision-making, enhanced trust and accountability.
6. Resilience – Risk management, compliance, and internal control mechanisms must be able to withstand organizational shocks while also sustaining long-term value creation.

Each of these “components” is divided into up to six “principles,” which themselves are supported by a total of 86 “points of focus.” COSO states that governance will be considered “effective” when “all” components and their related principles are “present, functioning, and operating together in an integrated manner.”

C. Implications

COSO states that the goal of the COSO/NACD Framework is not to “impose new mandates” but to outline “widely accepted principles that enhance governance effectiveness,” “without prescribing a one-size-fits-all approach.” Notwithstanding these aspirations, numerous constituencies in the corporate governance space question the need for an auditing/accounting standard-driven governance framework and add bureaucracy to U.S. corporate oversight and decision-making, create questions about a control environment that does not incorporate the six core components and their related principles, and serve to restrict development in an area that has been a significant U.S. competitive advantage.

The comment period in respect of the draft of the COSO/NACD Framework is open to the public through July 11, 2025. COSO expects the COSO/NACD Framework to be launched in fall 2025.