This is article 3 in my series on designing internal governance.

One of the most stressful times I can remember in my career as a manager resulted from lack of clarity about authority. I had a big job, and it was reasonably clear what I was accountable for delivering. A few days in, I asked my boss to clarify what authority I had to make decisions. His answer? “I don’t like talking about authority.” I never did get more clarity, and it became clear that whatever authority I did have, it was not commensurate with my accountabilities. This article is about authority and accountability in internal governance.

Authority and Accountability

Matching authority and accountability is a key requirement in any governance structure. If you give someone accountability but not authority, you also give them perfect excuses for failing to deliver (and so in practice for not being accountable): for example, “well, if you had listened to me when I said that was too novel, it would all have been fine.” At best, it results in delays and frustration while decisions are referred. Similarly, if you give someone authority but not accountability, they can make extravagant promises about what will be delivered, and lay the blame for the resulting failure on the person accountable. The blame for the failure really lies with the person who set things up like that in the first place.

At the opposite extreme is giving too much authority to the accountable person. This is the case where there is no external holding to account. Very few organisations these days would allow even the CEO to approve their own expenses. But other similar situations are sometimes found, for example, a Programme Director chairing his own Programme Board. While most of the time the situation is probably not abused, it does nothing to remove the temptation to approve a pet project regardless of the business case, or to hide bad news in the hope that things will improve later. It is much wiser to avoid setting up conflicts of interest in the first place than to hope that everyone will be able to resist the temptation to benefit from them.

These examples show that deciding what authority to delegate requires balancing the need for control with the need for practical delivery, which includes the ability to hold people to account effectively. Deciding to whom to delegate it brings in a new problem: it requires balancing the desire for decisions to be owned by all those affected directly by the consequences with the desire for a named person who can be held to account.

Suppose we need to let a major contract. Perhaps an operations team will have all the day-to-day interactions with the contractor, and they are convinced that Contractor A is going to be best to work with. Should the Operations Director have the final say? At least then we know who to blame if it goes wrong. But the Procurement Director may know that the contractor’s resources are going to be very stretched if they take on this work. The Commercial Director may not be happy with the terms of the contract that can be negotiated. The Finance Director may not be happy with the performance bonds or guarantees they can offer. How do we make the best decision?

Collective and Individual Authority

At this point we need to recognise that there are two sorts of authority: Individual and Collective.

Collective Authority means that the decisions are made by a specified group of people; no individual has the authority to make those decisions on their own (hence the need for a quorum to be specified in the Terms of Reference (ToRs) for the group). The group must be established by the delegating body – no decision-making body has authority to create itself (or appoint its members, or approve its ToRs)!

Individual Authority means that the decisions are made by one individual, even if that individual appoints a group of people to advise him/her. An advisory group can of course always be set up by the individual holding the authority; it is not part of the governance structure, having no authority, so it does not need terms of reference (it just does whatever the decision maker asks of it), and a quorum would be meaningless. That does not stop the members of such a group being confused about its solely advisory nature if this is not explained.

Designing the governance structure requires deciding what to use where, but how do you decide which sort of authority is appropriate? The choice between Collective and Individual Authority must balance the possible need for wide ownership of and support for decisions against the preference for Individual accountability which goes with Individual authority.

Generally Collective Authority will be desirable at the most senior levels and for the most complex decisions, where the best outcome will result from contributions from people with different backgrounds, knowledge and experience, or where it is important that several people at the same level, typically across functions, feel they are committed to the decision because they helped to make it. Many (perhaps most) of the strategic decisions the company needs to make will be of this kind. On the other hand, Individual Authority will be preferred where the issues are more focused, and typically fall clearly within one functional area rather than spanning several. This kind of authority is just what line management structures are about. It is normally granted through Letters of Appointment and Schemes of Delegation. We will have little more to say about it here.

The further down the governance structure you go, the less the diversity that Collective Authority brings to decision making is likely to be needed, and the more likely it is that line management provides all the ownership that is needed. At the same time, each additional layer of Collective Authority tends to make accountability more diffuse, which is unhelpful. Consequently, one or two layers of Collective Authority below the Board is the most that would normally be appropriate. As a general rule, the lower the level of a Collective Authority body, the fewer different interests need to be represented, so the fewer members it will need to have.

Principles to establish before starting design:

• That authority and accountability must go together

• That no-one will have authority to ‘mark their own homework’ (that conflicts of interest will be avoided)

• That Collective and Individual Authority are different; and what their respective roles and interfaces will be in the structure you will create.