Delegated Authority. It’s a term banded around in large organisations but what is it and why is it important? The reality is that unless you are a one-person business owner where everything sits with you, then some form of delegated authority is relevant to your business.
In New Zealand, Section 130 of the Companies Act 1993 empowers the board of a company to delegate to a committee of directors, a director or employee any 1 or more of its powers. In practise, this passes the day to day running of the business down to the CEO, Managing Director or General Manager, freeing up the Board to govern. In very small organisations, authority is often devolved in an informal way. It can be captured in staff’s employment contracts and the business owner is usually involved in important decisions. However, as businesses grow in complexity, size and geographical presence, often lines of authority become blurred. Things fall between the gaps or are duplicated, which is at the very least inefficient and at the other end of the spectrum may compromise a business’s viability. So, it is very important to get it right. Essentially, it's about answering the question regarding who can do what? providing formal approval to specified authority limits or activity tasks. Usually, it covers a broad spectrum of business functions, including: Strategy & Planning, Procurement, The Customer, Finance, Legal, Human Resources, Information Technology, Risk Management. It responds to day-to-day questions that arise in a business such as:
Who can vary our customer terms of trade?
Who can approve the addition of a new supplier?
Who can approve a new IT system?
Who can develop marketing and brand collateral?
Who can approve bank payment batches?
The Board, Investors and Bankers often gain some degree of comfort knowing that a Delegated Authority framework is in place. It also responds to the scenario of when a key decision maker is unavailable, as authority is passed to a peer or a direct report. Get the balance right in devolving authority in an optimal way and your organisation’s business will flow efficiently. However too little authority and you end up with bottlenecks, while too much authority and you lose control and staff may feel overburdened. To this end, getting your delegated authority just right is a skillful art.