FACULTY OF SOCIAL SCIENCES

DEPARTMENT OF POLITICS AND PUBLIC MANAGEMENT

Name Reg # Mode of entry

Tafara Chinovava R135068C Conventional

Allan T Chiduza R137467J Conventional
Faith R Kavhai R134736A Parallel
Perpetua Mukucha R136207V Parallel
Emmanuel Musekiwa R136184H Parallel
Law Chidembo R134031A Parallel
Tatenda Makayi R134573Y Parallel
Precious Bambire R136211W Parallel
Teddynah Moyo R135858E Parallel

Module : Public Sector Corporate Governance

Lecturer : Mr Chilunjika

Question 8: Analyse the distinction between the functions of the management and
the Board of Directors in the public sector.
Management and Board of Directors share common values and objectives but however their
functions in the public sector are distinctly different. These are two hierarchical structures which
are set in a corporation for efficiency, accountability and profitability. Public sector often refers
to state owned enterprises basically created to offer services to the general masses. The functions
of the management in a public sector include making operational decisions, making operational
policies, keeping the board educated and informed, provide well-documented recommendations
and information to the board and among other. Fama (1980) prescribed that the composition of
board structure is an important mechanism because the presence of non-executive directors
represents a means of monitoring the actions of the executive directors and of ensuring that the
executive directors are pursuing policies consistent with shareholders' interests. Furthermore,
boards of directors are one of the centre-pieces of corporate governance reform. In effect, the
board of directors has emerged as both a target of blame for corporate misdeeds and as the
source capable of improving corporate governance. Zahra e tal (1989) describe the two main
functions of the Board of Directors as monitoring and providing resources. The theoretical
underpinning of the board’s monitoring function is derived from agency theory, which describes
the potential for conflicts of interest that arise from the separation of ownership and control in
organizations.

RBC Corporate Governance Framework (2017) pointed out that there is a clear demarcation of
roles and responsibilities between the Board and senior management that fosters an environment
of transparency, confidence and mutual trust in which the Board is able to constructively
challenge and provide guidance to management. UK Corporate Governance Code (2014)
stipulated that corporate governance is the system by which companies are directed and
controlled in which boards of directors are responsible for the governance of their
companies. Therefore, corporate governance according to UK Corporate Governance Code
(2014) is about what the board of a company does and how it sets the values of the company and
has to be distinguished from the day to day operational management of the company by full-time
executives. Board of Directors are the first-tier of corporate hierarchy while management are the
second-tier of corporate hierarchy. Board of Directors include the Chairman, Inside Directors
which are hired from inside the company, Outside Directors which are directors hired from the
outside of the company that must ensure that the company is on the right track (Barlow, 2016).
In contrast, the management comprise of Chief Executive Officer (CEO)-head of the executive
department, Chief Operations Officer (COO)-head of operations, Chief Financial Officer (CFO)-
head of the financial department and the Chief Information Officer (CIO) - head of the
information department (Barlow, 2016).

In line with the above, the board of directors is elected by the shareholders, and is made up of
two types of representatives. The first type involves individuals chosen from within the
company. This can be a CEO, CFO, manager or any other person who works for the company
daily. The other type of representative is chosen externally and is considered to be independent
from the company. For instance the Board Chairman is technically the leader of the corporation,
and is responsible for running the board smoothly and effectively. His or her duties typically
include maintaining strong communication with the chief executive officer and high-level
executives, formulating the company's business strategy, representing management and the board
to the general public and shareholders, and maintaining corporate integrity. A chairman is
elected from the board of directors. In the public sector, the shareholders would be the
government or responsible ministries. However according to Zvavahera and Ndoda (2014), the
Zimbabwe Broadcasting Corporation showed that there was no relationship between the Chief
Executive Officer’s salary and performance of the organization leading to bad corporate
governance and unethical behaviour and recommended that the boards should monitor the
activities of parastatals and make sure that they act to the best interest of all their stakeholders,
make sure that salaries are performance related and that they adhere to best corporate practices.

Furthermore, the inside directors which are part of board of directors are responsible for
approving high-level budgets prepared by upper management, implementing and monitoring
business strategy, and approving core corporate initiatives and projects. Inside directors are
either shareholders or high-level managers from within the company. Inside directors help
provide internal perspectives for other board members. These individuals are also referred to as
executive directors if they are part of company's management team. The outside directors, while
having the same responsibilities as the inside directors in determining strategic direction and
corporate policy, they are different in that they are not directly part of the management team. The
purpose of having outside directors is to provide unbiased and impartial perspectives on issues
brought to the board. These are often referred as non-executive directors. Boards are appointed
on the basis of their expertise and experience in fields such as law, accounting and administration
(Kasambira and Nyamuda, 2001)

Management in a public sector is responsible for day-to-day leadership of the company,

implementation and driving strategic plan. The board of directors is not directly involved in day
to day activities of the company and its employees. Instead, it sets the company’s goals, targets,
and responsibilities. It then delegates the day to day activities to the upper management. It is the
upper management’s responsibility to ensure that the goals, targets, and responsibilities of the
company are met. In contrast with the above, the Board of Directors is responsible for
determining the direction of the company, setting strategic plan and monitoring it. Zahra etal
(1989) noted that in practice, boards both monitor and provide resources and, theoretically, both
are related to firm performance. Agency theorists see the primary function of boards as
monitoring the actions of “agents”- managers - to protect the interests of “principals” -owners
(Fama, 1980). Monitoring by the board is important because of the potential costs incurred when
management pursues its own interests at the expense of shareholders’ interests. Fama,e tal (1980)
noted that monitoring by boards of directors can reduce agency costs inherent in the separation
of ownership and control and, in this way, improve firm performance.

Another clear distinction between management and boards in the public sector is that the
management is responsible for purchasing below a certain agreed limit within board approved
budget, provide a detailed understanding of financial position and project-by-project status and
apply for funding, securing sufficient grant monies to run the organization. Meanwhile Board of
Directors is responsible for approving purchasing over an agreed limit, overseeing finances
through financial reports to board and make contacts for potential funding, passing on grant
information. Boards should focus on the long-term vision. They do this by forecasting how the
organization will look up to five years in the future. However, Kyerbaah and Biekpe, (2006)
suggested that bad corporate governance has proven to lead to collapse of state enterprises. In
this case, this has been the state at PSMAS, ZBC and other parastatals in Zimbabwe. Boards
should limit their involvement to quality, growth, finances, and people. Future goals should be
measured by initiatives and key indicators. The board has the responsibility of developing a
governance system for the business. The articles of governance provide a framework but the
board develops a series of policies. This refers to the board as a group and focuses on defining
the rules of the group and how it will function. The rules that the board establishes for the
company should be policy based. In other words, the board develops policies to guide its own
actions and the actions of the manager. The policies should be broad and not rigidly defined as to
allow the board and manager leeway in achieving the goals of the business. 

Boards make high-level policy decisions and leave the low-level managing policy decisions to
the management. This means boards make big decisions like whether to close or open facilities,
or make major purchases in keeping with the organization’s long-term strategic plans. It also
means addressing legal matters and board conduct, as well as addressing conflicts of interest,
community benefit, executive compensation, and CEO evaluation. Management is responsible
for bringing all relevant information to the board so they can make informed decisions about
major issues. Management should include well-documented analyses and recommendations.

Management role is to report to board the risks, actual and potential, as well as developing risk
management plan and provide staff matters such as leave, performance appraisals, conditions and
detail of supervision (ZIMCODE, 2016). The board of Directors is much responsible for risk
management and provide general framework for staffing matters. The board of directors, being
both the overall observer of company management and monitor of its processes in terms of
financial reporting quality, needs to ensure that corporate governance is adhered to in the
state owned enterprises in Zimbabwe (ZIMCODE, 2016). Boards should take a stronger role
on big matters. This means matters that may have a negative impact on the organization or with
regard to matters that have strong financial stakes. This does not mean that the board should get
directly involved in management issues. It means that they should be informed about issues so
that they can make appropriate decisions.

Aoki (2001) noted that in practice, boards both monitor and provide resources, and, theoretically,
both are related to firm performance. A recent large scale archival study conducted by Randoy
(2004) concluded that the traditional monitoring perspective of measuring governance is of
limited value in explaining the behaviour of managers as well as the performance of firms.
Further, Randoy (2004) argue that a narrow view of corporate governance restricting it to only
monitoring activities may potentially undervalue the role that corporate governance can play.
However, the priorities of the board of directors are not independent from the context in which
the company operates. Randøy e tal (2004) argue that firms in highly competitive industries will
already be ‘monitored’ by the market and, therefore, they should have fewer outside board
members. In effect, they find a negative relationship between board independence and firm
performance in industries with highly competitive product markets among publicly traded
Swedish firms and attributed the detrimental effect on the predominance of the director’s
resource function over the monitoring function. The monitoring role of outside directors is most
important when ownership is diffuse: when ownership is concentrated, the large shareholder(s)
can effectively influence and monitor the management, sometimes by personally sitting on the
board. Fama (1980) argue that large shareholders have a strong incentive to monitor managers
because of their significant economic stakes.

Management in the public sector is usually hired by the board of directors and responsible for
implementing the decisions made by board. For instance, the management which has the Chief
Executive Officer, the Chief Operations Officer, Chief Financial Officer, and the Chief
Information Officer are hired by the board of directors. The board is basically responsible for the
company, but it delegates the day-to-day organization and tasks of the company to the
management. The CEO may or may not also serve as a board of director, or the chairman itself.
However, the CEO and Chairman are often separate so as to keep clear lines of authority. In
contrast, the board is hired by the stockholders and are responsible for making decisions that will
affect the future of the company.

Public sector management is accountable to the board of directors whilst the board is accountable
to shareholders. It is the management in the public sector that carry out the administration related
duties, and in almost the same manner the board of directors is responsible for the ultimate
administration. For instance, the Chief Executive Officer (CEO), stands as the top manager, and
is typically responsible for the corporation's entire operations and reports directly to the chairman
and board of directors. It is the CEO’s responsibility to implement board decisions and
initiatives, and to maintain smooth operation of the firm with senior management's assistance.
Often, the Chief Executive Officer will also be designated as the company's president and
therefore be one of the inside directors on the board (if not the chairman). However, it is highly
suggested that a company's Chief Executive Officer should not also be the company's chairman
to ensure the chairman's independence and clear lines of authority (Barlow, 2016). The role of
the board is to monitor a corporation's managers, acting as an advocate for stockholders. In
essence, the board of directors tries to make sure that shareholders' interests are well served.

Parastatal and state owned enterprises have values and ethics and these are determined and
shaped by the board of Directors. Public sector management then must enact the ethos, taking
their direction from the board. This gives the board of directors to take a legal responsibility. In
this case if there is any breach of duties or improper actions by the management, they are held
responsible. The management has no legal responsibility. Management has a responsibility to
inform boards about major issues, particularly if they have been contacted by the state attorney
general or the media. Boards should make sure that the organization has a public
communications strategy. The board should oversee appropriate administration of public and
media communications, especially when major or public issues arise. In determining their level
of involvement, board members should assess whether an issue is relevant to the fidelity of the
organization’s mission (Chavhunduka and Sikwila, 2015). This means that the board has a
responsibility to determine and direct whether activities are in keeping with the mission.

Due to the litigious nature of the society, boards are taking a stronger interest in day-to-day
management activities because of the ensuing impact on its fiduciary responsibilities. Boards
need to be informed of how the organization is being managed to protect its legal
responsibilities, but the board role should not cross over into performing management duties.
Even when there is basic principle that boards make decisions while management implements
the plans, the complexity of today’s business world often muddies the waters. Boards function
best when they focus on higher-level, future-oriented issues; but there are times that they need to
get more intrinsically involved. When the board sees negative results, it’s a red flag to delve
deeper into management issues to get the organization back on track in order to fulfil their duties
to shareholders and stakeholders (Nevondwe, Odeku & Tshoose 2014). Boards should routinely
review performance reports to establish positive or negative trends and growth benchmarks.
Boards should review trends from at least three consecutive reporting periods before deciding if
an issue needs board attention. Boards may need to take prompt action to address unethical or
illegal activities. They may also need to get involved if a drastic drop in performance occurs.
Before taking direct action, boards should consult with management to determine how they are
addressing the issues and if they have the capability to redirect the trend in a positive direction.
Boards should hold management accountable for results without directly micromanaging specific
matters.

According to Liu (2006), when boards and management have a strong and open working
relationship with each other, the organization benefits in notable ways. Boards should support
the CEO in implementing board decisions, such as awarding or ending contracts. At times, the
CEO may need to ask the board for intervention or support. CEO’s may need the board to
intervene with management in ways that help him raise performance. Boards may also support
CEO’s by using their networks within the community to support the work of the organization.
Boards that routinely infringe upon management duties and responsibilities risk upsetting a
structure that is intended to help both of them. CEO’s and other managers need to know that
boards have confidence in them to manage things when they go awry (Leech and Manjon, 2002).
Boards that cross over into the management role risk turnover in the CEO and executive
positions. The relationship between boards and management was strategically developed for
high-efficiency organizational success. Boards address the broader, mission-focused activities,
leaving the daily managerial activities to the CEO and other managers. When each entity directs
its attention towards its own duties and responsibilities, the framework works like clockwork.

In conclusion, management and Board of Directors are both tiers of corporate hierarchy which
are important for the advancement of the company. Each of the two tiers must do their job to
ensure that the company is a success. Functions of management in a public sector include
making operational decisions, making operational policies, keeping the board educated and
informed, provide well-documented recommendations and information to the board. Board of
Directors is responsible for hiring the management, formulating organisation’s ethos, manage
performance of the management, and among others as articulated above. Many of these roles and
responsibilities overlap with the responsibilities and work of the organisation’s managers and
senior staff, as written into their contracts and/or job descriptions. Consequently, the ways in
which these responsibilities are to be put into operation in practice, and the overlaps, need to be
negotiated. Together, management and the board of directors have the ultimate goal of
maximizing shareholder value. In theory, management looks after the day-to-day operations, and
the board ensures that shareholders are adequately represented, but the reality is that many
boards consist of management.
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