Separating the Roles – Director and Management

In many boardrooms, a dilemma that confronts the directors is about the line dividing the roles of management and directors.  A classic paper that dealt with this issue, “Separation of Ownership and Control” (1983), elaborates it precisely.  Given that the focus of the upper echelons of organization work is decision making, the articulation by Fama and Jensen has guided a generation of leaders.  Taking a leaf from there, we are presenting the bias that has ingrained our practice,

There are four steps to the decision process

1. Initiation – generation of proposals for resource utilization and structuring the plans of action
2. Ratification – nod for the decision initiatives for implementation
3. Implementation – Executing the ratified decisions
4. Monitoring – Oversight and periodic guidance

Steps 1 & 3 (Initiation & Implementation) are the roles played by the Management (executive directors + top management team). Steps 2 & 4 (Ratification and monitoring is the job of Directors, particularly the Non-executive Directors.

To learn more, you may refer to the paper available here

A good Board can distinguish between the two roles and four deliverables.  However, it is not always easy. But if you have a robust Board Evaluation process, then the dharma-sankatas on this count can be voiced and resolved, rather than shoving them under the carpet.