While the board and management will have the same aim of organisation success, their duties and responsibilities are distinctly different. The board of directors is responsible for setting the overall strategy and direction of the company, while management is responsible for the day-to-day operations and implementation of that strategy.
Understanding the role and responsibilities of both the board and management is crucial for any organisation’s effective governance and success. In this article, we will explore the key differences between the role of the board and that of management and how they work together to achieve their shared goal of high performance and success.
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The primary responsibilities of the board
The board plays a crucial role in the governance and success of your organisation. Some of their key responsibilities include:
- Selecting, remunerating, developing, and performance managing the CEO and at the right time, finding a replacement CEO.
- Setting the long-term direction and strategy for the organisation in conjunction with management.
- Delegating responsibility to run the organisation to the CEO and executive leadership team with clear delegations of authority, including financial and non-financial limits of authority.
- Ensuring the organisation is well governed with appropriate levels of accountability.
- Setting a high tone for the organisation’s ethics, integrity, performance, risk management, and sustainability.
- Overseeing strategy execution, performance, culture, risk, and compliance.
- Ensuring the organisation has the appropriate capability and capacity to execute its strategy well includes overseeing the growth of the leadership talent pool.
- Overseeing the setting of remuneration and incentivising of executives.
- Being good ambassadors for the organisation.
The responsibilities of the board, chair, each director, and CEO are typically set out in a board charter or terms of reference. These documents outline the roles and responsibilities of each party and ensure clear communication and accountability within the organisation.
The primary responsibilities of management
While the board of directors sets the overall direction and strategy for the organisation, management is responsible for executing that strategy and running the day-to-day operations. Some of the critical responsibilities of management include:
- Executing the board-endorsed strategic plan.
- Living the organisation’s purpose, vision, and values.
- Running the business/operations within the delegations made by the board.
- Seeking the board’s approval for matters outside the CEO’s delegations with well-considered recommendations.
- Keeping the board well informed, with good forward-looking concise reporting, ensuring that bad news and warning signs rise quickly.
- Identifying, managing, and mitigating the risks to the organisation.
- Setting the right tone for the organisation’s culture, performance, and risk management.
Management plays a vital role in ensuring the organisation’s success by executing the strategy set by the board and ensuring the smooth operation of the business. Effective communication and collaboration between the board and management are vital to ensuring the company is well-governed and successful in achieving its goals.
Common areas of conflict
While the board and management have the same aim of success, their duties and responsibilities can sometimes lead to conflicts. Some common conflicts occur when management thinks one or more directors delve too deeply into the management domain instead of understanding their role and “staying in their lane.”
Some management team members describe their board as being overly operational and not strategic enough. This can often be the case because many directors are former CEOs or senior executives who are used to digging deep to understand and influence or even direct operations.
When the board or individual directors lose confidence in one or more executives, there is often a tendency for the director(s) to dig deeper than would otherwise be appropriate. This can cause conflict. In such circumstances, the reasons for the lack of confidence by a director should be shared with the chair and other board members. In such circumstances it is likely that the chair will also want to share such concerns with the CEO.
These conflicts can arise when the boundaries between the board and management roles are not clearly defined and communicated. Poor executive performance can also cause concerns that need to be dealt with promptly. The board and management need to work together to deal with concerns raised and establish clear lines of communication to avoid conflicts and ensure the organisation’s success.
Board and management: Distinct yet interdependent
While the board sets the direction and strategy, management is responsible for executing the plan. Therefore, the organisation’s success depends on effective collaboration between both groups.
However, conflicts can arise when the boundaries between their roles are not clearly defined and communicated. Therefore, it’s crucial to establish clear expectations and lines of communication, define responsibilities, and foster a culture of collaboration to ensure overall success. Understanding and respecting each other’s roles helps ensure the board and management work together for the benefit of your entire organisation.