In the most simple terms, boards are responsible for oversight and planning and management takes care of the daily operations. The breakdown in the duties and responsibilities for each section are much more extensive. Whether you take a broad or a narrow approach to the difference between governance and management, the differences are specific and distinct. Those who know their roles well also understand the importance of not blurring the lines between the two roles. When board directors and managers stay in their own lanes, corporations are more likely to run smoothly.
The Role of Governance
The board of directors takes on the role of governance. Governance is the practice of the board of directors coming together to make decisions about the direction of the company. Duties such as oversight, strategic planning, decision-making and financial planning fall under governance activities.
Board and Governance
The board is responsible for creating the company’s bylaws, which are a set of core policies that outline the company’s mission, values, vision and structure. On an as-needed basis, the board creates and approves major policies for board governance.
Distinguishing Governance from Management
One way to define the differences between governance and management responsibilities is to determine whether a duty or responsibility focuses on the big picture. In a paper called “Distinguishing Governance from Management” author Barry S. Bader outlines seven guiding questions to determine whether something falls under governance and is thus the board’s responsibility:
- Is it big?
- Is it about the future?
- Is it core to the mission?
- Is a high-level policy decision needed to resolve a situation?
- Is a red flag flying?
- Is a watchdog watching?
- Does the CEO want and need the boardʼs support?
Governance vs Good Corporate Governance
In a perfect corporate world, all of the managers and employees know their duties and responsibilities and act on them responsibly. They’re honest and hardworking people with a solid commitment to ethics and integrity. Unfortunately, that isn’t always the case. The board of directors is intended to be the check and balance that oversees employees and all aspects of the company’s operations. That’s why the board is ultimately responsible if they fail to be diligent in their oversight duties.
All companies face known and unknown risks. Technology has caused risks to become more prevalent and intrusive to business. Board directors practice good governance when they work jointly with IT personnel and senior executives on overseeing risk management and establishing a healthy risk appetite.
In the area of strategic planning, boards are responsible for delivering sustainable shareholder value for the short and long term.
Board of Directors Vs Management
Boards should refrain from getting directly involved in daily matters. Without being directly involved, boards must work closely with managers by providing guidelines. Management should be sharing financial reports and the annual budget with the board. Boards analyze financial reports and make many decisions, including decisions about major acquisitions, disposals and capital expenditures.
The board recruits, appoints and monitors the appointment of new senior executives, reviews their performance, and sets their pay and other benefits. Boards allow managers to develop their operational strategies and boards review the strategies to make sure they’re in keeping with the overall planning.
Boards of directors must take action when necessary for the good of the corporation, especially with regard to unexpected crisis situations.
The Role of Management
Management structures can take on an infinite number of formats depending on the size and type of company. In all cases, management decisions support and implement the board’s goals and values. Managers make routine operational decisions and handle all of the administrative work that makes the operation tick. Administration interconnects with nearly every department in the operation.
Managers also have a wide variety of duties and responsibilities that are quite different from those of the board.
Senior management staff relies on middle and lower management staff to interview, hire, train and retain new employees. The task of hiring employees also includes delegating tasks according to the company’s needs and identifying employees whom they can trust to get the job done. Retaining quality employees involves evaluating data and employee performance to encourage excellence in work standards.
Executives become the liaison between the board and lower-level managers. One of their duties is to communicate the board’s expectations down to employees in lower levels of the operation. To accomplish this, managers may break down the board’s expectations into short- and long-term operational goals to see implementation through to completion.
While the board of directors creates company policies, managers are responsible for enforcing company policy and holding employees accountable for their actions.
Managers need a variety of skills that are distinctly different from those of board directors. First, they need good motivational skills, so they can motivate staff and create a working environment in which everyone thrives. Along the same lines, it’s good for managers to have good coaching skills. Most employees will require some level of training and they need continued encouragement to improve their performance.
While the board may provide an overall budget, department managers often have to produce their own budgets and communicate their budgetary needs to senior managers. Senior managers communicate the lower managerial budgetary needs to the board so that budgetary matters get reconciled throughout the company.
Managers are in a position where they have to please or appease people on many different levels and from many different facets of the organization. As a result, managerial positions are often high-pressure/high-stakes jobs that require a cool head and sound decision-making under pressure. Managers who have good collaborative skills can often take some of the pressure off themselves by using problem-solving strategies to move past challenges.
Economic challenges and technological advances cause a trickle-down effect on operations. Effective managers are good at adapting their management structures in short order as needed in response. During times of rapid change, good managers are also highly effective at communicating those changes throughout the rest of the organization.
Managers with strong skills in governance roles take the initiative to get projects started and oversee them from each step until they’re completed. They’re also willing and able to intervene if something is going awry.
The multitude of board and management duties requires a good governance management software program like BoardEffect to keep everything on track. It’s an online space in which board directors and managers can manage every aspect of the meeting cycle, annual cycle and board development cycle. The platform is highly secure and provides digital tools for secure communication and collaboration at all levels of the operation.