The most common corporate governance structure in the US involves a board of directors and a management team.
The management team reports to the board, and the board reports to the shareholders.
Although both work on improving an organization’s performance, the responsibilities of these two corporate bodies differ.
In this article, we explore the difference between the management board vs the board of directors, define the main areas of possible conflict, and provide recommendations for effective cooperation.
Board of directors
The board of directors is a governing body of the company that’s typically elected or appointed by shareholders to oversee the company’s activities and management, set strategy, and protect shareholders’ and stakeholders’ interests.
Additional read: Learn more about the importance of corporate governance in our dedicated article.
A board of directors typically consists of two main types of representatives:
- Inside directors. These are board members that are chosen within the company. They can include roles such as a manager, chief financial officer, chief executive officer, or any other company employees.
- Outside directors. These are board members who are chosen externally and considered independent of the company. They typically include specialists with certain expertise, such as finance or legal.
Responsibilities of the board
The main responsibilities of the board of directors include the following:
- Corporate governance. The board establishes and maintains the overall governance framework of the organization. This includes setting the company’s mission, vision, and values, defining roles and responsibilities, and ensuring that the organization operates within legal and regulatory requirements.
- Strategic oversight. The board chair leads the board in providing strategic direction by setting the organization’s long-term vision and goals. By overseeing trends, boards also cooperate with executive leadership in adjusting company goals and strategies to respond to changes in the market, industry, or business environment
- Fiduciary duties. The board has a legal obligation to act in the best interests of the organization and its shareholders. Fiduciary duties include the duty of care (making informed board decisions), the duty of loyalty (putting the organization’s interests above personal interests), and the duty of obedience (ensuring the organization adheres to its mission and governing documents).
- Financial oversight. This includes approving budgets, reviewing financial statements, monitoring financial performance, and ensuring the integrity of financial reporting. The board makes sure that appropriate financial controls are in place to prevent fraud, mismanagement, and inefficiency. The board may also oversee the audit process and ensure compliance with financial regulations.
- Executive leadership. The board selects, appoints, and evaluates the performance of the CEO and other members of an executive team. It may set executive compensation, provide guidance, and offer support to leadership while also holding them accountable for achieving the organization’s goals. In cases of underperformance, the board can replace executives to protect the organization’s interests.
- Risk management. The board identifies, monitors, and mitigates risks that could impact the organization’s operations, reputation, and financial stability. The board also regularly reviews risk reports and adjusts policies to address emerging risks, maintaining a proactive approach to risk management.
- Stakeholder relations. Ensuring effective communication and engagement with key stakeholders is among the key responsibilities of the board. It seeks to balance the interests of different stakeholder groups while protecting the long-term sustainability of the organization. Stakeholder relations also involve overseeing the organization’s social responsibility efforts and managing its public image.
- Ethical and compliance oversight. The board ensures that the organization adheres to ethical standards and complies with applicable laws, regulations, and industry guidelines. It sets the tone for ethical conduct by establishing codes of ethics and conduct policies, promoting a culture of integrity, and overseeing compliance programs.
Management
The management team is a unit in a corporate structure that is responsible for the company’s day-to-day operations and provides organizational leadership. They ensure that the company’s goals and objectives are met by managing resources, coordinating activities, and making strategic decisions. Unlike the board which cooperates directly with the stakeholders, management generally works with lower-staff managers.
The management team typically comprises such roles as:
- CEO. A top manager of the company who is responsible for all of its operations. Reports directly to the chair and the board.
- CFO. A manager responsible for overseeing everything finance-related: from preparing budgets to reporting financial performance. Reports to the CEO.
- COO. The chief operations officer is responsible for overseeing aspects of company operations such as personnel, production, marketing, and sales. Reports to the CEO.
Responsibilities of the management team
The management team is typically responsible for the following:
- Operational execution. The management team ensures that the company’s processes and resources are running efficiently. They monitor key performance indicators, optimize resource allocation, and quickly resolve any operational challenges that arise. Their focus is on maintaining high productivity while continuously improving workflows.
- Day-to-day management. This involves supervising employees, making routine decisions, and ensuring that daily operations run smoothly. The management team addresses immediate needs, coordinates activities across departments, and works to enhance processes for better efficiency.
- Strategic implementation. The management team turns long-term company goals into practical actions. They lead key projects, oversee changes, and ensure that all departments are aligned with the company’s broader objectives. Their role involves balancing short-term needs with a long-term strategy to drive the company’s success.
- Media matters management. The management team also manages public and media communications. They prepare for potential PR challenges, ensuring that brand representation is consistent and positive. They also develop strategic media engagement and campaigns to enhance the company’s visibility and reputation.
The difference between the board of directors vs management
Let’s take a look at how exactly board and management roles differ.
| Area | Board of directors | Management team |
| Role | Provides strategic oversight and governance | Handles day-to-day operations and management of the company |
| Focus | Long-term goals, company vision, and policies | Operational efficiency, execution of business plans |
| Decision-making authority | High-level decisions (such as mergers and large investments) | Operational decisions (such as resource allocation or team management) |
| Accountability | Accountable to shareholders | Accountable to the board of directors |
| Legal obligations | Responsible for corporate governance and ensuring fiduciary duties are met | Responsible for achieving business objectives and legal compliance within operations |
| Strategic involvement | Sets and approves the overall strategy and key initiatives | Executes and operationalizes the strategy |
| Composition | Chairperson, inside directors, outside directors, and other board members | Executives such as the CEO, COO, or CFO |
Common challenges and solutions
The relationship between the management team and the board of directors can often result in some conflicts and challenges.
For instance, only 28% of executives believe the board has the right combination of skills and expertise, while 92% say one or more board directors should be replaced.
Let’s take a look at the main challenges faced by the management board vs board of directors when driving an organization’s growth.
Strategic direction disagreements
The board and management might have different views on the company’s strategic direction, such as expansion plans, mergers and acquisitions, or market focus.
Possible solution: Facilitate structured strategy sessions involving both parties. Use objective data and expert input to inform discussions. The board should focus on guiding strategy rather than micromanaging execution.
Approach to risk management
Management might vote for aggressive growth strategies with higher risk, while the board may advocate for a more conservative approach.
Possible solution: Establish a clear risk management framework agreed upon by both sides, with predefined thresholds for acceptable risk levels.
Performance and accountability
Disagreements may arise regarding management’s performance, with the board pushing for higher results and management arguing against unrealistic expectations.
Possible solution: There must be clear and measurable key performance indicators (KPIs) tied to both short-term and long-term goals. Performance reviews should be transparent, data-driven, and aligned with agreed-upon metrics.
Compensation and incentives
The board and management may differ on compensation structures, such as bonuses, stock options, or long-term incentives, with management seeking higher rewards. Surveys suggest executives are often considered overpaid.
Possible solution: Set compensation packages based on industry benchmarks and align them with long-term shareholder value creation. Use independent compensation committees and external advisors to ensure fairness and transparency.
Autonomy
Management may feel the board’s involvement is intrusive, while the board may seek more oversight to protect shareholder interests.
Possible solution: Clearly define roles and boundaries where the board focuses on strategic oversight and management retains control over daily operations, except during major strategic shifts or crises.
Best practices
To ensure a better cooperation between the board and management, follow these recommendations:
- Clearly define roles and responsibilities. Outline and document the distinct roles and responsibilities of both the board and management. This reduces ambiguity and ensures that each party understands their duties and limits of authority, preventing overlaps and conflicts.
- Establish regular communication channels. Schedule regular board meetings and management reports to ensure consistent updates and discussions. Regular communication helps track progress, addresses issues promptly, and maintains alignment on organizational goals.
- Create a structured reporting system. Develop a standardized format for management reports to the board, focusing on key performance indicators and critical metrics. This ensures that important information is presented consistently and transparently, aiding informed decision-making.
- Encourage open dialogue. Implement feedback mechanisms and foster an environment of active listening. Open dialogue allows both the board and management to voice concerns, ask questions, and provide constructive feedback, enhancing collaboration and understanding.
- Foster technology. Leverage dedicated board management platforms such as the iDeals Board to facilitate effective collaboration. With its help, you can run a board meeting, ensure that information is accessible, and that communication remains efficient and organized.
Key takeaways
- The board functions as a governing body that is responsible for overseeing the company’s activities and management, setting strategy, and protecting shareholders’ and stakeholders’ interests.
- The management team is responsible for the company’s day-to-day operations and provides organizational leadership.
- The main differences between the board of directors and management team lies in their primary role, focus, decision-making authority, accountability, legal obligations, strategic involvement, and competition.
- Conflicts between the board and management occur most often because of differing views on strategic direction, compensation levels, approach to risk management, performance and accountability, and level of autonomy.
