In today’s article I will try to address where the responsibility of the board of directors ends and that of the management begins. Easy to describe in concept but many of you will be aware that there is an overlap which requires careful handling, with clear communication of the authority granted by the board to the management team being critical, if conflicts between the board and management are to be avoided.

So, to state the obvious, directors direct and managers manage. Oh! If only it was so simple! Having made this profound statement, let me attempt to expand.

The board decides on the direction the company will take, it creates the company’s Vision (see previous article), Mission and Values. The Executive Directors i.e. those who sit on the board but who also form part of the management team (eg finance director, chief executive officer, marketing director) are part of this process and may provide useful if not significant input. This and the formulation of strategy are the principle concerns of the board.

Establishing the direction of the company is usually done with the longer term in mind, taking into consideration the political, economic, sociological, technical, legal and environmental factors that might impact the success of the company and the direction followed. The board will also assess the threats and opportunities external to the business and the strengths and weaknesses of internal resources, not just for the business as it is running now, but with a view to where the company is headed.

I say again, management may have significant input on this discussion but it is for the board to decide through detailed and robust debate, the direction the company should take and the strategies it should select.

This is where conflicting views of the board and management may arise.

The management’s primary role is the running of the business and the execution of the selected strategies, ensuring that the objectives of the board are met through monitoring performance and taking corrective action where necessary. They are charged with making the day-to-day decisions, but these decisions must always be consistent with the strategies set by the board.

The scope of the authority that is delegated to the management must be clear and appropriate, as in order to operate efficiently, the management must be enabled to make decisions and commit the company on behalf of the board. If this authority is too restricted, the company can become paralysed and too broad, and then control can be lost. But most important is that authority levels are clearly understood by both the management and the board. Unnecessary interference by the board or its individual members in the management of the company can be disruptive and counterproductive. Having said this, the board must be aware that delegating authority is not delegating responsibility as that remains with the board, therefore, appropriate reporting, enabling the board to monitor the performance of the management team is critical.

It is the directors who are accountable to the shareholders, not the management, consequently communication with the shareholders should only be by the board or through the board except for specifically defined and approved purposes.

Directors are responsible for the stewardship of the company’s assets, therefore, they must ensure that they are receiving sufficient information from the management to enable them to follow patterns and trends of budgets and projects by monitoring key performance indicators, ratios and trend lines.

Any attempt to limit the information provided, or to present the information in a way that could be misleading to the board is unacceptable. Presenting information in a way that enhances the board’s view of management performance is indeed a temptation, but it will ultimately lead to conflict and a loss of trust. Trust once lost is not easy to reestablish.

Inconsistencies in the way information is presented from one period to the next should be reason in itself for the directors to raise questions.

Executive directors, being both board members and members of the management team, must take particular care to act appropriately in each circumstance. At the board level they must participate as equals in discussion and participate in making decisions that are in the best interest of the company, even if there is a negative impact on them personally (often difficult for instance when considering a merger or the approach of a potential acquirer. Turkeys voting for Christmas comes to mind). On the other hand, in their management role they cannot assume that as a director they have the authority of the board as this can only be given through specific delegation.

Is it as simple as directors direct and managers manage? Well not quite, but I hope I have made it a little clearer! Or of course I have completely confused you!

• Roger Gillett is chairman of the Institute of Directors – Bermuda.