Governing vs Managing

There are two jobs in every company and most owner-managed businesses only do one of them properly. Managing is running the business: resourcing it, delivering the work, making the hundred decisions a week that keep things moving. Governing is deciding what the business is for, what it will and will not do, who runs it and to what standard, and whether it is still heading where the owners want it to go.

In a large company these sit with different people in different rooms. In yours they sit with the same person, and one of them has deadlines attached while the other does not. You already know which one loses.

The difference, precisely

The distinction is not seniority. It is the question being asked.

• Horizon. Governing looks three to five years out. Managing looks at this week and this month.
• Question. Governing asks whether we are doing the right things. Managing asks whether we are doing things right.
• Output. Governing produces decisions, standards, mandates and boundaries. Managing produces work delivered.
• Cadence. Governing needs a few hours a quarter, done properly. Managing needs a rhythm every week.
• Accountability. Governing answers to the owners for the value of the business. Managing answers to the governing body for performance against the plan.

The traffic between them runs both ways. Downwards go the mandate, the standards and the spending limits. Upwards go results, exceptions and anything that has become a risk. If either direction is missing you do not have governance, you have a longer management meeting.

Why managing always wins

Managing is urgent, visible and satisfying. Somebody is waiting for the answer. The job goes out. You can see at five o'clock what you did.

Governing has none of that. Nobody chases you for a decision about which clients you should no longer serve. No customer is waiting on your risk appetite. The work that determines whether this business is worth anything in five years is precisely the work with no deadline attached, so it moves to next month, every month, for years.

There is also a competence trap. Most owners are very good at managing. It is what built the business. Governing feels like an unnatural act, sitting still and thinking, which is uncomfortable for people whose identity is built on getting things done.

A worked example

Illustrative, not a client. Take a services business turning over £3m with 26 staff and net profit of about £180,000. The owner puts two hours in the diary on the first Tuesday of each month, off site, with the management accounts and a written agenda. No operational items are permitted. Here is what came out of the first four.

Month one. Gross profit by client, for the first time. Of 90 clients, 22 produced £610,000 of revenue at 6 per cent gross margin, against 31 per cent across everybody else. Decision taken: reprice all 22 within one quarter and let go of any that will not move. That decision had been available for three years and had never been looked at, because it is nobody's job on a Tuesday morning.

Month two. A standard was set. No quote leaves the business below 28 per cent gross margin without the owner's signature, and inside that rule the operations manager can approve anything up to £40,000 without asking. That is a governance act: a boundary that removes the owner from a hundred future decisions rather than solving one.

Month three. The operations manager was formally appointed, with one page setting out what she decides, what she escalates, and the three numbers she is measured on. She had been doing most of the job for a year without ever being told where its edges were.

Month four. A cash floor of £150,000 was agreed, below which no discretionary spend happens, and the accountant committed to a monthly pack by the twelfth. The owner stopped finding out about February in April.

Four decisions in eight hours, none of which could have been taken in a management meeting, because a management meeting is about the work in front of you. The business had not been badly managed. It had not been governed at all.

How to apply it this week

1. Put two hours in the diary, off site, monthly. Call it what it is. Away from the building, phone off, with the numbers in front of you. Two hours a month is roughly one per cent of your working year and it is the one per cent that sets the other ninety-nine.
2. Write a governing agenda and ban everything else. Performance against plan, the numbers that matter, people and structure, risk, cash, and one strategic decision. If an item could have been settled by a manager, it does not belong on it.
3. Write down three boundaries this month. A spending limit, a margin floor, a type of work you will not take. Boundaries are how governing scales, because each one removes you from every future instance of that decision.
4. Give one person a written mandate. One page: what they decide alone, what they must bring to you, what they are measured on. Most managers in small businesses have never been told any of the three.
5. Decide what you need to see, and by when. Name the reports and the date they arrive. A governing body that receives information late is not governing, it is commenting on history.
6. Invite one outsider once a quarter. An accountant, a non-executive, a coach, someone who will ask why rather than how. The single largest weakness of governing yourself is that nobody in the room disagrees with you.

The mistake most owners make

They think governance is paperwork for large companies. It is not. Governance is simply the discipline of deciding things about the business rather than in the business, and a five-person firm that does it will out-perform a fifty-person firm that does not.

The second mistake is holding a board meeting that is a management meeting in a better shirt. The test is straightforward: read the minutes and ask whether every item could have been dealt with by a competent manager. If it could, you spent your governing time managing.

The third is appointing somebody else to do the governing while you carry on managing. A non-executive is useful, but you cannot delegate the owner's job. What you can and should delegate is a great deal of the managing, which is exactly what the boundaries and the mandates are for.

The questions to sit with

• Out of 10, how much of last month did you spend on decisions about the business rather than decisions inside it?
• Who currently holds you to account for the performance of this business, and when did they last do it properly?
• What standards or limits exist in writing, as opposed to existing in your head and being applied unevenly?
• If you were a shareholder in this company but not an employee of it, what would you be asking the management team right now?

This sits at the heart of the Systems & Scale work and the Effective Governance module. Owners rarely need to manage better. They need to spend a small, protected amount of time doing the other job, which nobody will ever chase them for.