Owners of Saudi businesses and companies often ask about the difference between governance and management. In this comprehensive article we answer that question in detail, covering the legal definition of each, the regulatory frameworks that govern them, and why each matters for companies in light of Saudi Vision 2030.
To understand the difference between governance and management precisely, we first need to define governance. The Arabic term is derived from a verb meaning to rule or administer with justice and fairness.
In technical terms, the Capital Market Authority (CMA) defines governance in its Corporate Governance Regulations as: "rules to lead and guide the company that include mechanisms to regulate the various relationships between the board of directors, executive directors, shareholders and stakeholders, by establishing special rules and procedures to facilitate the decision-making process and lend it transparency and credibility, with the aim of protecting the rights of shareholders and stakeholders and achieving fairness, competitiveness and transparency in the market and the business environment."
Corporate governance in Saudi Arabia is also described as "a set of rules and laws that guide and lead the company and ensure that its assets are used in a way that protects stakeholders, including the board of directors, shareholders, employees, customers, suppliers and others, and achieves fairness, transparency and competitiveness in the market."
Corporate governance in the Kingdom rests on several key laws and regulations:
Linguistically, the Arabic word for management comes from a verb meaning to lead, steer and operate. In technical terms, management is "the body that gives directions and determines the activities to be carried out, which are expected to be in line with the methods and practices of governance."
In a legal context, management is defined as the set of activities and processes aimed at directing a company's human, material and financial resources to achieve its objectives efficiently and effectively. It covers the planning, organization, direction and control of day-to-day operations.
The Saudi Companies Law grants the board of directors broad powers to manage executive and investment affairs, provided that all these powers are directed toward achieving the company's purpose and serving its interests.
The law also requires the board's work to be subject to the oversight of the shareholders' general assembly, to ensure that its powers are used properly, that shareholders' investments are protected and that the company remains stable and sustainable.
We can now offer a detailed comparison that explains the difference between governance and management across several dimensions:
Governance represents the "vision and approach": it is the strategic framework set by the board of directors to guide the company's direction, ensure oversight and balance the interests of all stakeholders.
Management represents the "mechanism of implementation": it is the executive arm responsible for turning strategies into tangible results by running day-to-day activities, organizing human and material resources and achieving defined objectives.
The board of directors is responsible for governance: it sets the company's overall direction, establishes policies and strategic plans and monitors performance. Executive managers are responsible for operations: they apply these policies on the ground and run day-to-day operations.
Governance and management differ in the function and role assigned to each. Governance is concerned with direction, oversight and general supervision, while executive management focuses on implementation and day-to-day operations to ensure that processes run effectively.
This difference is clear in the nature of the work and the type of decisions involved. Governance is strategic in nature and concerned with major decisions and the company's long-term direction, while management is operational, making day-to-day decisions and handling the details of execution.
This complementary relationship can be summed up as follows: governance always answers the question "what should be done, and why?" to define the vision and purpose, while management answers the question "how should it be done?" to turn that vision and those plans into reality.
Governance focuses on establishing transparency, embedding accountability and protecting the rights of shareholders and stakeholders, while management focuses on raising operational efficiency and achieving operational targets as effectively as possible.
This complementarity becomes evident in a financial crisis: the board of directors sets the overall strategy and redirects the organization's course, while executive management is responsible for implementing the plan on the ground through practical steps such as cutting costs and reorganizing operations.
Governance works to ensure the company's sustainability and continued growth through strategic investments and long-term initiatives, such as reinvesting part of the profits in research and development.
Executive management, by contrast, concentrates on short-term operational goals and quick results, such as raising productivity and meeting quarterly or annual targets.
The Corporate Governance Regulations issued by the Capital Market Authority prevent shareholders from intervening directly in the management of the company, and give them defined channels to question board members, follow up on their performance and hold them accountable through the shareholders' general assemblies.
At the same time, the Saudi Companies Law gives the board of directors the broadest powers to manage the company, and the board alone is responsible for managing it, even if shareholders try to dictate how it should be managed.
The difference between governance and management is closely tied to the principle of separating ownership from management, the core principle on which the governance of joint stock companies is built.
In joint stock companies, governance rests on the fundamental separation between owning the company and managing it: ownership does not mean managing the company, and an owner has no role in management as long as they remain only a shareholder.
This separation is intended to help joint stock companies operate with a high degree of professionalism and independence that supports their success, particularly family businesses that go public on the stock market.
Effective governance makes companies more attractive and supports their sustainability. Statistics indicate that around 70% of investors' decisions are directly influenced by an organization's level of governance.
Sound governance acts as a shield that limits violations and ensures that the business complies with local regulations and international standards.
Governance requires companies to present a clear and comprehensive picture of their financial performance, operating plans and future targets. This strengthens the company's reputation in the market and makes it easier to obtain financing on preferential terms.
Governance safeguards the rights of shareholders and stakeholders and reduces the risks to their investments. It also sets strict controls that close the door to any suspicion of financial or administrative corruption within the organization.
Governance activates internal control tools and enables the board of directors to closely oversee results. This effect extends across sectors: the average level of governance in non-profit organizations in the Kingdom has reached around 80%, reflecting the maturity of institutional practice.
Governance in Saudi Arabia has moved from regulatory text to practical approach, with a direct effect on lowering the cost of financing and accelerating company growth. Vision 2030 reinforces this direction by linking institutional performance to the principles of transparency, accountability and effective management.
Management is the executive tool that turns the board's strategies into reality through planning, organization, direction and control, ensuring that the policies and decisions of the board of directors are implemented efficiently and effectively.
Management focuses on improving day-to-day operations, increasing productivity and reducing costs in order to achieve profitability and a competitive edge.
Management is responsible for recruiting, training and developing people, and for managing the company's material and financial resources, to ensure these resources are used in the best way to achieve the company's objectives.
Management monitors changes in the business environment and responds to them quickly, adjusting operating plans and developing processes to meet new requirements.
Governance and management can be seen as two sides of the same coin. Together they form an integrated and coherent model of institutional work: governance sets the overall framework and strategic direction of the organization, while management carries out the work on the ground to achieve those objectives.
The relationship can be pictured as steering and motion: governance sets the course and issues direction, while management drives the operational wheel to put it into practice.
Saudi Arabia's regulatory and legislative environment has made a point of embedding this integration and giving it a legal framework. The Companies Law was introduced to entrench institutional work and strike a careful balance between the rights of the different parties involved, while providing a fair and effective governance environment.
The regulations governing corporate governance have also set clear rules defining the relationship between boards, executive management and shareholders, together with clear mechanisms for oversight and accountability.
Now that we have explained the difference between management and governance, you can contact Sahal Law Firm to put in place sound governance that protects your company and strengthens investor confidence, in line with the Kingdom's latest regulations and Vision 2030.
