The Difference Between Governance and Management

The concepts of “management” and “governance” are often used as synonyms, at the same time there are differences between them. Let’s see what are they in this article.

Governance and management in the corporate structure

Shareholders are increasingly demanding good governance from the organization. The activity of shareholders increasingly affects the work of the organization, including in terms of project management. But when it comes to governance, it is very often confused with management. This is a common mistake. In the most general terms, the differences between these concepts can be described as follows: governance focuses on creating an organizational environment in which management can function effectively, as well as maintaining this environment at the required level.

The separation of the governance and management functions implies both the division of responsibilities and restrictions on participation in different bodies. The usual rule is that management governs the day-to-day life of the organization, while the board determines the company’s policy and strategy and oversees its operations.

Most governance models emphasize that the core responsibilities of the board are:

  • ensuring that the organization follows its mission;
  • formation of values ​​and standards;
  • provision of resources;
  • expansion of the number of supporters.

Of course, this does not mean that staff should not be involved in strategy development or that board members should not contribute to the day-to-day life of the company. It only means that there is a thin but very important line separating these two spheres, and their borders must be jealously guarded on both sides.

One way to ensure the distinction between governance and management is to make sure that no one is doing both at the same time. This requirement may seem counterintuitive since staff members know more about the organization than board members and thus can be more helpful in setting strategy and evaluating the activities and needs of the company. However, as already mentioned, if there are employees on the board, conflict situations inevitably arise when it comes to approving the budget, setting salaries, evaluating programs – in other words when employees monitor and control their own activities. For this reason, employees should never, under any circumstances, have voting rights on the board.

The concept of governance

The nature of governance is bureaucratic. Its activity primarily focuses on balancing the interests of the organization’s stakeholders. The main functions of governance include the following:

    • G1 – Defining the goals of the organization
    • G2 – Determining the values of the organization
    • G3 – Defining the culture of the organization
    • G4 – Creation, and implementation of a leadership model in the organization
    • G5 – Ensuring Management Responsibility
    • G6 – Ensuring organizational coherence.

The concept of management

Management and its functions are aimed at achieving the goals of the organization within the framework of the model and methodology established by the management. Henri Fayol in his book “General and Industrial Management” of 1916 identified 5 management functions:

      • M1 – Forecasting and planning
      • M2 – Organization of work
      • M3 – Command, and Leadership
      • M4 – Coordination of work
      • M5 – Control of work (with the help of feedback).

Thus, the task of many large organizations is to form an effective governance model in order to form and ensure the effective operation of management functions and avoid problems at the lower level (projects and programs) due to the ineffectiveness of high-level management functions. But for this, first of all, you need to understand that the problem lies precisely in the poor-quality implementation of the management functions.