The Relationship Between the Board and Executive Management

Oversight, Delegation, Boundaries of Authority, and Governance Balance

First: Introduction

The relationship between the board of directors and executive management is the most impactful relationship in a company’s life. This relationship determines who decides what, who oversees whom, and how information flows. Its good management creates successful and sustainable companies; its poor management creates conflicts paralyzing the company and threatening its survival. Achieving balance between oversight and empowerment, between control and trust, between intervention and delegation, is an art requiring skill and practice.

In the Saudi system, the Companies Law and Corporate Governance Regulations set the general framework for this relationship. The board is responsible for strategic oversight and control, and executive management is responsible for daily execution and achieving results. The boundaries between these two roles may seem theoretically clear but in practice require continuous diligence and constant review. This article reviews the nature of this relationship, oversight mechanisms, boundaries of authority, delegation, and best practices for maintaining required balance.

💡  Key Insight The ideal relationship between the board and executive management is neither subordination nor competition, but governance partnership with distinct roles. The board sets direction and oversees; management executes and reports. Each party respects the other’s competence, supports them, and challenges them professionally. This balance does not happen by chance — it is made by clear charter, regular communication, and mutual respect.

Second: Fundamental Principles of the Relationship

1. Separation Between Oversight and Execution Principle

Clear separation between board’s role (oversight) and executive management’s role (execution) is the cornerstone:

• Board sets strategy, management executes it.
• Board approves budget, management manages it.
• Board defines policies, management applies them.
• Board oversees performance, management achieves results.

2. Integration and Partnership Principle

Separation does not mean disconnection. Board and management are partners in serving the company:

• Strategy formulation through cooperation between them.
• Transparent information exchange.
• Mutual support in challenges.
• Coordination in communication with external parties.

3. Mutual Accountability Principle

Each party is responsible to the other differently:

• Executive management responsible to board for performance.
• Board responsible to shareholders for oversight quality.
• Senior management responsible for providing honest reports.
• Board responsible for asking difficult questions.

4. Respect for Boundaries Principle

Each party has authorities the other must respect:

• Management does not exceed approved authorities.
• Board does not interfere in daily operational decisions.
• Disputes over boundaries resolved by written charter.
• Violations addressed quickly before recurrence.

Third: Board’s Roles Toward Executive Management

1. Appointment and Termination Role

Among the most important board authorities:

1.1 CEO Appointment

• Selecting the appropriate candidate after comprehensive search.
• Negotiating terms of appointment.
• Approving salary and compensation.
• Formally signing the contract.
• Introducing the new appointee to the market.

1.2 Senior Executive Appointment

The board participates in appointing senior executives to varying degrees:

• Approving CEO’s recommendation.
• Interviewing final candidates.
• Approving compensation.
• Performance evaluation.

1.3 Termination When Needed

• Collective board decision.
• Based on documented weak performance.
• Or unacceptable behavior.
• Respecting termination procedures.
• With appropriate market disclosure.

2. Strategic Guidance Role

The board strategically guides management:

• Approving vision and mission.
• Approving medium and long-term strategy.
• Approving major investments.
• Approving entry into new markets.
• Approving mergers and acquisitions.

3. Performance Oversight Role

• Approving performance indicators.
• Monitoring periodic reports.
• Comparing performance with plan.
• Questioning management on deviations.
• Approving corrective actions.

4. Risk Oversight Role

• Approving risk management strategy.
• Approving risk appetite.
• Monitoring oversight system.
• Evaluating control effectiveness.
• Intervening in high risks.

5. Management Support Role

The board is not only watchdog but supporter of management:

• Providing expertise and advice.
• Opening doors to opportunities (network of relationships).
• Support in crises.
• Intervening when needed in major issues.
• Public attribution to management.

Fourth: Executive Management’s Roles Toward the Board

1. Execution Role

• Executing approved strategy.
• Executing approved budget.
• Applying policies.
• Managing daily operations.
• Achieving objectives.

2. Reporting Role

• Regular reports to board.
• Immediate alerts on material issues.
• Complete transparency in information.
• Disclosing risks.
• Explaining deviations.

3. Advisory Role

• Providing recommendations to board.
• Reviewing options.
• Clarifying impacts.
• Answering questions transparently.
• Respecting board decisions.

4. Coordination Role

• Preparing board meetings.
• Providing documents and information.
• Coordinating with departments to prepare reports.
• Following up implementation of board decisions.
• Linking board to operational context.

Fifth: Delegation and Authorities

1. Importance of Authority Document

The Delegation of Authority Matrix is the most important document in regulating the relationship:

• Defines what each level decides.
• Avoids decision conflicts.
• Speeds decision-making.
• Clearly defines responsibilities.
• Forms basis for accountability.

2. Document Components

The document typically covers:

• Strategic decisions.
• Capital investments.
• Financing and borrowing.
• Leadership position appointments.
• Major contracts.
• Related party transactions.
• Distributions and compensation.
• Policy changes.

3. Authority Levels

Decision	Assembly	Board	CEO
Articles amendment	Mandatory	Proposal	—
Major M&A	Mandatory	Proposal	—
Profit distribution	Approval	Proposal	—
CEO appointment	—	Mandatory	—
Investment above 10% assets	—	Mandatory	—
High executive appointment	—	Approval	Proposal
Contracts above SAR 50M	—	Approval	Proposal
Contracts SAR 10-50M	—	Notification	Approval
Contracts below SAR 10M	—	—	Approval
Ordinary employee appointment	—	—	Full approval

(Numbers above are illustrative, customized for each company)

4. Document Review

• Annual Review: Within board evaluation.
• Exceptional Review: Upon material changes.
• Update After Acquisitions: Or expansions.
• Board Approval: For any amendment.
• Wide Distribution: To all concerned.

Sixth: Communication Channels

1. Formal Meetings

1.1 Board Meetings

The main formal channel:

• Management typically attends board meetings.
• Presenting reports and inquiry.
• Withdrawal in closed sessions.
• Answering questions frankly.

1.2 Committee Meetings

Management attends committee meetings as needed:

• Audit Committee: CFO and internal auditor.
• Risk Committee: risk manager.
• Nominations Committee: HR director.

2. Continuous Communication

2.1 Chairman with CEO

Nearly daily relationship:

• Weekly or biweekly meetings.
• Communications on urgent matters.
• Building personal trust.
• Coordinating major directions.

2.2 Board Members with Management

As needed, with controls:

• Communication in formal framework.
• Via secretary or chairman.
• In committee areas led by member.
• Respecting administrative hierarchy.

3. Written Reports

3.1 Periodic Reports

• CEO’s monthly or quarterly report.
• Financial report.
• KPI Dashboard.
• Risk report.
• Compliance report.
• HR report.

3.2 Exceptional Reports

• Material events.
• Investigation results.
• Major deals.
• Regulatory developments.

4. Informal Meetings

• Lunch or dinner between management and board.
• Site visits.
• Joint events.
• Building professional personal relationships.

📌  Note Direct communication between board members and senior executives (bypassing chairman or CEO) is a sensitive topic. Communication within the committee framework is acceptable and necessary. Communication outside this framework requires caution to avoid interfering in administrative hierarchy. General rule: communication through formal channels, except in emergencies.

Seventh: Boundaries to Respect

1. What the Board Does Not Do

• Does not interfere in daily operational decisions.
• Does not bypass CEO in directing employees.
• Does not manage external relations without coordination.
• Does not dismiss or appoint ordinary employees.
• Does not buy or sell on behalf of the company.

2. What Executive Management Does Not Do

• Does not make decisions exceeding authorities.
• Does not hide material information from the board.
• Does not exceed approved policies.
• Does not execute related party transactions without approval.
• Does not speak on behalf of the board on governance issues.

3. Cases of Boundary Crossing

3.1 Board Interference in Execution

Signs and causes:

• Weak board trust in management.
• Interventionist chairman personality.
• Crises requiring intervention.
• Absence of clear authority document.

Treatment:

• Clarifying roles.
• Building trust.
• Specific charter.
• Relationship evaluation.

3.2 Management Exceeding Authorities

Signs and causes:

• Weak board oversight.
• Dominant CEO personality.
• Individual management culture.
• Absence of follow-up mechanisms.

Treatment:

• Reviewing authority document.
• Strengthening reports.
• Quick board intervention.
• In severe cases, changing management.

Eighth: Managing Disagreements

1. Common Types of Disagreements

1.1 Strategic Disagreements

Management proposes direction and board rejects or requests amendments:

• Deep discussion in meeting.
• Reviewing alternatives.
• Engaging external experts.
• Resolution by final board decision.

1.2 Performance Disagreements

Board believes management has not achieved objectives:

• Frank discussion of causes.
• Agreement on corrective actions.
• Timeline for improvement.
• In severe cases, changing management.

1.3 Authority Disagreements

Management exceeds authorities or board interferes:

• Clarifying boundaries.
• Reviewing document.
• Agreeing on procedures.
• Continuous follow-up.

1.4 Information Disagreements

Board feels management is not providing complete information:

• Explicitly requesting additional information.
• Defining what must be disclosed.
• Building mechanisms for mandatory disclosure.
• Escalation if concealment continues.

2. Disagreement Resolution Mechanisms

2.1 Amicable Means

• Chairman meeting with CEO.
• Closed board session.
• Neutral external consultation.
• Mediation from independent member.

2.2 Formal Means

• Board decision by majority.
• Amending authority document.
• Amending board charter.
• Resorting to general assembly in exceptional cases.

2.3 Legal Means

Rare and as last resort:

• Formal legal consultation.
• Resorting to regulatory authorities.
• Arbitration in certain cases.
• Litigation in major disputes.

Ninth: Evaluating the Relationship

1. Healthy Relationship Indicators

• Regular and productive meetings.
• Smooth information flow.
• Mutual respect in discussion.
• Decisions made within timeline.
• Smooth decision implementation.
• Absence of recurring tensions.

2. Tense Relationship Indicators

• Tense meetings.
• Information hidden or delayed.
• Personal disputes.
• Decisions continuously postponed.
• Slowness in implementation.
• Recurring resignations.

3. Periodic Evaluation

Relationship evaluation is part of annual board evaluation:

• Surveys for members and management.
• Interviews with parties.
• Review of report quality.
• Decision implementation analysis.
• Recommendations for relationship improvement.

Tenth: Special Challenges

1. Strong Board with Weak Management

Signs:

• Board makes all decisions.
• Management acts only as executor.
• Weakness in initiative from management.
• Excessive reliance on board.

Treatment:

• Developing management through training.
• Granting management broader authorities.
• If unsuccessful, changing management.

2. Strong Management with Weak Board

Signs:

• Management dominates decisions.
• Board agrees without genuine discussion.
• Weakness in oversight.
• Information reaches board late or incomplete.

Treatment:

• Developing board with training and adding stronger members.
• Strengthening independence.
• Activating committees.
• Independent consultants for the board.

3. Family Companies

Special challenges:

• Mixing owner role with board role.
• Weak separation between management and ownership.
• Difficulty making termination decisions.
• Challenges in appointing senior executives from outside the family.

Treatment:

• Clear family charter.
• Separate family board.
• Independent members on company board.
• Independent professional management.

4. Acquisition Companies

After acquisition, relationship dynamics change:

• New owner imposes new management.
• Transitional board.
• Integration challenges.
• Retaining competencies.

Eleventh: International Practices

1. Anglo-Saxon Model

(United States, United Kingdom, Australia):

• Single board combining executives and non-executives.
• Independent majority.
• Independent committees.
• Strong role for shareholders.

2. German Model (Dual Board)

(Germany, Austria, sometimes Netherlands):

• Completely separate Supervisory Board.
• Executive Management Board.
• Complete separation between oversight and execution.
• Employee representation on Supervisory Board.

3. Saudi and Gulf Model

Mixed model:

• Single board like Anglo-Saxon model.
• Strict separation between board chairmanship and executive management.
• Independent member ratio.
• Influenced by regional and international markets.

Twelfth: Best Practices

1. At the Framework Level

• Written Charter: For relationship between board and management.
• Detailed Authority Document: And updated.
• Disclosure Policy: Defining what must be reported.
• Meeting Schedule:
• Communication Policy: For different channels.

2. At the Communication Level

• Complete Transparency: In information flow.
• Regular Communication: Between chairman and CEO.
• Informal Meetings: To build relationships.
• Respecting Hierarchy: In communication.
• Quick Response: To inquiries.

3. At the Oversight Level

• Periodic Reports: With sufficient information.
• Constructive Questions: In meetings.
• Regular Follow-up: Of decisions.
• Closed Sessions: In every meeting.
• Annual Evaluation: Of performance.

4. At the Development Level

• Management Development: For leaders.
• Succession Plans: For every leadership position.
• Building Competencies: At every level.
• Learning Culture: In board and management.
• Linking with Best Practices:

Conclusion

The relationship between the board and executive management is the axis of corporate governance. A healthy, balanced, transparent relationship creates a company capable of achieving its objectives and facing its challenges. A dysfunctional relationship creates a company paralyzed by conflicts, weak in performance, and vulnerable to crises. The required balance needs continuous effort from both parties and a clear framework regulating roles and authorities.

Saudi companies today, with the evolving governance framework and rising expectations, face an opportunity to build governance relationships at international level. Clear charter, detailed authority document, regular communication, and mutual respect, are components of this successful relationship. Investing in building this relationship, developing it, and evaluating it, is an investment yielding tangible results in every aspect of company performance. A board and management working in harmony are the best guarantee for company sustainability and success.

🎯  Essential Points to Remember (1) The relationship with executive management is a partnership with distinct roles, not competition nor subordination. (2) Principles: separation between oversight and execution, integration, accountability, boundary respect. (3) Board roles: appointing CEO, strategic guidance, performance oversight, risk oversight, support. (4) Management roles: execution, reporting, advisory, coordination. (5) Authority document is the most important for regulating the relationship and defining what each level decides. (6) Communication channels: formal meetings, continuous communication, written reports, informal meetings. (7) Boundaries must be respected — board does not interfere in execution, management does not exceed authorities. (8) Disagreements addressed by amicable, formal, and finally legal mechanisms. (9) Relationship evaluation is part of annual board evaluation. (10) Special challenges in family companies, acquisition companies, and unbalanced boards.

Frequently Asked Questions

What are the fundamental principles governing the board-executive management relationship in Saudi Arabia?

Four principles form the foundation of this relationship. Separation between oversight and execution means the board sets strategy and management executes it, the board approves the budget and management manages it, the board defines policies and management applies them, and the board oversees performance while management achieves results. Integration and partnership means separation does not equal disconnection — the two work together on strategy formulation, exchange information transparently, support each other in challenges, and coordinate communications with external parties. Mutual accountability means executive management is accountable to the board for performance while the board is accountable to shareholders for oversight quality, with management obligated to provide honest complete reports and the board obligated to ask difficult questions. Respect for boundaries means management does not exceed approved authorities, the board does not interfere in daily operational decisions, disputes over boundaries are resolved through a written charter, and violations are addressed immediately before recurrence. These four principles together define what Saudi corporate governance law terms the governance partnership with distinct roles.

What is the delegation of authority document and how does it regulate decision-making between the board and management?

The delegation of authority matrix is the most important document in regulating the board-management relationship, defining what each level decides to prevent conflicts, accelerate decision-making, and create clear accountability. It covers eight decision categories: strategic decisions including mergers and acquisitions requiring general assembly approval, capital investments escalating from CEO approval through board approval to assembly approval based on materiality, financing and borrowing, leadership position appointments where the CEO appointment is an exclusive board authority, major contracts above defined thresholds requiring board approval while smaller contracts fall within CEO authority, related party transactions requiring assembly disclosure and approval, profit distributions, and policy changes. The document must be reviewed annually within the board performance evaluation cycle, whenever material changes occur such as acquisitions or expansions, with any amendment requiring full board approval and wide distribution to all concerned parties. Without this document, boundary disputes become inevitable — either the board begins interfering in operational decisions due to a dominant chairman personality or unclear limits, or management begins exceeding its authorities due to weak oversight or a dominant CEO, both of which damage governance quality and board-management trust.

How should disagreements between the board and executive management be handled and what are the signs of a healthy versus tense relationship?

Four common disagreement types each have defined resolution paths. Strategic disagreements where the board rejects management's proposed direction are resolved through deep meeting discussion, reviewing alternatives, engaging external experts, and ultimately the board's final decision. Performance disagreements where the board believes management has not achieved objectives are addressed through frank discussion of causes, agreed corrective actions with a defined improvement timeline, and management change in severe cases. Authority disagreements where either party crosses into the other's domain are resolved by clarifying boundaries through the authority document and agreeing on revised procedures with continuous follow-up. Information disagreements where the board feels management is withholding material information are addressed by explicitly requesting additional disclosure, building mandatory reporting mechanisms, and escalating to regulatory authorities if concealment continues. Resolution mechanisms progress from amicable means including a chairman-CEO direct meeting or neutral mediation by an independent member, to formal mechanisms including a majority board decision or charter amendment, and finally legal means as a last resort. Signs of a healthy relationship include regular productive meetings, smooth information flow, mutual respect in discussion, decisions made within planned timelines, and absence of recurring tensions. Warning signs include tense meetings, delayed or incomplete information, continuously postponed decisions, slow implementation of approved decisions, and recurring senior resignations.

Frequently Asked Questions

What are the fundamental principles governing the board-executive management relationship in Saudi Arabia?

Four principles form the foundation of this relationship. Separation between oversight and execution means the board sets strategy and management executes it, the board approves the budget and management manages it, the board defines policies and management applies them, and the board oversees performance while management achieves results. Integration and partnership means separation does not equal disconnection — the two work together on strategy formulation, exchange information transparently, support each other in challenges, and coordinate communications with external parties. Mutual accountability means executive management is accountable to the board for performance while the board is accountable to shareholders for oversight quality, with management obligated to provide honest complete reports and the board obligated to ask difficult questions. Respect for boundaries means management does not exceed approved authorities, the board does not interfere in daily operational decisions, disputes over boundaries are resolved through a written charter, and violations are addressed immediately before recurrence. These four principles together define what Saudi corporate governance law terms the governance partnership with distinct roles.

What is the delegation of authority document and how does it regulate decision-making between the board and management?

The delegation of authority matrix is the most important document in regulating the board-management relationship, defining what each level decides to prevent conflicts, accelerate decision-making, and create clear accountability. It covers eight decision categories: strategic decisions including mergers and acquisitions requiring general assembly approval, capital investments escalating from CEO approval through board approval to assembly approval based on materiality, financing and borrowing, leadership position appointments where the CEO appointment is an exclusive board authority, major contracts above defined thresholds requiring board approval while smaller contracts fall within CEO authority, related party transactions requiring assembly disclosure and approval, profit distributions, and policy changes. The document must be reviewed annually within the board performance evaluation cycle, whenever material changes occur such as acquisitions or expansions, with any amendment requiring full board approval and wide distribution to all concerned parties. Without this document, boundary disputes become inevitable — either the board begins interfering in operational decisions due to a dominant chairman personality or unclear limits, or management begins exceeding its authorities due to weak oversight or a dominant CEO, both of which damage governance quality and board-management trust.

How should disagreements between the board and executive management be handled and what are the signs of a healthy versus tense relationship?

Four common disagreement types each have defined resolution paths. Strategic disagreements where the board rejects management's proposed direction are resolved through deep meeting discussion, reviewing alternatives, engaging external experts, and ultimately the board's final decision. Performance disagreements where the board believes management has not achieved objectives are addressed through frank discussion of causes, agreed corrective actions with a defined improvement timeline, and management change in severe cases. Authority disagreements where either party crosses into the other's domain are resolved by clarifying boundaries through the authority document and agreeing on revised procedures with continuous follow-up. Information disagreements where the board feels management is withholding material information are addressed by explicitly requesting additional disclosure, building mandatory reporting mechanisms, and escalating to regulatory authorities if concealment continues. Resolution mechanisms progress from amicable means including a chairman-CEO direct meeting or neutral mediation by an independent member, to formal mechanisms including a majority board decision or charter amendment, and finally legal means as a last resort. Signs of a healthy relationship include regular productive meetings, smooth information flow, mutual respect in discussion, decisions made within planned timelines, and absence of recurring tensions. Warning signs include tense meetings, delayed or incomplete information, continuously postponed decisions, slow implementation of approved decisions, and recurring senior resignations.

References and Sources

• Saudi Companies Law (Royal Decree M/132).
• Corporate Governance Regulations issued by the Capital Market Authority.
• Implementing Regulations of the Companies Law for Listed Joint-Stock Companies.
• OECD Principles of Corporate Governance — Board-Management Relations.
• ICGN Global Governance Principles.
• Harvard Business Review — Board-CEO Relations.
• UK Corporate Governance Code — Leadership and Effectiveness.
• German Corporate Governance Code — Two-Tier Board Model.
• Spencer Stuart — Board-Executive Dynamics.
• Egon Zehnder — CEO Succession and Board Relations.