Structure — unique to each organisation
All organisations need to understand and document:
- the identities and roles of key stakeholders (eg board of directors, members, executive management) — the role of an organisation’s board of directors and the extent of its involvement in day-to-day management varies significantly, depending on the type of organisation and the size, nature and complexity of its business or activities
- the powers vested in each stakeholder and the basis on which such powers rest (for example, do the powers arise from legislation, the constitution or other authorising documents?)
- the reporting responsibilities of each stakeholder and the identity of the stakeholder to whom the reporting obligations are owed (for example, the CEO reports to the board, the board reports to members)
- the extent of board, member and executive management’s decision-making powers respectively.
Key stakeholders’ powers
Under the Corporations Act, directors are appointed by members, but in a government agency they could be appointed by the shareholding Minister. The Corporations Act also provides for the appointment of the CEO, while in a government agency the shareholding Minister, or the Secretary-General of a department, could appoint the CEO.
Who do the directors report to?
Under the Corporations Act, the directors report to members, as well as the regulator — Australian and Securities Investments Commission (ASIC) — and, if a listed company, the Australian Securities Exchange (ASX); but in a government agency, the directors could report to the shareholding Minister, a department or Parliament, or indeed all three.
Who does the CEO report to?
Under the Corporations Act, the CEO reports to the board, but in a government agency the CEO could report directly to the shareholding Minister.
Organisations need to identify not only those key stakeholders with legal rights and responsibilities, but also other stakeholders with an interest in the affairs of the organisation. These include:
- the broader community in which the organisation operates
It is typically, a matter for the board to consider the reasonable expectations of these stakeholders and assess what is appropriate in each organisation’s circumstances.
It is essential to distinguish between authority, which can be delegated, and responsibility, which cannot. Directors, managers and employees are all accountable, but for different aspects of the operation and to a different extent in each case.
A board of directors is responsible for the governance of the organisation: they cannot abdicate that responsibility. There will usually be a clause in the company’s constitution that allow the directors broad ability to delegate their collective powers, but not their responsibility, to others.
The Corporations Act and a company’s constitution, give directors authority to make decisions on behalf of the owners (members or shareholders). That authority can be delegated, for example, to senior management and ought to be delegated systematically. The responsibility remains with the board and the directors are accountable for any failure of the system to operate.
Organisations need to develop policies and charters setting out the structure of authority and responsibility, and the roles attached to those responsibilities which include:
- board (including chair, non-executive and executive directors)
- CEO (and senior management)
- company secretary
- members (whose roles and rights are set out in the Corporations Act and the company’s constitution).
The matters reserved for the board of directors will vary greatly, depending on the size of the organisation and the composition of the board in respect of non-executive and executive directors.
Directors will decide on which matters they have direct control or oversight including: nomination and appointment of directors, board performance assessment and remuneration, the appointment, remuneration and assessment of the CEO and other senior executives, corporate governance matters including delegations of authority, shareholder meetings, relations and communications, company performance, annual reports and accounts, compliance and directors’ conflicts of interest and related party transactions.