GOVERNANCE & MANAGEMENT: A PROPER UNDERSTANDING - Olapeju Olatunbode
Corporate governance has laid emphasis on the fact that governance of companies is more important than management. There is a distinction between the two terminologies.
The basic principles of Corporate Governance are accountability, transparency, fairness and responsibility. Corporate governance is effectively balancing the interest of a company’s stakeholders which includes the shareholders, the senior management team, consumers and suppliers, financiers, government and command.
Corporate Governance is a set of relationships; between the shareholders and the governing body, the governing body and the stakeholder, the shareholders and the shareholders, the shareholder, stakeholders and the organisation. It outlines their duties to each other, the terms of their relationship all in the vein of doing what is best for each party and the progress of the organisation. It employs many mechanisms which at the centre has the benefit of the organisation.
Corporate governance provides the framework of attaining a company’s objectives. It is important as it creates a system of rules and practices that determine how a company operates and aligns the interest of all its stakeholders. The governing council/ Board of Directors includes a fraction of the management team which is oftentimes the head which includes the CEO, CFO, COO and CRO.
Governance is the work of the Board of Directors/governing body. Governance involves strategy formulation, policy making, supervision of the management team and accountability to shareholders and others. The shareholders, investors fund the organisation, the governing body; the Board of directors are charged with the duty of governing the organisation to best utilise the investments made.
Management is the work of the management team. The management body is set with ensuring that the members of the company, its stakeholders understand that the organisation has its principles and all actions are in line with them to ensure the profiting of all who are part of the organisation.
Senior management team is the interface between the board and the directors and the company. The board of directors is subject to the rules of company law and management are subject to the principles of employment law. Management runs the business, the Board gives the principles, strategies and purpose of the company i.e. corporate culture. Senior management takes the culture postulated by the governance body and ensures that the company adheres to it and the business aligns with it.
Governance employs management. Governance does an outward, inward check to make decisions pertaining to present and future focused goals.
Governance gives strategies to management, which management in turn translates into policies to effectively run the business. Governance runs and supervises management who in turn run and supervise the daily running of the business.
Governance bodies provide leadership goals and choose the extent of their delegated legislation and function to management. Governance looks at conformity to the culture it lays down and the performance of the management team to the strategies laid down.
The Board can be a mix of shareholders, investors, regulatory body members, union leaders depending on the model of corporate governance adopted. They plan the heights they expect the company to reach. They govern the company. Senior Management (SMT) are the persons who help the board achieve the goal and purposes of the company. They are professionals in their own fields, hired to use their expertise to take the company to greater heights. They are rewarded with great salaries and bonuses, allowing free reigns to do what is best for the company. They take risks with the company’s best interest at heart. They report back to the Board. The SMT requires constant monitoring as they need to act within the confines of the law and regulations. This makes the SMT, agents of their principals, the Board. The agency principle comes into play. The Board tends to benefit more from the risk taken by management as the SMT remuneration are sometimes performance based, making it easier to increase riskiness to meet desired targets. There are board strategies that are engaged to show the styles of governance and management, they include:
The Unitary Board takes on the rule of governance and management. They are judge, jury and executioner with no clear distinction between governance and management duties. This type of strategy gives too much power to the executive directors by making them responsible for strategies as well as day-to-day running of the enterprise.
Two-tier boards include the supervisory board and the management board. The supervisory board comprises outside directors and the managing directors consist of the executive directors. This system postulates an informal relationship between labour and capital. Supervisory board gives strategies to management, management plans and budgets based on the strategies and require approval from the supervisory board.
Governance and management are two different concepts with different functions. The latter is an offshoot of the former which postulates its output.
References
Bob Thicker, Corporate Governance: principles, policies, practices, Oxford Publisher , 4 Edition
The Effects of Corporate Governance on Banking and Finance, Olapeju Abigail Olatunbode,August 2020