The line between the board and management
Under John Carver’s Policy Governance model, the board is responsible for the job of governing, not managing the organisation. This model sees boards as the ‘servant leaders’ of the owners (shareholders, members). The board’s job is to ensure the organisation, whether for-profit or not-for-profit, achieves ‘board-stated goals’ and conducts itself with honesty and integrity in order to carry out its leadership role.
The practical issue that flows from the difference between governing and managing is a difficult one. This is where the line is drawn between the work of the board and day-to-day management. While in theory it is easy to create a list of responsibilities that fall to each, the line will shift and change depending on an organisation’s circumstances and the issues at hand. Responsibilities can flow into each other, particularly where breach of a legal requirement could result in personal liability of directors. These and other clearly operational matters may escalate and become a matter for the board because, for example, of the potential they may have to affect the organisation’s reputation. Experience shows that maintaining an appropriate delineation between the board and management is an ongoing issue for many organisations. Fear of straying into each other’s territory may lead to both the board and management standing back from issues that really need to be dealt with, sometimes with disastrous consequences. Alternatively, failure to manage this line may result in a board or management constantly undercutting each other’s authority. Neither situation is satisfactory.
In 2013 a reported dispute between the chair and the CEO of listed retailer David Jones36, which included suggestions of interference by directors in management matters, led to significant negative publicity and high-level discussions between the board and key institutional investors. The CEO resigned. However, in February 2014, two directors and the chair resigned from the board.
A key difference between what directors do and what managers do is that directors act only as a group. They come together, either in a physical meeting or by phone or video conference, to take joint decisions for which they are all individually and collectively liable. Although it is common for directors to canvass each other on particularly contentious issues, the decision itself is taken by the group. When a director cannot support the decision made, they need to consider carefully whether they should remain on the board. Boards that have even informal factions are usually dysfunctional, as directors have a responsibility to consider each decision they are called to make on its merits, not as a result of following someone else’s direction.
As a general rule, directors operate on a longer-term time frame and at a more strategic level than managers. Indeed, their legal duty is to act in the interests of the organisation as a whole — meaning present and future shareholders — which demands a longer-term or ‘helicopter view’. Thus: • Directors are generally held to be responsible for setting the appetite for risk, while management ensures risks are managed. • Directors set the strategic direction and vision, while management devises the strategic plan and implements it. • Directors set the ‘tone at the top’ by acting ethically, modelling the correct values and requiring management (particularly the CEO) to demonstrate appropriate values, while management develops and adheres to codes of conduct, and/or codes of values. These divisions are not clear cut and they are not rigidly adhered to in practice. If it is more appropriate for a task to be done by either the directors or management — because of particular skills, resources or experiences — then it should be done at the level where it will be done most effectively. The directors retain responsibility for ensuring everything is done and is done to the required standard.