The Difference between Governance and Management
For many businesses in New Zealand, the owners are also the directors and they manage the day-to-day activities. They need to wear "two hats" at times; one for the big picture, the governance, and one for the day-to-day events, the management.
Governance is setting the strategic direction and goals for the Company or non-profit organisation and acting as a guardian of the interests of the Company's shareholders or the benefactors of the non-profit work. Non-profit organisations have board members too that need to ensure the organisation operates efficiently and effectively to extract the best possible benefit out of the limited funds they obtain. Throughout this article, the term director covers non-profit board member as well.
We Kiwi's as a nation enjoy the building, making, creating, and the customer interaction part of business. Too many directors in New Zealand are guilty of being solely focused on the hands-on aspects of the business. This is to the detriment of the governance function, with not enough time spent "with their director's hat on" thinking about business strategy, structure, and direction. This can result in under-performance of the Company over the longer term, and in worst cases will put directors at risk of neglecting their legal obligations as a director.
How do we improve the governance of an organisation? The following are some good pointers:
- You should have formal board meetings. These should be scheduled regularly, at least monthly, and should be separate from operational / management meetings.
- Set an agenda for directors' meetings that focuses on governance issues. These are the organisation's reason for being, point of difference, what you want to achieve strategy, long-term planning and financial review.
- Circulate the agenda and any papers that are critical for discussion and decision-making in advance of the meeting.
- The chairpersonship of the meetings needs to be strong. The role of the chair is to ensure that good ideas come to the table and are fully discussed and understood by all. Full and frank discussion is important, and all members of the board should be encouraged to share their views – that is what they are there for! Formal meeting time together is precious, and a good chairperson will keep discussion focussed so that the meeting keeps to time and gets through its agenda.
- Important decisions reached must be recorded. In fact, there is a legal requirement to document all proceedings at board meetings.
- The chair should not dominate discussions, but should maintain good control of the meeting. He or she should see that decisions are reached and that all properly understand them and recorded.
- Consider appointing one or more independent directors. Having a perspective from someone not personally invested in, employed by, or transacting with the business can be very useful around the boardroom table.
- Even if the Company does not appoint any independent directors, consider using advisory panel members (non-directors who attend the meeting) – this may bring fresh perspectives and new ideas.
- Wherever possible, ensure that board meetings are enjoyable. They are unlikely to achieve all that they should if they are long boring and overly serious. Directors are often underpaid for the time and effort involved and need to enjoy this important position.
Management is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organising, staffing, leading or directing in an effort of accomplishing goals set by the board of the entity. Management involves achieving results through managing the efforts of others.
Governance and management are equally important functions to the successful operation of any business or non-profit organisation. A value-adding board works well as a team that deals effectively with the right issues, at the right time and in the right manner. A good board celebrates debate, thoughtful challenge and dissent, commitment, candour and trust.