What is the difference between governance and management in a not-for-profit organisation?

A board meeting has been running for an hour. The board has debated the wording of a social media post, discussed which software package staff should use, and spent considerable time deciding what should go in the next newsletter.

Meanwhile, there has been little discussion about organisational strategy, financial sustainability, emerging risks, or whether the organisation is achieving its purposes.

Sound familiar? If so, your organisation is not alone.

One of the most common governance challenges facing not-for-profit organisations is understanding where governance ends and management begins. While the distinction sounds straightforward in theory, it can be surprisingly difficult in practice.

Getting the balance wrong can lead to frustrated staff, blurred accountability, and boards that spend too much time on operational matters and not enough time on the issues that only they can oversee.

A note on terminology: In this article, we use “board” as a shorthand for the governing body of a not-for-profit organisation. Depending on the organisation’s legal structure, that governing body may be a board of directors, a management committee, a board of trustees, or another body with responsibility for governance.

We also use the term “board members” to refer to the individuals serving on that governing body, whether they are directors, committee members, trustees, or hold another equivalent governance role.

Governance and management are both essential
Governance and management are both critical functions - neither is more important than the other.

Governance is concerned with oversight, accountability, and the long-term direction of the organisation, while management is concerned with implementing that direction and running the organisation's day-to-day operations.

A useful way to think about it is that governance decides where the organisation is going and how success will be measured, and then management works out how to get there.

When governance and management each operate in their respective roles, organisations are generally more effective, accountable, and sustainable.

What governance looks like
The board’s role is to focus on the "big picture". While the exact responsibilities will vary between organisations, governance typically includes things like:

• setting the organisation's strategic direction;
• ensuring the organisation remains focused on its purposes;
• overseeing financial performance and sustainability;
• identifying and monitoring significant risks;
• ensuring compliance with legal obligations;
• appointing, supporting, and evaluating the chief executive (or equivalent); and
• monitoring organisational performance.

In practice, board members should often be asking questions such as:

• Are we achieving the outcomes we exist to deliver?
• What are the biggest risks facing the organisation?
• Do we have a sustainable financial model?
• What should our strategic priorities be over the next three years?
• How do we know whether we are succeeding?

These are governance questions. They are questions that only the board can answer.

What management looks like
Management is responsible for implementing the board’s strategic direction and operating the organisation on a day-to-day basis.

Depending on the size and structure of the organisation, management responsibilities may sit with a chief executive, senior leadership team, staff, volunteers, or a combination of these.

Management typically includes things like:

• delivering programmes and services;
• managing staff and volunteers;
• implementing strategic plans;
• preparing budgets and reports;
• managing operational risks;
• developing policies and procedures; and
• making everyday operational decisions.

The key distinction is that management is responsible for the "how". Once the board has determined what the organisation is trying to achieve, management generally determines the most effective way to achieve it.

Signs a board is getting too involved in management
Not-for-profit boards are made up of passionate and committed people who care deeply about the organisation's mission. While this is a strength, it can sometimes lead board members into operational matters that are better left to management.

Common warning signs that the board may be straying into management territory might include:

• board members giving instructions directly to staff;
• board meetings being dominated by operational discussions;
• board members becoming involved in staff performance issues;
• routine operational decisions requiring board approval;
• management feeling unable to act without board permission; and
• board members focusing on minor administrative matters rather than strategic issues.

For example, if a board spends twenty minutes debating the colour of a newsletter, it may have crossed the line from governance into management.

While a single discussion about an operational matter is unlikely to cause concern, persistent involvement in day-to-day decision-making can undermine management's ability to do its job effectively.

Signs a board is not involved enough
Just as boards can become overly involved in management, they can also become too passive. A board that simply receives reports without asking questions is not providing effective governance.

Potential warning signs that the board may not be sufficiently involved might include:

• strategy receiving little or no attention;
• financial reports being accepted without meaningful discussion;
• board members rarely challenging management's recommendations;
• key risks not being regularly reviewed;
• board meetings consisting primarily of updated without discussion; and
• board members having limited visibility of organisational performance.

This can be equally problematic. Micromanagement is as much a governance problem as absentee governance. An effective board is neither controlling every operational detail nor acting as a passive observer.

Why the distinction matters

When governance and management roles become blurred, accountability often suffers. If board members become involved in operational decisions, it can become unclear who is responsible when things go wrong. Management may feel disempowered, decision-making can slow down, and boards can lose sight of strategic issues.

Conversely, where boards fail to provide sufficient oversight, risks may go unnoticed and opportunities may be missed.

The most effective organisations have a clear understanding of who makes which decisions and why.

There is no perfect dividing line
While the distinction between governance and management is important, there is rarely a bright line separating the two.

Many not-for-profit organisations rely heavily on volunteers and do not have a chief executive or dedicated management team. In these organisations, board members may find themselves undertaking operational tasks as well as governance responsibilities. Similarly, during periods of crisis or organisational change, boards may become more involved in operational decision-making than they would under normal circumstances.

This is not necessarily inappropriate. The key is not to eliminate all overlap, but to ensure there is a shared understanding of roles, responsibilities, and decision-making authority. Boards should regularly ask themselves: "Are we spending our time on the things that only the board can do?"

If the answer is no, it may be time to revisit where governance ends and management begins.

Effective governance is not about board members doing less. It is about focusing their time and attention on providing strategic direction, oversight, and accountability, while empowering management to lead the organisation's day-to-day operations.

When that balance is right, organisations are better positioned to achieve their purposes and remain sustainable for the long term.

Understanding where governance ends and management begins is fundamental to effective governance. MoranLaw's not-for-profit specialists regularly advise boards, committees and trustees on governance roles, responsibilities and good practice. Get in touch today.