The Difference Between Corporate Governance and Corporate Management

Corporate management is the process of making decisions within a company. Corporate governance is the set of rules and practices that ensure that a corporation is serving all of its stakeholders. For example, a corporate management team might decide that a company should purchase a new headquarters; a corporate governance policy would require that the company's CEO not have a relative work as the real-estate broker on that transaction. Governance ensures that decision making is ethical and fair.

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The difference between corporate governance and corporate management is the scale of the decisions: those handled by corporate management are day-to-day decisions made for specific situations, whereas corporate governance is a set of policies designed to create or prevent specific situations in the company's future.

Corporate management has changed over time as managers have acquired better tools for understanding the problems they face. Most corporate managers are able to quantify many of the issues they consider, in order to make the correct decision. Managers factor in costs, benefits and the uncertainty of projects they are considering. A key skill managers must master is knowing how to differentiate between corporate governance and management because they will face both types of demand in their roles.

A good corporate manager is someone who can perform sustainable functions within the company they work for, while either maximizing revenue or minimizing cost, depending on the department. Since the principles of corporate management are so broad, there are often specific disciplines for different parts of a company. The way a sales team is managed differs from the way the accounting department is managed.

Another difference between corporate governance and corporate management is that corporate governance is a newer subject of study. In the past, many companies were run solely for the benefit of their managers or founders. A company might have outside shareholders, business partners and thousands of employees, but under older ideas of corporate governance, the company would pursue only the goals of their managers. Managers might choose to provide poor benefits for employees, knowing that these employees couldn't find better opportunities. Managers might also pay themselves excessive salaries without paying attention to community standards with respect to such practices.

In recent years, many companies have become more conscious of the need for good corporate governance. As regulations have tightened, it has become more difficult for companies to exploit workers or harm the environment. In addition, changes in financial markets have made it harder for companies to harm their shareholders. A mismanaged company becomes vulnerable to being purchased by another firm, so managers tend to treat their shareholders better. An increased focus on sustainability as a business practice, not just an ethical position, has also affected corporate governance.

Corporate management's success can generally be measured in terms of numbers. If the department in question is meant to create a profit – for example, if the entity being measured is a retail store or a factory – quantity like profit margin or return on investment can demonstrate that it is achieving its goals. For departments that don't have such responsibility – like a shipping department, or an accounting group – many managers measure their results in terms of cost. If a department can accomplish the same functions and spend less money, then by this measure, it's a success.

In recent years, many management thinkers have tried to synthesize corporate management and corporate governance into a single discipline. Since corporate governance is meant to equitably distribute the results of good corporate management, they fit together naturally: the best situation for a company to be in is for it to have good governance and good management.

Combining these can take a variety of forms, from giving workers representation in company management to pursuing more efficient manufacturing processes in order to cut costs and help the environment. The most effective companies combine these practices in a mutually reinforcing way.