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

Are we there yet? Evaluating NFP outputs, outtakes, outcomes & impact

 

Evaluation – Part 2

Evaluation is one of the central elements in the EDM (Evaluate, Direct, Monitor) Governance Model, but its role in governance (and management) is often obscured by the use of other terms, like ‘problem-solving’ or ‘decision-making’. The importance of evaluation in non-profit governance is highlighted in the extracts from AICD’s NFP Governance Principles illustrated below.

Part 1 (https://bit.ly/41GhRCr) in this 2-part series on Evaluation mainly focussed on directors using evaluation measures to address their performance and conformance roles. The diverse nature of evaluative activities carried out across the organisation would acknowledge the wide scope of work implied by the following definition of ‘evaluation’. That broader scope is the theme explored in Part 2 of the series.

As well as seeking recognition of this wider scope of evaluation activities, the shift of emphasis in recent years towards the evaluation of outcomes and impacts also requires that we understand these terms, so that shared understandings inform board and management deliberations.

Integrated evaluation framework

There are many types of evaluation activity and numerous methods to choose from. Evaluation is used in virtually all aspects of organisational life, yet there are few organisations with (monitoring and ) evaluation frameworks or policies to guide directors and staff in this key aspect of their work.

There are numerous ways one could approach the development of an integrated framework, and each has its merits and drawbacks. Looking through multiple lenses may help to overcome some of these drawbacks (think blind people each touching a different part of an elephant). Here are just some of the lenses that could be employed in thinking about evaluation in a non-profit entity.

Working with directors and managers in many organisations, the existence of ‘evaluation silos’ has been evident. It is often the case that people involved in internal audits see no connection between their work and that of their colleagues involved in program evaluation, risk management, performance management, tendering, or project management.

Much of the evaluation literature focuses on development projects or education, and there is relatively little which is overtly identified as relevant to evaluation across the non-profit organisation. Some boards have adopted a monitoring and evaluation framework to bring structure and consistency to evaluations conducted by or for the board, however, these tend to focus on indicators attached to their strategy, along with selected dashboard elements (like solvency and membership trends).

Thinking of evaluation only in terms of directors using data from monitoring activities to determine whether and how well strategic and operational outcomes were achieved, and to guide future strategy, is a limited view of the role played by a spectrum of evaluation activities, some of which are described with different names.

Boards wishing to ensure that a coherent approach to evaluation is taken throughout their organisation may wish to consider the development of an integrated evaluation framework, which will help to ensure that the results of evaluative activities are presented to directors in a more coherent form. For such a framework to apply across the spectrum of evaluation activities undertaken, it would doubtless need to focus on a set of evaluation principles rather than any single approach. Here are two sample sets of such principles which may offer starting points for your organisation’s Monitoring and Evaluation Framework.

Critical thinking

In Bloom’s (original) Taxonomy of Educational Objectives, evaluation was at the top of the hierarchy of thinking skills – the pinnacle of critical thinking. Perhaps partly in recognition that evaluation did not necessarily solve problems or result in innovation, Bloom’s Revised Taxonomy (2001) added ‘creating’ to the top of the hierarchy.

The EDM (Evaluate, Direct, Monitor) Governance model already recognised that evaluation was not the last or highest step in governance thinking. Once the ‘What?’ and ‘So What?’ questions have been answered via monitoring and evaluation, the ‘Now What?’ question remains to be answered by the board setting directions for future action (creating). (See header image above.)

Evaluation for quality

A parallel can be seen in the operational uses of evaluation, where conclusions drawn about the value, standard, or status of a matter within a given ‘silo’ are only some aspects of quality assurance and precursors to quality improvement.

Given its significant role in shaping the insights which inform future plans and activities, the recent shift in evaluation practice to an outcomes focus is a welcome development.

Thinking of evaluation only in terms of directors using data from monitoring activities to determine whether and how well strategic and operational outcomes were achieved, and to guide future strategy, is a limited view of the role played by a spectrum of evaluation activities, some of which are described with different names.

Evaluation logic

Attempting to devise an organisational evaluation framework or model that accommodates this wider collection of evaluative activities could run the risk of oversimplifying various parts of the evaluative ecosystem. Failure to seek a coherent framework, however, could miss the opportunity to see relationships and patterns offering significant insights into organisational development opportunities and enhanced quality management. The logic framework suggested below packs a lot of detail into a single chart, but hopefully offers insights that will be helpful to your board and senior managers as they seek to improve the efficiency and effectiveness of your non-profit or for-purpose entity.

When we recognise our organisation as a system comprising interdependent sub-systems and relationships, we break down silos and challenge narrow views about how people, systems, processes, and technology interact to achieve our purpose/s or execute strategy.

Measuring success, progress, and impact

The evaluation methods, metrics, and milestones identified in your evaluation plan will benefit from looking beyond mere outputs, to identify lessons learned along the way (outtakes), outcomes achieved for stakeholders, and the longer-term impact of your strategy, service model, and campaign activities (where applicable). Identifying your evaluation criteria after the initiative or program has concluded runs the risk of hindsight bias clouding the picture. Using a logic framework like the one suggested above should help to avoid that risk.

https://www.aes.asn.au/talking-about-evaluation
https://www.councilofnonprofits.org/tools-resources/evaluation-and-measurement-of-outcomes

https://balancedscorecard.org/bsc-basics-overview/

https://www.criticalthinking.org/pages/index-of-articles/1021/

https://tinyurl.com/yresy54e

The Scales of Governance: Weighing options, arguments, evidence & consequences

 

Evaluation – Part 1

We use the term ‘on balance’ as a shorthand way of saying that we have come to a decision or choice after considering the power, influence, or ‘weight’ of both sides of a question or issue. This invokes metaphoric reference to a set of balance scales – as in the ‘scales of justice’ (see header image).

Evaluation skills, sometimes described as good judgment, are fundamental to good governance. The EDM (Evaluate, Direct, Monitor) Governance Model acknowledges this. This article is the first in a short series looking at some aspects of evaluation in the work of non-profit directors and managers.

Weighing options

Regrettably, most non-profit governance and management decisions involve more than two options or alternatives. Simple choices between good and bad options are rare. If the issues were that simple, then they could probably be resolved by reference to a checklist or filter system, without having to include them on a board agenda. Often enough in governance deliberations, we can also be faced with a choice between ‘least worst’ options rather than ‘best case’ scenarios.

Debates over complex public policy issues inevitably involve more than two perspectives, unless they are seen through the lens of a polarising media story or a ‘school debating club’ approach. These perspectives contrive to restrict debate to black and white positions, with ‘government’ and ‘opposition’ sides taking a stance for or against a given claim or contention.

Even the choice between action and inaction usually involves additional sub-options, such as whether to act one way or another. For inaction, you could choose to leave the matter off the agenda, or include it, but recommend that the situation simply be monitored for significant developments.

We usually employ arguments for and against each of the options to develop a collective view on which of the options is the most robust, and therefore likely to offer the most satisfactory response to the situation. The criteria we employ to make judgments regarding our option preferences, are discussed further below under ‘weighing evidence’.

Weighing arguments

Deliberative processes in non-profit and for-purpose settings are much less about winning an argument than they are about negotiating best possible outcomes for key stakeholders.

Simply counting the number of arguments for or against the proposal would not pay sufficient regard to the relative value of some criteria compared with others. That’s where recognition of the evidence called upon to support each argument comes into play.

The importance of employing evidence-based decision-making has been formally recognised by the International Standards Organisation with the adoption of ISO9000.

Weighing evidence

Identification of arguments for or against a particular proposal or position, and mapping these so they can be fully examined is a good start in weighing the arguments, but when we acknowledge that not all arguments are supported by the same standard of evidence, we recognise that we need to attach some form of importance ranking or weight to the criteria we apply to our decision making. This would tilt the scales in recognition of our values, strategic priorities, and commitment to evidence-informed decision-making.

When we establish a tender process or initiate CEO recruitment and selection, we are happy to identify criteria for use by a tender committee or selection panel. This helps to ensure that an objective decision can be reached on the preferred candidate. Skill in crafting such criteria exists in most boards and senior management teams, however, the establishment of evaluation criteria for other kinds of decisions is not always addressed. Taking the time to agree on the evaluation criteria, and their relative importance, will be rewarded when the time comes to make a decision.

For complex and high-value decisions, I have found argument maps to be a helpful aid to the deliberative process. There are numerous desktop and online mapping systems available, but I have preferred Rationale* and Bcisive* for many years. The capacity to unpack the debate, capture the supportive and opposing arguments, identify the evidence underpinning those arguments, and the sources of that evidence, is particularly helpful to a board seeking to weight or rank the arguments according to the standard of evidence they rest upon.

*No referral fees or commission arrangements apply.

When assessing whether a board sought access to relevant data and analyses to support their decisions, courts will seek to confirm that directors informed themselves to a level expected by a reasonable person before making their decision. Mere access to the relevant data would not be sufficient of course. The extent to which probing questions were asked and answered also enters into consideration.

Weighing consequences

Certainly, when we assess the likelihood and severity of adverse consequences from action (or inaction) on a given issue, we are weighing the consequences. This only considers the question of what could go wrong of course, and a balanced approach to deliberation would also look at the value proposition, and ‘benefit dividend’ for our client, member, or community. The sweet spot which (at minimum) balances benefits, costs, and risks, should be identified in board decision making, with a preference for proposals in which benefits outweigh costs and risks.

Higher-order governance

The evaluative skills involved in weighing options, arguments, evidence, and consequences are examples of higher-order critical thinking skills. This aspect of evaluation will be explored further in Part 2 of this series.

https://tinyurl.com/bp6ewc4s

From Proposal to Decision – your meeting ‘machinery’

 

A focus on meeting ‘machinery’ could imply ‘a victory of process over substance‘ in board decision-making. My experience in a range of government, corporate, and non-profit settings however, tells me that getting your decision-making systems into good working order is a key success factor in supporting substantive board decisions.

Something as simple as structuring your agenda items under the headings Items for Noting, Items for Discussion, and Items for Decision can make a big difference to the efficiency and effectiveness of a meeting.

The chart below recognises these three categories of agenda items in a schematic Decision Making Selector, alongside deliberative approaches and decision types. Making sure that your motion is well framed, that the deliberative approach is suitable, and that the resulting decision is classified appropriately, all contribute to ensuring that your organisation is well governed.

Using a consent agenda whereby all matters for noting are adopted via a single motion is also best practice.

A well constructed agenda can streamline the preparation of the minutes of the meeting. With relatively few additional notes and changes to some headings, the recommendations on the agenda (as amended and agreed) become the resolutions in the minutes.

While few non-profit organisations resort to using formal standing orders (or Parliamentary procedures), even if they are detailed in by-laws to the constitution, knowledge of these procedures can certainly aid effective time management. Sometimes, it can also defuse a tense debate, for example by suggesting that a matter be referred to staff or a committee for clarification or advice, or by proposing that the board move into committee so that it can consider the matter informally (and off the record) before resuming formal deliberations.

The charts below suggest three types of procedural motions that could be used during a meeting, and three main types of substantive motions that would normally appear in a board agenda. Non-profit board chairs and secretaries may wish to refer to these in thinking about their approach to agenda preparation, managing deliberations, and recording meeting outcomes.

https://tinyurl.com/5n7cm24c

Discover the Power of Strategy Execution

 

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https://bitly.ws/3e4NF