Director Development Centre

Principal: Richard Winfield

Delegate authority to management*

You are a director. You might be a manager in the same organisation.

It is really important to recognise that these are different roles: you must act as two different people.

If you are a director and not a manager in the same organisation, then you have to understand the boundaries between the board and the management.

Directors direct – and managers manage!

Nonetheless, the board is responsible for the management's actions and performance.

The board remains responsible for overall governance. This includes ensuring senior management establish and maintain adequate systems of risk management and that the level of capital held is consistent with the risk profile of the organisation.

So, the board needs to have a clear strategy of what to delegate to management and how to monitor and evaluate the implementation of policies, strategies and business plans.

The responsibility to act and decide upon matters for action in between meetings of the board may be delegated to an executive committee.

In general the board will delegate the management of the organisation to the Chief Executive Officer (CEO) or Managing Director (MD).

The CEO/MD is responsible for delivering services according to the strategic plan, within the policies and budgets approved by the board. A team of managers oversee the day-to-day operations of the organisation under the general direction of the CEO/MD.

Delegation to the CEO/MD

Here is an example of a board delegating authority to the CEO/MD over the day to day management of the company, its subsidiaries and their respective operations. This delegation of authority includes responsibility for:

• developing business plans, budgets and company strategies for consideration by the board and, to the extent approved by the board, implementing these plans, budgets and strategies;
• identifying and managing operational risks on a daily basis and, where those risks could have a material impact on the company's businesses, formulating strategies for managing these risks for consideration by board;
• managing the company's current financial and other reporting mechanisms as well as its control and monitoring systems to ensure that these mechanisms and systems capture all relevant material information on a timely basis and are functioning effectively;
• ensuring that the board and its various committees are provided with sufficient information on a timely basis in regard to the company's business and, in particular, with respect to the company's performance, financial condition, operating results and prospects, to enable the board and those committees to fulfil their governance responsibilities; and
• implementing the policies, processes and codes of conduct approved by the board.

Corporate governance

Does the organisation have a clear strategy for delegating authority to management, including reports and measurements that enable the board to monitor performance?

• Measures are complementary to and consistent with management's planning and control systems and undertaken in a manner likely to engender managers' commitment and support?
• Reports and board reviews cover at least profitability, cash flow, investment and risk?
• Focuses on causes and consequences of important variances between planned and actual performance?
• Reports are able to provide early warnings of major risks and notice of changes to the external environment?
• Reports are presented in time for directors to respond and for the board to ensure corrective actions are taken?
• The board monitors management's ability and performance in anticipating, identifying and responding to strategic change?

* Inspired by the Institute of Directors Standards for the Board