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The Fine Line Between Oversight and Execution – Board v/s Management

It is critical to understand the fundamental distinction between the roles of the two vital pillars of any company, the Board of Directors and the management. Given their respective positions, the roles of the two significantly differ in terms of their duties, responsibilities, authorities and focus.

In India, in companies with a dominant shareholder, such as the Promoter-led companies, the boundaries between the roles of the Board of Directors and the management often blur. This leads to potential conflict of interest and governance lapses. Therefore, it is essential to ensure that the roles of the Board of Directors and the Management are clearly defined and differentiated. The same should also be documented.

Board of Directors and Management

The Board of Directors is a governing body of a company, comprising experienced individuals, who are elected by the shareholders. The Board’s role is superintendence, direction and control. Its foremost duty is to protect the interests of all stakeholders, including shareholders. A Board is expected to provide strategic direction, hold the management accountable, and ensure effective governance, and long-term value creation. Board’s primary role is to govern.

The Management refers to the full-time employees, led by a designated head, often called Managing Director or CEO. Management is responsible for the company’s day-to-day operations, and ensures execution of decisions approved by the Board. Management is accountable to the Board, and operates under its guidance and delegated authority. Management’s primary role is operational decision-making and execution.

Role clarity

The role of Board of Directors and Management are distinct yet interdependent. The Board is responsible for strategic oversight and governance, and the management is entrusted with execution and operations.

However, due to the absence of any legal or established framework, there is often an ambiguity relating to these roles, which causes avoidable overlaps. This also causes blurred accountability. Also, in a situation where there is a promoter or dominant shareholder, it is often seen that the same individual or family often performs the role of Board and management.

A lack of role clarity or an overlap in the roles can result in:

• Conflict of interest
• Hindrance in company’s operations
• Micromanagement by the Board
• Board getting into management domain
• Deteriorating Board independence
• Dilution of accountability and transparency
• Blurred line of control
• Sub-optimal performance of Board level Committees

For the Board and the management to perform effectively, there should be clarity of their respective roles. Companies should have proper documents, such as Board and committee Charters, which define their roles, responsibilities and authority.  It is also important that this should be communicated to each Director, so that there is no overreach on his/her part.

In an ideal situation, Board and Management should work together without stepping on the shoes of the other.