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)
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