The proprietors of a company are its shareholders, but as there may be several thousand shareholders, many of them knowing little of business, they are obliged to delegate the conduct of the company’s affairs to a board of directors.
The authority of the directors is a corporate authority, that is to say it can be exercised only through a resolution of the board. The office of director carries with it no personal authority to give instructions or make decisions on behalf of the company. Frequently, however, managers employed by the company are invited to become directors. It is easy to see why this happens. If the board is discussing production matters it is helpful to have the works manager present, and if it is discussing sales policy it will wish the sales manager to contribute. It is a short step from inviting these executives to particular meetings to inviting them to be regular members of the board. Indeed, since policy in different fields interlock (there is an obvious interlock among research, design, production, sales, and finance) there is an advantage in having the principal heads of department on the board.
A manager who is also a director is frequently known as an executive director. Sometimes executive directors have full board membership, including the right to vote at meetings, sometimes they are not full members and have no vote. The tendency in most large companies is for the board to contain a majority of directors who also hold management posts in the company and who are full members of the board. The board of some big companies consists of twenty directors, four of them fulltime executives of the company. This practice of course tends to make the distinction between direction and management obscure to the observer because the same individuals are fulfilling the same functions. The works manager who is also a director tends to call himself the ‘works director’ and the general manager the ‘managing director’. There is nothing wrong with this provided that it is understood that such people do not exercise their management authority as directors, but as managers. Thus the works director, for example, has two functions. While he is in the board room he shares with the other directors in the determination of the company’s policy. When he leaves the board room and goes to his own office, he becomes a manager, responsible to the managing director for carrying out the agreed policy.
We may say then, that the work of direction consists of determining the broad lines of policy of a business in such a way that its objectives may be achieved. Management, on the other hand, is concerned with the implementation of that policy by deploying the company’s resources in such a way as to achieve what the directors have decided.
This does not in practice mean that managers have no policy decisions to make. The board necessarily can only determine the broad lines of policy, and this leaves substantial areas of policy to managers. Wherever, in fact, a manager has discretion to act in alternative ways, he should have a policy by reference to which he exercises his discretion. A very simple example may be taken: suppose that a man asks whether he may come in late in the morning for domestic reasons. The manager must have a policy about when he permits this and when he does not; in the absence of a policy there will be the risk of inconsistent decisions from one time to another and from one man to another. The policy is necessary to enable consistent and fair decisions to be made. It also allows decision-making to be delegated because the manager can allow an assistant to take these decisions if he has laid down in advance the principles on which they are to be made. Only the most important policy decisions, therefore, ever reach the board.
