Governance vs. Management
Governance is the way the owners of an organization choose to control it. In our free enterprise system, every business is run for the benefit of its owners. I can’t think of an exception. Since large ownership groups of organizations, such as credit unions, can’t crowd into the office of the CEO to make all the daily decisions that are necessary to run the business, they elect a board of directors to represent their interests. Those directors are accountable to the ownership for their actions. It’s not practical for a board to make those daily decisions, so they develop a set of policies to guide the CEO in determining what should and should not be accomplished.
The process of taking the collective wishes of the group of owners and distilling that down to a single vision is governance. It is achieved through board level strategic planning which differs from management level strategic planning. That vision is then expressed in a policy that describes what the organization should accomplish for its owners.
Taking that vision and turning it into reality is the process of management. It involves interpreting what that vision looks like in actual practice and breaking it down into manageable tasks. Those tasks are then delegated to different managers with accountability back to the CEO for the results, and the CEO is accountable to the board for the organizational performance, and the board accountable to the ultimate owners.
Most people have a lot more management experience than governance experience. We grow up in a family that is managed by parents. We work in jobs for managers, and we may even be managers ourselves. It’s no surprise we have more management experience than governance experience. It is a normal human tenancy to fall back into old behaviors when we are in unfamiliar territory. When board members don’t understand this difference, they fall back into a management function leaving the governance function to the CEO. The result of role reversal is confusion and a dilution of accountability, and the owners are not getting full value from their representatives.