Process

Define the authority structure

 
Objective Define the core mechanism by which the organization is managed and the basis of the organization’s system of authority
Outcome A statement or map defining the key elements of the organization’s senior management and showing their relationships

For a company, the key elements are usually the board, board committees, chief executive, and executive team. Many organizations also have advisory or decision-making forums with responsibility for particular areas of activity.

Defining the authority structure is important for these reasons —

  • It establishes the foundation of good governance required under various listing rules.
  • It establishes the framework for the organization’s decision-making and authorisation system.

Suggested approach —

Responsibility   Action Notes
 
 

1.

Create a statement or map of the authority structure

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See below for an example.

Add cross-references — as hot-spots if you created a graphic map — to the team charters and position descriptions for each element in the definition.

 

2.

Design the decision authority system

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Devise the method that will be used to specify —

  • Each position’s authority to approve decisions.
  • The approval authority required for each type of decision.

Although most decision authorities are concerned with expenditure, there are many other types of decision that should be controlled within the authority system: indemnities, guarantees, supply contracts, approval of credit limits, disclosure of information, report filing, ...

Rather than assigning authority directly to each position, it may be simpler to assign each position to an authority level (eg, 0 = board, 1 = CEO, ... 10 = trainee), then to specify the level required for each type of decision.

 

3.

Set the rules for delegation of authority

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4.

List the board’s reserved authorities

End

List the matters over which the board retains authority, such as audit, executive remuneration, long-term strategy, and financial decisions above some threshold. These matters always remain outside the scope of any position’s decision authority.

Sample authority structure for a listed company
Example authority structure for a listed company