Understanding Board of Directors vs. Board of Management
Running a business involves numerous complicated tasks that happen simultaneously. It requires the involvement of individuals, stakeholders/shareholders, and many other members. They all have their levels of involvement in decisions and operations. To properly regulate the responsibilities, there are certain levels of corporate hierarchy in place. The boards and management hold the top level in the hierarchy. But the boards stand higher than the management.
Both are equally important, but their roles are distinct in nature. Some even confuse the role of the board of directors to be omnipresent. But that’s not the case. As a leading board governance consultant service provider, Satori Consulting Inc. have decided to shed some light on the key differences.
But before we dive into the differences, let us take a look at the definitions of these corporate hierarchy levels.
Board of Directors – Definition
Usually, the shareholders/stakeholders hire the board of directors. The board members are the representatives of the stakeholders and preside over the corporate matters. They organize meetings to set rules, responsibilities, and policies for the employees to adhere to. The board also takes part in hiring the individuals for the board of management and other senior executives. Also, the chairman is the head of the board. A member of the board of directors may be from inside or outside the company.
While an outside director can provide unique perspectives on matters, inside directors have a special understanding of the company’s work. They are crucial in deciding whether the policy laid suits the current environment of the company. Signing up your board of directors for board governance training ensures good compliance with the bylaws. It also helps your board members make strategic decisions.
Board of Management – Definition
Also known as the upper management, usually comprises the CFO, CEO, COO, and CIO. The management is a tier lower than the board of directors. It carries out the day-to-day operation of the company and ensures that the company’s policies align with its operation. The board of directors is the ones who hire the members for the management. Unlike the board of directors, the management has no legal responsibility for the company’s actions.
Board of Directors:
In many articles, you must have come across the word ‘fiduciary’ associated with the board of directors. It generally means the trust between the shareholder and the respective board member. They build this trust by performing certain crucial activities for the corporation. They are as follows:
- The board decides which direction the company should head towards in the future. This facilitates the identification of strategies for the functioning of the company.
- The board is responsible for the financial planning of the entire company. They allot a budget under which everything must take place.
- They oversee the creation of bylaws for the company, according to which the management takes certain actions.
- Furthermore, they also take care of making amendments and additions to the policies if needed. For, e.g., a major budget request should go through the board of directors for approval.
- The board handles the risk management reports and tries to identify future red flags.
Remember, you can always hire board governance consultants to help you with your ambitious projects. Such firms usually have good expertise onboard duties and shed a fresh perspective on critical matters.
Board of Management:
After the board of directors sets the policies and administrative rules, it is the job of the management to implement them. Let us take a look at the various duties that differentiate boards and management.
- The management carries out the plan laid out by the directors.
- They also delegate the works in order to complete the projects within the allotted budget.
- It is the duty of the management to identify the risks associated with an individual project and report them to the board of directors.
- The superior executives are the ones who take the request for additional budget to the board of directors.
- They must also take care of the human resource management activities of the lower-level employees.
In short, they are accountable to the members of the board. While the board concentrates on steering the company forward as a whole, the management helps in it by managing the day-to-day activities.
Tips for effective board governance
This section of the blog revolves around board governance best practices. As you can see, the success of the company lies in the successful coordination between the boards and management. To ensure that you optimize the performance of the board, you need to put these steps into practice.
- Train your board members: Not everyone can understand the extensive aspects of being one of the directors. Hence, provide them with appropriate board governance training.
- Conduct board member evaluations: Evaluate the performance of the board members. It will help you provide personalized training to each.
- Provide distinct roles: Set boundaries in the workspace. It increases the accountability of the board members.
- Reward the board members: Board members deserve all the recognition and rewards for the work they do for the company. So give it to them.
- Recruit board members with care: Do not rush into the process of selecting board members. Identify their skills and allot them with their respective roles.
- Utilize the time of the board of directors effectively: When organizing meetings, set clear goals of what they need to discuss. It often saves time and improves the functionality of the board of directors.
To sum up, both boards and management are a vital part of making the company a success. It enhances the productivity of your company and ascertains the business goals of the company.
Satori Consulting Inc. specializes in providing excellent consultancy and training for all business-related activities. Contact us at 905-319-1159 today to learn more about our services.