The issues of forming a system of effective corporate governance in organizations are currently becoming increasingly important. In this article, we will compare the responsibilities of corporate collegial bodies – board of directors vs. board of management.
Board of directors and the management board in the corporate structure
These bodies appear in the management of joint-stock companies of a closed or open type. These are two independent governing bodies that have categorically different areas of activity. Running a company is not easy. Managing a multi-million-dollar corporation is even more difficult. Hence, to help manage the corporation efficiently and ensure the profitability of the company, most companies have created a two-level corporate hierarchy. The two levels of this corporate hierarchy include the board of directors as one and senior management as the other.
An effective system of interaction between shareholders, the board of directors, and the management board is an essential element that ensures the growth of the company’s value and guarantees that investors’ money is used efficiently.
The role of the board of directors
The board of directors is a management body, accountable to the general meeting of shareholders, consisting of equal members who implement their decisions by voting at in-person and absentee meetings, who are responsible for the results of the activities of the joint-stock company entrusted to them.
The board of directors, as a key element of corporate governance, determines the strategic directions of the organization’s activities and acts as a kind of guarantor of the balance of interests of management, owners, and other stakeholders. This body is responsible for:
- taking care of ensuring the reliability and stability of the organization’s activities,
- focusing on its sustainable long-term development,
- facilitating the adoption of balanced management decisions,
- carrying out timely identification of risks, including an assessment of the possible consequences of their implementation.
The policy of the management board
The management board includes all aspects of the operational management of the company, except for issues falling within the competence of the general meeting of shareholders and the board of directors. The management board also organizes the implementation of decisions of the higher management bodies of the company and is accountable to them.
The board should create an atmosphere of interest of the company’s employees in the efficient operation, strive to ensure that each employee values his work, realize that his financial situation as a whole depends on the results of the company’s work. The responsibilities of the management board are:
- determination and approval of systems and rules for the functioning of the company;
- pursuing a policy focused on increasing the profitability and competitiveness;
- determination of the internal labor regulations;
- motivation and discipline;
- the imposition of penalties and the provision of incentives, except for employees of the internal audit service;
- ensuring compliance with legal requirements.
How to differentiate?
The board of directors is directly hired by the shareholders. The chairman is the head of the board of directors, which includes internal and external directors. The job of the board of directors is to lead the company and make sure it leads the right department. This body is also responsible for hiring top management and overseeing the organization. Top management usually includes the CEO, COO, CFO, and CIO.
The board of directors is not directly involved in the daily activities of the company and its employees. Instead, it sets the goals, objectives, and responsibilities of the company. This body delegates day-to-day activities to senior management. Responsibility for achieving the goals, objectives, and responsibilities of the company lies with top management.