Week One: Separation of Governance & Management

It is of the utmost importance to separate management from governance policy-making, which is usually undertaken by the board of directors. Without this structure in place, fraud, bribery, and corruption are very high risks.

Do you agree or disagree with this statement? Provide reasons for your answer. In your answer, identify what the potential risks may be if management and governance are not separated.

I understand that many people don’t know the difference between management and governance, so here’s a simple explanation: Governance ensures that enterprise objectives are achieved by evaluating stakeholders, setting direction, and monitoring performance, whilst management plans, builds, runs, and monitors activities in alignment with governance direction (ISACA, 2012).

Video 1 – COBIT 5 Governance & Management (COBIT 5, 2016)

I agree that it is of the utmost importance that management and governance be separated. I work in a firm in which management is very important in ensuring that all the proper policies are implemented correctly, so I can easily visualise how simple it would be to exploit the situation were there a lack of governance/management segregation. When not separated, companies run the risk that their policy makers are also their policy monitors (Carver, J., 2002): this opens the company up to serious risk of fraud, bribery, and corruption because there are no checks or division of duties to ensure that proper policies are being created and run.

Figure 1 – Enron Logo (Johnson, J., 2013)

I did some research and unsurprisingly to me, failures caused by lack of governance/management separation have captured news headlines for years (OECD, 2014). Enron is just one example (where the C-suite executives, i.e. governance, created a culture in which they were also had management capabilities) (Lowery, M. & Blinebry, A., 2014), and you can find many others just by doing a quick Google search.

Resources

Carver, J. (2002). Is there a Fundamental Difference between Governance and Management? Journal of Board Leadership, 62, 6.
DOI: 10.1002/bl.38620026204

COBIT 5. (2016). COBIT 5 Principle 5: Separating Governance from Management [Video File]. Retrieved April 20, 2016, from http://www.orbussoftware.com/resources/videos/cobit-distilled/cobit-5-principle-5-separating-governance-from-management/#

ISACA. (2012). COBIT 5: A Business Framework for the Governance and Management of Enterprise IT. Retrieved March 22, 2016, from https://blackboard.qut.edu.au/bbcswebdav/pid-6248706-dt-content-rid-5765855_1/courses/AYB115_16se1/COBIT5-Framework-English%281%29.pdf

Johnson, J. (2013). 6 Famous Logos that leverage Inconsistent Design. Design Shack. Retrieved March 23, 2016, from http://designshack.net/articles/graphics/6-famous-logos-that-leverage-inconsistent-design/

Lowery, M. & Blinebry, A. (2014). Enron. In Encyclopaedia of Deception (pp 333-335). Thousand Oaks: SAGE Publications, Inc.

OEDC. (2014). Risk Management and Corporate Governance.
DOI:http://dx.doi.org/10.1787/9789264208636-en