Governance Institute launches new guidance on delegations of authority
Why do we need a delegations of authority policy?
It’s important in any workplace for all staff and executives to understand who in the organisation has the authority to make which decisions. Currency traders have to know what risk limits apply to their trading activities. Employees needing to travel for work need to know whether they can book the travel or if it needs to be approved, while frontline employees need to know if they can offer discounts to customers in particular circumstances. And senior managers looking to engage a service provider need to know if they have the power to do so.
That’s why an effective framework of delegated authorities is critical. No substantial organisation can operate and perform efficiently without one.
Isn’t this ‘red-tape’?
Delegated authorities are the decision-rights of individuals. So a delegations policy clarifies the decision-making powers and limits attached to each role. It should also support the organisation to achieve its strategic objectives within its desired appetite for risk. For instance, an organisation that wants to be nimble and responsive should ensure their decision-making framework cuts out all unnecessary layers.
Of course, while constraints on decision-making capacity are essential to any responsible whole-of-organisation governance framework, it is important that the constraints are not so rigid that they hinder responsible decision-making. Done well, a good delegations policy should drive rather than be a ‘hand-brake’ on decision-making. It should empower employees to perform at their best by eliminating confusion about what they ‘can and can’t do’ while maximising productivity and improving risk management at an organisational level.
Tips from the new guide
Governance Institute has launched a new Good Governance Guide: Issues to consider when developing a policy on delegations of authority. The guide will be a helpful resource for organisations in the process of designing or reviewing their delegation policies and we encourage you to explore it in more detail.
In the meantime, here are a few tips to get you started:
- Develop a delegations of authority framework appropriate to the size and complexity of your organisation.
- Make sure the delegations of authority policy covers both financial and non-financial matters.
- Align it with your organisation’s strategic objectives and risk management policy and link it to other relevant policies such as the capital expenditures policy.
- Ensure the policy is clear, easy to understand and readily accessible on the company’s intranet — and avoid legalese.
- Establish who is accountable for monitoring, reviewing, revising and implementing the policy.
- Incorporate accountability mechanisms for those to whom decision-making authority has been delegated.
- Ensure the policy is regularly reviewed by the audit committee (or audit and risk committee) to identify any gaps between the policy and the organisation’s needs as it evolves.
- Make sure the policy clarifies that the authority to make a financial decision is separate from the authority to sign a legal document binding on the company.