Twenty years ago the phase corporate governance was unfamiliar, today it is commonplace. In Cadbury Report (1992) corporate governance is defined as the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies, ensuring they are being well run. Managers are responsible for running the enterprises. The shareholders role in governance is to appoint the directors and the auditors. Poor governance has ruined companies, sent directors to jail, and destroyed a global accounting firm and threatened economies and governments.
For years, the major focus in business was on management, management school, management consultants, and management gurus. Today the way companies are governed has become important than the way they are managed-after all, good governance should ensure good management to develop and succeed.
Some people fail to distinguish between governance and management. The board of directors seldom appears on the organization chart. The idea of management as a hierarchy is commonplace: a chief executive with overall responsibility, heading an organizational pyramid with various managerial levels, delegating authority for management function downwards and demanding accountability upwards.
The board, however, is not a hierarchy. Every director has equal responsibility and similar duties and powers. Company law recognizes on no boss of the board. In a unitary board, of course, some directors will also be senior executives, with managerial roles as well as their responsibilities as directors. They are executive directive directors sitting in both the board of directors and management committee. The other directors, the non-executive or outside directors are members of the board but are outside the management hierarchy.
Source: Bob Tricker, Essential Director, The Economist Newspaper Ltd, 2003
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