What is delegation of authorities?

Governance professionals are always looking to streamline operations and ensure they make the right decisions; delegation of authority is one of those ways. 

It’s often a crucial mechanism for directors to navigate the endless complexities they face in the boardroom. 

Before you think it is an answer, you need to understand how it works.

It’s simply a way to give someone else the power to do things ordinarily your responsibility. 

For a board of directors, that often means delegating decision-making powers to another person, often management.

What’s in it for boards if they do this? The answer is several reasons:

• It saves time. Done correctly, a delegation of authorities gives directors the comfort of knowing an important task is in expert hands. It gives them the freedom to focus on other high-level strategic decisions. 
• It can be more efficient. Delegating authorities reduces bureaucracy. It means that only some critical decisions need deliberation in the boardroom.
• It can help with risk. If someone in management has the expertise and skill to make a decision, but the board insists on making it, the directors create unnecessary risk. How do they explain to shareholders that they made a wrong decision with limited experience when someone with greater know-how was available?

There’s no single correct answer, but it is very often senior management or department heads. 

These people know the frontline and day-to-day context and are often best placed to make a decision. 

Other candidates for delegation include employee groups, external consultants and compliance officers.

The most significant risk with a delegation of authorities is that boards might think it gets them off the hook. It doesn’t. 

Directors may transfer the power to decide to another person, but they still take full responsibility for the decision itself. 

Even if the delegate engages in sabotage or negligence and things go incredibly wrong, the board needs to answer for it because a delegation of authority is ultimately its idea. 

You will often see this explicitly stated on corporate documents, so do not overlook it or take it at less than face value. If you’re a director, the buck stops with you.

Do your homework. 

Your board needs to establish why a specific responsibility would be better with another person. What does this person have that the board doesn’t? How will the delegation drive efficiency, etc.? 

Obviously, this involves a thorough understanding of the delegate’s skillset. You never want to put crucial corporate responsibility in untrained hands.