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понедельник, 17 марта 2025 г.

The difference between governance and management

 


·        Written by Ed Rees


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:

1.     Is it big?

2.     Is it about the future?

3.     Is it core to the mission?

4.     Is a high-level policy decision needed to resolve a situation?

5.     Is a red flag flying?

6.     Is a watchdog watching?

7.     Does the CEO want and need the boardʼs support?

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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.

Governance skills

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 solution is highly secure and provides digital tools for secure communication and collaboration at all levels of the operation.

https://tinyurl.com/bddea2zj

by Lubna Qassim

For anyone joining a board for the first time, one of the most important issues is to understand the difference between the board role of governance and the management role of managing. Effective boards understand and manage this difference. Dysfunctional boards do not.

Nowadays, directors of boards are expected to serve to make a difference, not just to be names on the letterhead and donors on a wall. The world is starting to expect a great deal more from its directors than even ten years ago and there are considerable risks. While no-one has been imprisoned from the financial crash – many feel this should have happened.

To look at the key differences between governance and management, I really like this explanation by The Wheel: “The governing body must govern; that is, it must provide leadership and strategy and must focus on the ‘big picture’. Governance is about planning the framework for work and ensuring it is done. As such, it is distinct from management (organising the work) and operations (doing the work). As far as possible, the governing body should therefore steer clear from making managerial decisions and getting involved in the day-to-day implementation of strategy.”

Today’s boards must be informed and want to be engaged, both to fulfil their legal obligations and to leverage their time and talent to advise management.

But the question is, at what point should the board cross the line and move into running the show? It’s tempting for directors to believe they are doing their jobs by interfering into management decisions.

I remember hearing one trustee of a charity who became exasperated because board discussions started diving into the detail of management – questioning staff appointments, looking at marketing activities and wanting to decide about the management of the building. The distinction between governance and management is inevitably harder in smaller organisations, especially in charities with few resources – but this level of detail should not be for the board unless there are serious issues.

In commercial boards, an understanding of the difference between governance and management rests on the tone of fiduciary responsibility and accountability to the shareholder.

The five primary roles are

  • Choosing the CEO and senior executives
  • Approving major policies
  • Oversight of corporate strategy
  • Oversight of risk programs
  • Oversight of performance

Every board’s primary responsibility is to promote long term success of the company and deliver sustainable shareholder value.

The board needs to cross the line when one area is significantly under-performing and is putting the business at risk. If, for instance, sales were declining rapidly, then the board would be in its brief to ask for a review of the sales and marketing teams, including competencies of key personnel and the strategies and effectiveness.

All boards should look at these areas as part of their periodic review – some will be quarterly, some annually

  • Group’s overall strategy
  • Medium term plan and annual budget
  • Financial statements and group dividend
  • Major acquisitions, disposals and capital expenditure
  • Group’s corporate governance
  • Risk management policy
  • Group risks appetite statement
  • Review of management development strategy

The headhunters, Russell Reynolds, say that it is a director’s responsibility to act when necessary, “With the agreement of the chairman, directors don’t hesitate to act when the standards of governance and fiduciary responsibility require intervention. Directors are willing to get their ‘hands dirty’ when circumstances require a hands-on approach (eg crisis management).” The critical point here is that directors should act with the agreement of the chairman if they need to become hands-on. It is also useful to define the scope of what a non-executive will do if they are more involved in management for a specific project.

I hear time and again of directors who really struggled to be ‘non-executive’ when they first went on a board. It is a very different skill from being an executive.

https://tinyurl.com/ydpce2xp


By Lynda Bourne

Stakeholders are becoming increasingly vocal in their demands for “good governance.” The rise of stakeholder activism (shareholders are stakeholders, too) is affecting the way organizations of all types are governed and managed.

This will in turn impact the way projects are initiated and managed—which could affect your career.

But when thinking about what good governance looks like, be careful not to confuse it with good management. They aren’t the same! Governance is firstly focused on creating the environment in which good management can flourish, and then on ensuring the organization’s management is good.

Global organizations are finding their stakeholders and shareholders less and less tolerant of governance failures that lead to bad management. This lack of tolerance manifests itself through government investigations and criminal prosecutions against organizations of all types and sizes—from FIFA on down.

All this means the project failures that may have been acceptable in the past are unlikely to be tolerated in the future. Stakeholders increasingly expect organizations to proactively and effectively manage their investments in projects and programs.  

This entails both the “management of projects,” focused on the full value chain from the initial investment decision through benefits realization, and the traditional domains of project, program and portfolio management.

Achieving excellence across the value chain will not be easy. The goal does offer an opportunity for the project management profession to expand its influence beyond the narrow confines of project management into the broader arena of the “management of projects,” which will involve project management advocacy in both senior management circles and governance circles. (Organizations such as PMI are already actively involved in this work .)

Know Your Functions

An understanding of the difference between management and governance is critical for such advocacy to be effective.

The primary focus of the governing body in any organization should be balancing the competing interests of its diverse stakeholder community. The six functions of governance are:

·         G1 - Determining the objectives of the organization

·         G2 - Determining the ethics of the organization

·         G3 - Creating the culture of the organization

·         G4 - Designing and implementing the governance framework for the organization

·         G5 - Ensuring accountability by management

·         G6 - Ensuring compliance by the organization

The functions of management focus on achieving the organization’s objectives within the framework established by the governing body. As defined by Henri Fayol in his 1916 book “Administration Industrielle et Generale,” the five functions of management are:

·         M1 - To forecast and plan

·         M2 - To organise

·         M3 - To command or direct (lead)

·         M4 - To coordinate

·         M5 - To control (in the sense that a manager must receive feedback about a process in order to make necessary adjustments)


This diagram plots the relationship between the governance and management functions. Management functions are assumed to be hierarchal with the governance inputs cascading down to lower-level functions.

The challenge for many organizations is establishing an effective governance framework to frame and oversee the work of its management,  thereby avoiding the scandals we read about all too frequently.
The question that interests me is: How can we start to influence the top end of our organizations to allow the efficient delivery of the right projects and programs, managed the right way?
If the project management profession doesn’t step up to this challenge, someone else will. How do you think you can start to build influence?

https://tinyurl.com/2py75jec


by Amelia Al Maskari


In organisation dynamics, the terms "governance" and "management" are often used interchangeably, leading to confusion regarding their roles and responsibilities. However, it's crucial to recognise the distinct functions these two concepts serve within an entity. Let's delve into the disparities between governance and management through a brief comparison:


In summary, while governance provides the framework for decision-making and oversight, management translates these directives into actionable plans and tangible results. Both governance and management are crucial pillars of organisational success, each with its unique roles, responsibilities, and contributions.


https://tinyurl.com/bdf73r85