For many people, the corporate governance and corporate management are the same and they use these two business terminologies interchangeably. However, this is not true as the two are considerably distinct aspects of an organization. Corporate governance, as the name implies, is the development of various rules and practices needed to govern or control the actions of an organization as a whole as well as of individuals and participants who make up and run the organization. These rules and practices guide and enable the organization to perform correctly in its internal as well as external environment so that all the stakeholders are served and the business goals are met. Corporate management, on the other hand, refers to the process of decision-making to take care of routine activities in an organization while following the rules and practices set at governance level.
In article “corporate governance vs management“, we will discuss the two terms in more detail and explain their prime functions and key differences.
Definitions and meanings
The term corporate governance refers to the use of best management practices, conforming to the law in its totality and following ethical standards for effectively managing and distributing wealth and exhibiting social responsibility to ensure a sustainable growth for all stakeholders. It is the mechanism through which organizations are guided and regulated so as to generate value for all those entities, firms and individuals whose interest is connected to the organization in some way.
Corporate governance establishes the rules and policies which define rights and assign responsibilities of participants performing at various levels of the organizations and exercise a control over its key procedures and processes for making sure that the things are carried out in the correct way.
An efficient governance brings transparency, ensures accountability and help create an environment of trust for boosting financial investment, business growth and overall stability. It deals with the steps and approaches that assure investors a satisfactory return on their investment.
The corporate governance basically starts with the shareholders who are the real owners and have the right to govern their company. However, in practice, shareholders pass this right to their elected directors who come together to develop organization’s by-laws or key policies based on its mission, vision and structure and decide upon the overall direction for the entity to serve and deal with its stakeholders. The governing body appoints the management and gives them guidance on various aspects to attain a smooth and successful functioning of their organization.
The following functions are part of corporate governance:
- Formulating the organizational mission
- Developing policies and strategies to be followed and carried out by all the participants
- Appointing management team and supervising its function
- Supervising overall organizational performance for the best interest of investors and other connected parties
- Offering insights and advices on key issues and their best fixes
- Recognizing, identifying and managing risks and crisis in a strategic manner
- Enabling organizations to adopt changes and survive in a new and unseen circumstances
- Ensuring compliance with the government regulations
- Minimizing corruption, wastage and mismanagement
Management comes after the governing body and is responsible of carrying out the routine operations of an organization. It supposes the responsibility to ensure that the strategic mission of the organization is being implemented and the decisions taken by the management are all in support of the goals and objectives of the board.
Management in an organization forms different levels with different functions. The duties and responsibilities of the managers are quite distinct from those of the board of directors. While the policies and directions are developed by the board, the managers take actions to implement them with and through their subordinates and employees.
Many skills are crucial for managers; for example, they need motivational skills so as to motivate their employees and develop a thriving working environment for all. Also, they should have good training skills so as to provide suitable training to their subordinates and to fresh recruits.
In general, management involves the following functions:
- Creating and implementing policies and strategies
- Developing and supervising yearly business plans
- Recruiting managers and staff members
- Backing policies established by the governing body
- Executing the decisions of the board
- Measuring performance of the organization
- Dealing with strategic and operational risk.
Difference between corporate governance and management
Five key points of difference between corporate governance and management are listed below:
Governance belongs to the group of people responsible for establishing the strategy and vision in an organization. It involves establishing the policies and procedures to ensure that things are carried out correctly and in accordance with the rules and regulations. Management, on the other hand, is directed to implement the policies and procedures and is responsible for looking after the day to day operations of the organization.
2. Hierarchal level:
Governance is carried out by directors at the highest hierarchal levels whereas management is performed by managers appointed at subsequent hierarchal levels. The directors may, however, gather necessary information and data from managers in order to discharge their governance function effectively.
3. Appointment of body members
The power of appointing the members of governance body (i.e., directors) basically lies with the shareholders who exercise such power in their annual general meeting . However, shareholders may opt to delegate this key power to existing directors. Read more about directors’ appointment. The members of the management team are appointed/hired by the board of directors.
4. Related to
Governance is related to the organizational vision its translation into policy; however, management is related to taking decisions to ensure that the policies determined by the governing body are actually implemented.
Governance is oriented towards strategy and belief while management is oriented towards accomplishment of tasks.
6. Carried out by
The role of governance is passed to and carried out by the board of directors while management is carried out by executives and managers who are appointed to serve at different levels of the organization.
Corporate governance vs management – tabular comparison
A comparison of corporate governance and management in tabular form is given below:
|Developing the policy and strategies of an organization||Looking after the routine operations of the organization to ensure they are consistent with the organizational mission|
|Governing the organization||Managing the organization|
|Appointment of body members|
|By shareholders by votes in AGM||By board of directors|
|Vision of the organization||Taking decisions to ensure the policies determined by the governing body are followed|
|Carried out by|
|Strategy and vision-oriented||Task-oriented|
|Board of directors||Executives and managers|
Conclusion – corporate governance vs management
Having excellency in both governance and management is a must for every organization to operate successfully. Governance is carried out by the board of governors who are responsible for oversight whereas management is responsible for carrying out the organization’s routine functions. Management comes after the governing body and should ensure that they are following the policies and procedures formulated by the governing body.
A well though out corporate governance and a hardworking management often translates into optimal outcomes in terms of profitability, sustainable growth and satisfied stakeholders. In contrast, a negligence in governance and a poor management performance, or a lack of alignment between the two, cause disastrous consequences for the stakeholders as well as for the entity as a whole.