What is corporate structure?

What is corporate structure? It’s a corporate governance concept concerning how different elements of a business relate to each other as it pursues strategic goals. 

Corporate structure is the organisation’s backbone and a critical source of clarity, hierarchy and responsibilities from a corporate governance perspective. Needless to say, if you’re a board member and see a distinct lack of structure in your organisation, you should be asking serious questions.

Corporate structure refers to a company’s organisational layout. It lays out how authority and responsibilities are distributed across a business. A good and transparent corporate structure means that everyone in a business knows their reporting lines and how decisions are made.

A business would crumble almost immediately without a corporate structure. Moreover, it would begin to fall apart if it had a corporate structure that simply wasn’t followed. 

Corporate structure is crucial because it establishes an essential chain of command, stipulating who can make what decisions and when. This enables an organisation to stay functioning and efficient and pursue its goals, which is especially important in times of urgent change that requires rapid responses. 

Businesses worldwide vary in structure, size, and strategic goals, but many share some core characteristics. 

At the company’s core lie the employees who carry out daily strategic functions. Employees are guided by a chain of supervision that can include team leaders, line managers, heads of department and C-suite executives. Each layer, where it exists, carries greater decision-making responsibility. 

The CEO usually manages the C-suite executives. Combined, they represent the highest level of direct corporate management. 

However, the CEO and executives also have a boss. Where companies are publicly listed on stock exchanges, the “boss” is the board of directors. For privately owned companies, the boss is the owner (although, in many cases, the owner might appoint themselves as the CEO, or establish a board, or both). 

When boards of directors are involved, they are bound by fiduciary duty to represent the company’s shareholders and must always make decisions in their best interest. 

The board usually appoints or dismisses the CEO and other key executives, while the shareholders usually vote the board into or out of power.

Directors will already have basic knowledge of the concept when they take their seats on a board. 

The key is remembering that structure when things get busy, urgent, or in times of change. These moments can often cloud the official corporate structure as multiple people work together to address a company’s challenge or opportunity. When this happens, remember the decision-making hierarchy and who has responsibility for what. This can streamline necessary actions and help meet the company’s evolving needs.