Board governance and executive governance – where to draw the line?
Effective board governance and executive governance are both critical to ensuring the success of a firm but the distinction between the roles can be misunderstood or become blurred. In this post, we explore the distinction between board and executive responsibilities, key areas of overlap and how firms may distinguish between board and executive responsibilities.
Board governance and executive governance – the key responsibilities
The diagrams below outline key responsibilities of the board and executive management. This illustrates that even in the many areas of responsibility that overlap there are distinctions to be drawn.
Unpacking the distinction
Taking the diagrams above, we can draw some distinctions between the responsibilities of the board and the executive. A common starting point is that whilst the board has responsibility for determining the overall strategy and direction of the organisation, it is the executive which bears responsibility for driving implementation of this strategy throughout the organisation and ensuring adequate reporting to the board on progress.
- Stakeholder engagement: both the board and the executive have responsibilities with respect to stakeholder engagement but their respective roles in discharging this responsibility differ. The board is responsible for framing strategies for stakeholder engagement and considering the appropriate balance to be struck when assessing the impact of the organisation’s strategies and policies on different stakeholder groups. The executive is more directly responsible for execution of strategies for engagement of different stakeholders and for day-to-day oversight of the impact of the organisation’s policies on different stakeholder groups, as well as for maintaining the balance established by the board.
- Strategy and leadership: when framing and implementing an organisation’s strategy, the CEO has responsibility for proposing the overall business model and the strategic objectives of the organisation, and the Board is responsible for overseeing and approving these objectives and the plan necessary to achieve the objectives (including cultural objectives). The executive will be responsible for determining how the organisation will meet these strategic and cultural objectives and for delivering on the plan approved by the Board.
- Risk management and internal control: another example of the governance framework distinction can be seen in the risk management context. In this context, the board bears responsibility for setting the risk appetite of the organisation and for maintaining overall oversight of the way in which risk is managed and internal controls are implemented within the organisation. By contrast, the executive is responsible for reflecting this risk appetite in the operations of the organisation, for example by translating the organisation’s risk appetite into a more granular risk management framework and by engaging senior management to ensure that the approach to risk set at board level is adequately understood and implemented across the different teams, and lines of defence, within the organisation.
How we can help
We regularly advise firms on their board governance and executive governance frameworks, in particular on the overall responsibilities of the governance structures within an organisation and the respective roles which the board and executive should take in order to effectively discharge these responsibilities. In doing so, we draw on the experience gained from both our advisory and contentious practices as to the importance of both effectively allocating roles and responsibilities at the governance level and ensuring adequate oversight across the organisation. If you would like to find out more about how Linklaters can help you, please feel to get in touch with any of the key contacts listed.