The Role of Board Governance Vs. Management
Formally structured C corporations or S corporations, as well as businesses funded by venture capitalists, are legally required to have advisory boards, according to the Small Business Administration. Small businesses can also benefit, though, from an informal board of advisors. A company board establishes the structure and policies for company operations in line with owners' interests. Management, including the chief executive and other executives, oversee the day-to-day operation of the company in line with board guidance.
A primary function of a for-profit or nonprofit company board is to provide basic oversight of the operation. In a for-profit business, the board may strategically plan on how to balance earning profits with operating as a strong corporate citizen. In a publicly owned company, the board has oversight over the chief executive and the executive management team. They vote on major decisions and changes to the company and evaluate the performance of management in carrying out its duties. Board duties are more informal and advisory for a small business not required by law to have a board. In this case, the board develops strategy and plans in line with the company's purpose and owner objectives.
A board generally represents the interests of ownership of a for-profit business, or citizens in the case of a nonprofit. In a publicly owned company, shareholders vote on board members and have a voice in major business and financial decisions. The board also has a responsibility for public disclosure and communication. This includes communicating financial decisions, such as a stock split or acquisition. For a nonprofit, the board often directs communication of expansions, fundraisers and project investments.
The board often works closely with management to set the long-term vision and goals for the business in line with the company's purpose. A CEO, for instance, may decide to diversify a company's businesses or products to take advantage of an emerging market. The executive management team normally meets periodically to develop and review strategic plans. This includes a review of strengths and weaknesses as well as opportunities and threats. The idea is to leverage core strengths to take advantage of market opportunities while avoiding potential threats or areas of vulnerability.
Management also oversees day-to-day operations, including development and oversight of the business infrastructure and human resources systems. Infrastructure includes the buildings, equipment, assets and technology needed to conduct business and achieve established goals. Employment management includes developing hiring strategies to meet business needs and instilling a motivating HR system that includes fair compensation and effective motivational techniques to drive optimal performance. In both for-profit and nonprofit companies, managers also oversee current and ongoing expenses to avoid waste and to optimize profit, or resource availability in the case of a nonprofit.