Defining role of governance


By JOHN CARVER and MIRIAM CARVER 

GOVERNANCE and management are fundamentally different, but the difference has not been widely understood. 

This has led to an unhappy circumstance that has much to do with the mediocrity of governance in general as well as a tendency for members of corporate boards to see their job as operating as if they are super-managers. 

Here are a few ways in which governance differs from management. 

Governing boards have authority as a group and exercise it over the CEO, who is accountable to the board for company performance. Managers have authority, usually, as individuals and exercise it over groups of individuals. Accordingly, governance can be seen as management upside down. 

Because governance authority is in the group, boards cannot delegate, supervise, coach, or evaluate subordinates in the way that makes sense in management. 

The board must give the CEO instructions that have been agreed by the whole group (or whatever part of it must agree to achieve a passing vote). 

Accordingly, the flexibility and involvement seen in management relations with subordinates cannot be duplicated in board relations with management, especially if clarity of board direction is to be achieved.  

Further, because wielding group authority requires great discipline, boards are more prone to being managed by their subordinates than managers ever are. 

Defaulting on their challenge of group responsibility, boards gravitate toward the comfort of having a single boss over the group. 

Commonly, the boss over the board turns out, paradoxically, to be the CEO! 

Board leader and management leader are very different roles. The board’s CGO (chief governance officer, normally the chairperson) has only as much authority as the group grants, so he or she is a servant-leader rather than an authoritative one. 

On the other hand, the CEO actually has authority over the staff, not subject to their granting or retracting it. Because the CEO works for the board, the CGO has no authority over the CEO. 

Therefore, the board’s leader– unlike the staff’s leader – has no line authority.  

It has long been recognised that the skills needed to lead a board successfully are not the same skills as needed for the chief executive role. 

Because the chief executive role is seen as more central to company operation, it is common for a CEO – when also appointed as chair – to bring to that combined position behaviours that are not best for developing strong group authority and responsibility.  

The board links the organisation to its ultimate source of authority. 

Although management connects an organisation to its customers, suppliers, and other stakeholders, boards are the sole link to that very special stakeholder group – the shareholders. The board is owner-representative.  

Authority that exists in “owning” can be passed into the organisation only via the board. 

Hence, the flow of legitimate authority goes from shareholders, to board, to management, so that no one in the organisation has any authority at all unless the board has granted to the CEO sufficient authority to allow further delegation and decentralisation. 

Consequently, the board has accountability for all corporate achievements and behaviour. 

Governance accountability is always greater than management accountability, for management is accountable for itself and the board is accountable for both management and the board itself. 

For many companies – except those that are held by a very small group of owners – the shareholders may be a group that is more distant, numerous, and often more diffuse than the management group. 

In those cases, the board works for a largely absentee boss, whereas managers live with the bosses almost daily. 

The stage is set for boards to be able to get away with sloppy work for a long time. 

The incentive for board members toward excellence is weak compared to the incentive for managers.  

Governance is a subcategory of ownership, not a branch of management. 

Contrary to ordinary belief, governance is not best characterised as management writ large so much as an extension of ownership in microcosm. 

For that reason, boards should maintain more intimacy and discourse with shareholders than with managers. 

Boards, then, should see themselves as a special case of owners, not a special case of managers. 

The board role is not to participate in, assist, or trouble-shoot management, but to define and demand success. 

Governance is not an instance of management one step up, but rather is an instance of ownership one step down. 

Corporate boards have not only the opportunity to be authoritative, independent, and informed shareholder activists, but the obligation.  

Management is undefined until governance defines it. The only reason for management to exist is to fulfil the dictates of governance. 

In other words, management is the dependent variable, so it is illogical to examine or evaluate management until governance has spoken. 

A board does not exist to help its management; rather, management exists to, on behalf of the board, achieve what the board has decided shareholders should receive. 

In that sense, it is healthier for boards to conceive of managers as their instruments to achieve shareholder value, rather than as themselves as managers’ consultants. 

Management technology is more advanced and researched than governance technology. 

The most powerful and accountable job in the organisation, that of the governing board, is the most primitive – a formula for mediocrity at least and disaster at worst. 

Governance has been a stepchild in organisational research and conceptual development, while development of one aspect or another of management has soared ahead. 

Management thinking has grown and developed by leaps and bounds over the past few decades, while development of systematic thought about governance has been virtually non-existent. 

The Policy Governance model is an attempt to bring governance up to and beyond the level of management sophistication.  

 

  • Dr John Carver, whose international consulting practice is based in Atlanta, and Mrs Miriam Carver will be in Kuala Lumpur to present the Policy Governance Model on Sept 6 & 7. For details, call MIM Customer Service at 03-2165 4611, e-mail enquiries@mim.eduor visit our website www.mim.edu 

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