What is the difference between governance and management?

Answer 1

Governance refers to representing the will or interests of a group of people. In an equity corporation, that group is called the owners or shareholders. In a polity, the citizens are the owners. Nonprofits are a little more complex. The citizens, who provide tax breaks, are one class of owners, but members, or people who care about the mission of the organization is another class of owners. The governing body represents those owners and directs the management to achieve particular results that are desired by the owners. The governing body also oversees the management to ensure that the organization is achieving the desired outcomes and to ensure that the organization is acting prudently, legally, and ethically.

Managementis the group of people who are given the authority by the governing body to achieve the desired results. The management is accountable to the governing body which is in turn accountable to the owners.

The Challenge The difficulty is that the management is often benefits from actions that may not benefit the interests of the owners. For instance, the CEO may try to drive up stock prices so as to receive a larger bonus. The Executive Directors may choose to reduce the amount of insurance on a building in order to have more funds available for staff salaries. Because of the misalignment between owners desires as management desires, the governing body must always remain independent from the management in order to zealously represent the owner's interests. When governing bodies make management decisions (as they do with working boards of directors), they reduce their ability to sever the owners.