Delegation of Authority framework – Why implement one at all?

A staggering number of organisations does not have a robust Delegation of Authority framework in place. This puts them at a considerable financial, operational and legal risk. It is certainly wrong to think that only large organisations require a DOA framework. In fact, any organisation employing more than one person in a ‘manager-subordinate’ mode would benefit from clearly delineating limits of authority for each individual.

Assignment of authority through a Delegation of Authority framework creates accountability

The owners of the company or its Board cannot run organisation on a daily basis effectively by making all decisions themselves. They have to delegate. Delegation starts at the very top of the organisation and ideally permeates all the way down to the operational frontline.

The owners or the Board therefore give decision-making authority to the CEO, who, in turn, accepts, allocates and redelegates much of that authority to the Executive team. This delegation occurs through Delegation of Authority letters. Each member of the Executive accepts and redelegates their authority, when permitted, through more Delegation of Authority letters issued to their direct or functional reports. Like their own Delegations of Authority, these letters specify the extent of the authority redelegated, who the authority has been delegated to, and whether or not this authority can be redelegated further.

This cycle of assignment – transfer – acceptance of authority continues until delegation reaches its lowest intended level.

Delegation of Authority accountability lifecycle

Depending on the size of the organisation, communicating Delegation of Authority by letters may take an enormous amount of time, in addition to being laborious and error-prone.
Read why a cloud-based Delegation of Authority software beats pen and paper.

So why go through all this, you ask? There are several very good reasons to make sure that your organisation has a robust Delegation of Authority framework in place as soon as possible.

1. Reduction in operational and financial risk

An efficient Delegation of Authority process ensuring individual acceptance of granted authority creates accountability on the part of the person to whom the authority is delegated. This alone has shown to decrease everyday financial and operational risks simply because people know what decision making power they have, and their limits for such power.

When people are aware that they are not authorised to commit their company without a formal written delegation, risk of unintentional overstepping their authority is considerably reduced. Furthermore, when employees are informed that they may be personally liable for unauthorised commitment or for entering into agreements that are not within the scope of their authority, risks of intentional rule breaking are nearly eliminated (except, sadly, actions such as malicious intent).

In addition, a robust Delegation of Authority framework will ensure that individuals cannot delegate greater responsibility and decision making authority than they have been delegated themselves, further lowering risk profile for the organisation.

2. Increase in decision making at the lowest appropriate level

An affective Delegation of Authority framework set up in accordance with best practice for Good Governance will help pushing decision making to the lowest appropriate level. Every senior leader appreciates financial and time-saving value of decisions taken where they belong – enough said.

3. Decreased legal exposure for directors and organisation

At the end of the day, company directors are legally responsible for everything going on at their organisations. This legal responsibility cannot be delegated. However, corporate laws customarily recognise that directors may delegate their powers. Directors remain responsible for the actions of the delegate unless directors believed on reasonable grounds that the delegate would exercise their powers in conformity with the duties imposed on directors and the delegate was reliable, competent and properly fulfilling their responsibilities.

A robust Delegation of Authority framework therefore establishes in writing the conformity of duties imposed on directors with those exercised by organisation’s executives. In addition, it could place the organisation under no obligation to honour unauthorised commitments by its employees.