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Background | management Vs. Governance

Most organizations are able to distinguish between governance and management. They delegate different kinds of decisions to different individuals, sub-groups, or forums according to their understanding of the two words.

management governance cobit

Governance refers to oversight and decision-making related to strategic direction, financial planning, and bylaws- the set of core policies that outline the organization’s purpose, values, and structure. Governance decisions should provide guidelines for management. In most cooperatives, all members are empowered to run for and elect the governing body (often called the Board of Directors) and / or vote on certain governance decisions, such as changes to the by-laws. Read more about governance in this article.

Management refers to the routine decisions and administrative work related to the daily operations of the organization. Management decisions should support or implement goals and values defined by governing bodies (such as the Board of Directors) and documents (such as the bylaws). In some cooperatives, all members participate in the management.

General understanding

During our education on governance and directorship we are taught that “directors govern and managers manage”. The analogy of steering versus rowing is often used to describe the delineation of roles between directors and managers. Most directors are well aware of this.

It seems that many boards are challenged with the task of getting the ‘right’ balance between governance and management. Why is this so? Experienced directors are aware that every board is different in terms of the way they implement their governance role. Lack of clarity and agreement about this issue can be a source of misunderstanding and potential conflict around the board table.

According to Demb and Neubauer (1992) there are three main archetypal ways for boards to implement their governance role; named the watchdog, the trustee and the pilot mode. In summary, a ‘watchdog’ role is one in which the board provides total oversight and has no direct involvement in the company’s activities. The ‘trustee’ role is where the board behaves like a guardian of assets and is accountable to shareholders and society for those assets. In a ‘pilot’ role the board takes an active role in directing the business of the corporation.

Why separate governance and management?

Separating governance and management promotes accountability at all levels. It also provides a mechanism for good enterprise governance that focuses on stakeholder value by balancing performance and conformance.

According to the COBIT5 framework by ISACA, governance ensures one evaluates stakeholder needs, conditions and options. It helps determine whether there are standard enterprise objectives. Also, setting direction through prioritization and decision making is important. Last but not the least, monitoring performance and compliance against agreed-on direction and objectives proves essential in this area.

This means that governance should:

  • Evaluate to determine agreed-on enterprise objectives
  • Direct through prioritization and decision making
  • Monitor performance, compliance and progress against agreed direction and objectives.

This means that a key responsibility of governance is to evaluate, direct, and monitor (EDM).

Conclusion

Frameworks are not standards and one can modify them to meet the needs of most organizations. Without this separation, there is risk with respect to accountability and responsibility at different levels. Read more about this at the ISACA COBIT website.

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