The Division Between the Board of Directors and Executive Management in Joint-Stock Companies: Balancing Oversight and Execution

One of the most common governance challenges in joint-stock companies is the lack of clarity about where the board of directors should stand. Does the board manage the company, or does it oversee management? At first glance, this may seem like a theoretical question; in daily practice, however, it directly affects decision-making processes, the distribution of responsibilities, and the overall functioning of the company. When the division of roles between the board and executive management is clear, decisions can be made faster, responsibilities can be tracked more easily, and internal relationships can function more smoothly.

In many joint-stock companies in Turkey particularly in family businesses and companies in the process of institutionalization board members also hold executive roles. This is not a problem in itself; in small and medium-sized structures, it is often unavoidable. Difficulties may arise when the two roles are not clearly separated and it remains unclear in which capacity a given decision was made. The same person may make an operational decision as general manager in the morning and find themselves overseeing that very decision as a board member in the afternoon. The conscious separation of these two roles is one of the most fundamental requirements of corporate governance.

In this article, we examine where the non-delegable duties of the board of directors end and the domain of executive management begins, what a clear division of roles can bring to the company, and the institutional mechanisms that support this division in daily operations.

The Board's Non-Delegable Duties Joint-stock Companies

The Turkish Commercial Code defines certain duties of the board of directors in joint-stock companies as non-delegable and non-waivable. These include the high-level management of the company and the issuance of the necessary instructions, the determination of the management structure, the establishment of accounting and financial control systems, and the appointment and supervision of senior executives. The critical phrase here is "high-level management." The law does not expect the board to be involved in every transaction of the company; it expects the board to set the company's direction and to oversee whether the company is moving in that direction.

Executive management operates within this framework. The general manager and the management team make day-to-day decisions, run operations, and regularly report the results to the board — all within the strategy and boundaries the board has defined. In this division of labor, the board owns the questions of "what" and "why," while executive management owns the questions of "by which method" and "by whom." The board defines the objective and the risk limits; management designs and implements the path to that objective.

In practice, this division can break down in two directions. In the first case, the board becomes overly involved in operational details: procurement decisions, personnel matters, or daily pricing — topics that belong to management's domain — begin to fill the board agenda. In this situation, the board may not be able to devote the time and attention required for its core duties of strategy and oversight. At the same time, the executive team may struggle to take initiative because every decision requires board approval, and decision-making processes may slow down.

In the second case, the opposite occurs: the board effectively withdraws from its oversight function and may recede into a position of approving management's prepared decisions without discussion. In this situation, although the board formally exists, its contribution to decision quality remains limited. When the oversight function weakens, risks may not be noticed in time, and the company may become dependent on the perspective of a single executive or a narrow team.

The healthy approach is to consciously establish a balance between these two extremes. The board respects management's domain without abandoning its oversight responsibility; management, in turn, views the framework drawn by the board not as a constraint but as a source of decision-making security. This balance does not emerge on its own; it needs to be defined, documented in writing, and reviewed regularly.

What a Clear Division of Roles Brings to the Company

The division of roles is often treated as a compliance requirement; yet when structured correctly, it can deliver concrete and measurable benefits to the company. What a clear division of roles brings to the company can be summarized as follows:

• Faster decision-making: When it is clear who has authority over which decision, matters are not unnecessarily escalated to the board agenda. Management can confidently make decisions within its own domain, while the board can focus solely on genuinely strategic issues.

• Traceable accountability: When it is clear which body made each decision and under which authority, accountability is strengthened. This supports both internal trust and the company's reputation among shareholders.

• Better use of board time: A board agenda cleared of operational matters creates more room for strategy, risk, and long-term planning. The board's added value is directly related to where it allocates its time.

• Support for executive development: When the executive team holds decision-making authority in its own domain, it develops faster, and a culture of taking responsibility spreads throughout the company. This also creates a strong foundation for succession planning.

• Earlier visibility of risks: A board that actively exercises its oversight function can evaluate financial and operational indicators from a perspective independent of management. This perspective can contribute to identifying problems before they grow.

For these benefits to materialize, the division of roles must live not only in the organizational chart but also in daily practice. A written delegation-of-authority matrix is an important starting point; what is truly decisive, however, is that board members and the executive team genuinely embrace this division. Refraining from operational details in board meetings, management bringing strategic decisions to the board in a timely and complete manner, and both sides respecting the boundaries of their roles are the indicators of this commitment.

The contribution of independent board members deserves mention here as well. Independent members who hold no executive role and have no other ties to the company can play a balancing role in preserving the division between oversight and execution. When the board agenda drifts toward operational matters, they can recognize this and suggest returning to the strategic framework; they can also assess the adequacy of the information provided by management with an impartial eye. In this respect, independent board membership can be seen as a structural safeguard that supports the sustainability of the division of roles.

Institutional Mechanisms That Clarify the Division of Roles

For the division of roles to be lasting, it must rest on systems rather than individuals. Three mechanisms stand out here: delegation-of-authority arrangements, the reporting framework, and agenda discipline.

The first mechanism is written delegation-of-authority arrangements. The Turkish Commercial Code allows the board of directors to delegate its management powers apart from its non-delegable duties partially or fully through an internal directive. This internal directive clearly defines which decisions remain with the board, which are delegated to the general manager or the management team, and which transactions, by amount or nature, require board approval. A well-prepared authority matrix prevents the question "whose decision is this?" from being debated anew each time and brings predictability to decision-making processes. Reviewing the authority matrix at regular intervals is also important; as the company grows or its field of activity changes, authority limits may need to be updated.

The second mechanism is a regular and structured reporting framework. The board of directors can fulfill its oversight duty only with accurate, timely, and comparable information. The content, frequency, and format of the reports management submits to the board should be defined in advance. Financial results, budget performance, key operational indicators, and significant risk items can form the minimum scope of this reporting. Once the reporting framework is established, the board can monitor management without interfering in daily operations, while management can meet the board's information needs within a predictable structure. The point to watch here is that reporting should not become a formality. The board actually reading the reports, asking questions, and requesting additional information when necessary keeps the oversight function alive.

The third mechanism is the conscious management of the board agenda. The agenda is the most concrete tool determining where the board allocates its time. Strategic topics, risk assessments, and executive performance appearing regularly on the agenda — while operational matters within management's authority are kept off it — is the meeting-level reflection of the division of roles. Preparing an annual agenda plan and determining in advance which topic will be addressed in which period of the year can support this discipline. The role of the board chair is decisive here; the chair is expected to shape the agenda together with management, but in line with the board's priorities.

The common feature of these three mechanisms is that they do not leave the division of roles to personal preferences or the circumstances of the day. The authority matrix defines where decisions belong, the reporting framework defines how information flows, and agenda discipline defines the board's focus. When the three work together, the relationship between the board and executive management is freed from ambiguity, and both sides can become more effective within their own areas of responsibility.

The institutionalization of the division of roles is also part of the company's preparation for the future. The processes through which founding partners or current executives hand over their duties can proceed smoothly only if roles and authorities have been clarified in advance. When the question of who makes which decision is tied to systems rather than individuals, leadership transitions can become a planned handover rather than a disruption for the company. In this respect, the division of roles is directly connected to succession planning.

In conclusion, the division between the board of directors and executive management in joint-stock companies is not an organizational detail but one of the fundamental choices that determine how corporate governance functions. When the boundaries between oversight and execution are clear, decisions accelerate, responsibilities become traceable, and the company can move from dependence on individuals toward a management approach built on systems. This transition requires time and commitment; yet the predictability it provides supports both the company's current performance and its long-term continuity.

As NT Finans Partners, we are by your side to clarify the division of duties and authority between your board of directors and your executive team, and to design your authority matrix and reporting framework. For detailed information, you can contact us.