Boards can run into problems when the relationship with management is not clearly defined. Rick Bond explains the difference between direction and management.
This article addresses the ?architecture of accountability? ? the structure and processes needed to ensure that companies are managed properly. It?s all about roles and relationships, really.
My two previous articles on governance explored directors? duties, liabilities and responsibilities. In order to address the manner in which directors? responsibilities impact on the relationship with, and the authority of, their chief executives we now welcome management into the debate. Titles vary in arts organisations, so in this article the term ?chief executive? is used to refer to the head of a management team.
The relationship between the directors and their chief executive impacts upon the performance of a company. A healthy and effective working relationship based on understanding of responsibilities and authorities is essential from the outset. The board?s decision-making authority is enshrined within the ?Reserved powers? section of the Articles of Association. A chief executive?s authority to make decisions should be clarified within their terms and conditions of appointment, but all organisations benefit from taking a little time to consider and clarify their respective authorities from time to time.
Potential puzzles
Here?s a quick résumé of the board?s position in order to appreciate where the chief executive fits in. The affairs of any arts organisation require management and direction. There is a clear distinction between the two.
? Management is about the operational running of the business
? Direction is concerned with the long-term strategic development of the business.
Some tasks of the board are to do with the performance of the company; others are to do with conformance with the law and other standards. Some require the board to be inward looking; others require the board to look outward. Bob Garrett (a man whose books on company direction are highly recommended) suggests that most boards are faced with four dilemmas:
? Entrepreneurial versus prudent control ? the board must be entrepreneurial and drive the business forward, while ensuring that it complies with the law and conducts itself as an efficient and sustainable concern.
? Long-term viewpoint versus day-to-day survival ? the board is required to be sufficiently knowledgeable about the workings of the company to be answerable for its actions, yet to stand back from day-to-day management and retain an objective, longer-term view.
? Short-term local issues versus competitive trends ? the board must be sensitive to the pressures of short-term local issues and yet be informed about trends, changes to the business environment and competition, in time to adjust the company?s activities appropriately.
? Commercial needs versus responsibilities to others ? the board is expected to focus on the sustainability of its business as a going concern, and to act responsibly towards its employees and stakeholders.
Facing friction
Clearly the board cannot do all of this themselves. And that?s why they employ a management team, not simply to do the day-to-day jobs but also to research and provide expert advice and recommendations. Boards may question or challenge that advice ? in fact, they should do so, given their ultimate accountability for the behaviour of the company. This is because one of the main areas of concern is the potential for chief executives to control the information on which the board makes its decisions, leaving them accountable. There is thus an inevitable tension between directors and management that each board must resolve.
Tensions also occur when areas of authority are not clear or understood (leading to a tendency for the board to be perceived as interfering with the management?s job), or where the management attempts to assume the responsibilities of the board. Directors and chief executives benefit from clarifying their roles and identifying and agreeing their respective authorities so that the business of actually doing the job is less inhibited by power games based on differing perceptions of whose job it is anyway.
Rick Bond is the Director of The Complete Works (UK) Ltd, specialising in delivering management solutions and training for arts and cultural organisations.
t: 01598 710698;
e: rick@thecompleteworks.org.uk;
w: http://www.thecompleteworks.org.uk