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Delegation of authority and responsibility - Coggle Diagram
Delegation of authority and responsibility
The directors are generally responsible for the management of the business of the company but the extent of their authority depends on the provisions of the Articles and any overriding provisions in the Companies Act
In exercising their responsibility for overall governance the board must ensure that senior executive management establish and maintain adequate systems of risk identification, management and control
The potential for overlap between the responsibilities and authorities of the board and the executive management team is ever present
It is essential that there are clear, documented policies and procedures setting out both those specific decisions and exercise of authority that are reserved to the board to decide upon and those other matters that ar delegated to the executive management team
The board must establish appropriate oversight and reporting processes in order that the board can monitor the actions of the executive management team in the exercise of these delegated responsibilities as well as establishing appropriate procedures to monitor and evaluate the implementation of the corporate strategy
A copy of these written procedures should be given to each director. Compliance should be monitored and breaches of the procedures should be considered by the chair and the board
Delegation of directors authority must be contained in the company's Articles whether that auhtority is being delegated to board committees or to senior management
When delegating any of its powers to a committee, the board should establish and approve written terms of reference
Terms of reference should include the following sections
Membership
Quroum
Frequency
Secretary
Notice
Minutes
Duties
Reporting responsibilities
In addition to board committees, many companies have management committees established under the CEO's remit to assist in implementing the corporate strategy and operational decisions. Most commonly a CEO will establish an executive committee
The authority of an executive committee flows form the authority of the individual members with no specific authority of its own
Due to the importance of the executive committee, the CEO will often provide a report on its actions to the board
The members of the executive committee need to have a clear understanding about their power and delegated authority, and which decisions must be referred to the board
Executive committee terms of reference might include
Purpose and authority
Membership
Chair
Secretary
Quorum
Frequency of meetings
Notice
Duties
Preparation of business plans, budgets and company strategies for consideration by the board and to the extent approved by the board, implementing these plan, budgets and strategies
Execution of agreed strategies and control of budgets
Establishment of necessary processes to identify and monitor risks and formulating strategies for managing those risks
Establishing financial and other reporting mechanisms and systems and control to capture all relevant material information on a timely basis
Providing the board and its various committees with the necessary information with respect to the company's financial performance, condition and future prospects to enable the board and its committees to fulfil their governance responsibilities
Implementing the company's policies and processes
Reporting
Although day to day responsibility might be delegated to an executive or executive committee ultimately responsibility remains with the board of directors and the directors should ensure that regular updates are provided both at board meetings and in between depending on the frequency of those meetings
While directors are able to delegate authority to committees of the board and to the executive management they cannot delegate their duties under the Act to
Act within the rpowers
Promote the success of the company
Exercise independent judgement
Exercise reasonable care, skill and diligence
Avoid conflicts of interest
Not accept benefits from third parties
Declare interests in any proposed transaction or arrangement