In May 2025, the Committee of Sponsoring Organizations of the Treadway Commission (COSO), in collaboration with the National Association of Corporate Directors (NACD), released a public exposure draft of a new, principles-based Corporate Governance Framework (CGF). The CGF is not a regulatory proposal; rather, it aims to provide a comprehensive governance framework for organizations – primarily US public companies – and to formalize widely accepted principles for enhancing governance effectiveness.
The public comment period for the draft CGF is open through July 11, 2025, with the final framework expected in fall 2025.
In this alert, we briefly describe COSO, the business imperative for the CGF, and the six major components of the CGF.
Background
What is COSO?
Originally formed in 1985, COSO is best known for developing an internal-control integrated framework, which forms the foundation for how publicly traded companies comply with section 404 of the Sarbanes-Oxley Act. A voluntary, private-sector organization, COSO is jointly sponsored by the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Management Accountants (IMA), and the Institute of Internal Auditors (IIA).
Why now?
The request for proposal (RFP) to develop the CGF published in January 2024, indicated that, while the United States has the largest capital markets and stock exchanges in the world, it does not have a recognized authoritative corporate governance framework or model. To address this gap, COSO collaborated with the NACD to develop a framework that would complement and align with existing COSO frameworks. COSO’s stated intent was to develop a high-quality framework that would gain prominence in the United States and could be used by listing or rating agencies or others to develop guidance for publicly traded companies in the United States. In addition, the framework was designed to be used by external auditors, internal auditors, rating agencies, investors, listing agencies, and/or regulators in assessing governance practices.
Components of the framework
The CGF was developed with input from NACD, PwC, an advisory council, and official observers.
The CGF is designed to be a dynamic system, rather than a checklist of policies and requirements. The CGF is organized around six core components that the drafters believe represent the key elements of sound corporate governance. Across the six components, there are twenty-four principles that are broad in scope and articulate the key objectives of each component. Additionally, each principle is supported by focus points that expand on how entities may work towards achieving the principles.
We take a look at the CGF’s core components below.
The core components of the CGF
- Oversight
Effective governance begins with clear oversight responsibilities and a well-defined structure. The CGF encourages boards to establish and maintain governance roles that are transparent and aligned with the organization’s objectives, ensure accountability across leadership, and regularly evaluate the effectiveness of governance practices and board performance.
- Strategy
The CGF states that governance should support the development and execution of a strategy that creates long-term value. It emphasizes aligning strategy with purpose and values, integrating risk and performance considerations into strategic planning, and ensuring that the board and management monitor progress and adapt as needed to changing conditions.
- Culture
The CGF identifies a healthy governance culture as one that begins with leadership and embeds values throughout the organization. The CGF encourages boards and management to establish and model expected behaviors, foster an environment grounded in ethics, respect, and open communication, and regularly assess and evolve the culture to ensure it supports the organization’s purpose, strategy, and long-term goals.
- People
The CGF emphasizes that people are central to corporate governance and long-term success. The CGF calls for organizations to implement thoughtful talent strategies, including succession planning and leadership development, align incentives with performance and values, and foster a varied and inclusive environment that supports innovation and accountability.
- Communication
Transparent and effective communication is essential to informed decision-making and stakeholder trust. The CGF encourages organizations to ensure the quality and timeliness of internal and external communications, tailor messaging to stakeholder needs, and promote open dialogue that supports governance objectives.
- Resilience
The CGF highlights that governance must enable organizations to anticipate, withstand, and recover from disruption. The CGF integrates risk management, compliance, and internal control into governance practices, and encourages boards to oversee the organization’s ability to adapt to change, manage uncertainty, and sustain performance.
Practical considerations for public companies
The CGF arrives at a time when public companies are already navigating heightened scrutiny from regulators, proxy advisors, and institutional investors. While voluntary, once they are finalized, the CGF may become a touchstone for governance benchmarking and disclosure practices. Further, COSO believes that increased focus on corporate governance practices may enhance a company’s competitive advantage through strengthened reputation, strategy, and overall performance.
Companies may consider familiarizing themselves with CGF’s structure and principles, and assessing their alignment with these to better understand the work required to achieve alignment if CGF’s framework gets adopted as a market standard.
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