Corporate governance and management are not the same thing, although some people might think so. Actually, they are two very different things.
Corporate governance role
Governance is the act of the management board meeting to take decisions about company direction.
Tasks such as supervision, strategic planning (which has nothing to do with project planning), decision making, and financial planning fall under corporate governance activities.
The board is responsible for creating the corporate charter, which is a set of fundamental policies that outline the mission, values, vision, and structure of the organization. As needed, the board creates and approves key policies.
Corporate governance: 7 questions to understand it
In a paper titled “Distinguishing Governance from Management“, the author Barry Bader asks seven questions to establish whether a factor falls under governance and is therefore the board’s responsibility:
- Is it “big”? The greater the impact of a decision, the more of a role the board should play in forming and understanding the action and its possible consequences.
- Does it involve the future? The board imparts the long-term vision by providing a master plan for the organizational structure.
- Is it the core of the mission? Corporate governance is custodian of the corporate mission.
- Is a high level policy decision needed to settle a situation? Decisions of this kind are usually those that require compliance with laws or regulations, those that may affect accountability, etc.
- Is a red flag waving? The board should focus on what are considered “trends.” As a rule of thumb, a factor or indicator becomes a trend when it repeats for at least three reporting periods. Corporate governance must then take action if events, reports or activities undermine this trend.
- Is a “watchdog” watching? A “watchdog” includes media, government, IRS, etc. If these are keeping an eye on the organization, the board needs to step in.
- Does the CEO want and need the board’s support? There is little debate on this point: if the CEO wants and needs board support, the board must provide it.
Governance duties and responsibilities
In a perfect corporate world, all managers and employees know their duties and responsibilities and act responsibly; they are honest, hardworking people with a solid commitment to ethics and integrity.
Unfortunately, this is not always the case and the board of directors is understood to be precisely that:
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control and balance that supervises employees and all aspects of company operations.
Corporate governance should avoid getting involved directly in daily concerns.
Without being directly involved, boards should work closely with managers by providing guidance.
Furthermore, corporate governance allows managers to develop their operational strategies and reviews them to ensure they are in line with overall planning.
To recap, corporate governance is the “what” and includes:
- Determining mission, policy, and strategy
- Designating and supervising management
- Managing governance processes
- Providing insight, wisdom and judgment
- Monitoring the organization’s performance
- Identifying and strategically managing risk
Management structures can come in an infinite number of formats depending on company size and type.
For all cases, management decisions support and implement the goals and values provided by the board of directors.
Managers also make routine operational decisions and manage all the administrative work that makes operations run.
Management is virtually the bridge between corporate governance and lower-level executives.
One of their duties is to communicate the board’s expectations to employees placed at lower levels of the operation.
To achieve this, managers can break down corporate governance expectations into short- and long-term operational goals to see implementation through to completion.
While the board creates corporate policies, management is responsible for enforcing corporate policy and holding employees accountable for their actions.
Managers need a variety of skills that are significantly different from those of board directors.
First and foremost, they need good motivational skills so that they can motivate staff and create a work environment where everyone thrives. Also, it is beneficial for managers to possess good coaching skills since most employees will require some level of training and need continuous incentive to improve their performance.
Although the board can provide an overall budget, department managers often have to define their own budgets and communicate their needs to senior managers.
Senior managers communicate lower management budget needs to the board so that budget issues are reconfirmed throughout the company.
In other words, managers are in a position where they must meet or break the expectations and requirements of people at many different levels of the organization.
As a result, managerial positions are often high-pressure jobs that require a cool head even in high-stress situations.
To recap, management is the “how” and includes:
- Policy and strategy development and implementation.
- Defining and supervising annual operational business plans
- Appointing managers and staff
- Supporting governance processes
- Board decisions implementation
- Performance measurement
- Service and activity delivery
- Strategic and operational risk management
Corporate governance vs management: Conclusions
All organizations need both governance and management functions, and it is up to each respective organization to ensure that both functions are operating.
Frameworks are not standard and can be modified to meet each organization’s needs, as long as the necessary separation between corporate governance and management is in place.