Who is in Charge?
Differences for Corporations
Although we speak of structure frequently, being overly rigid about structure can be a deterrent to getting things done. Being flexible is required to succeed in today’s marketplace, where we frequently deal with large multinational and global enterprises.
If the business is to be established as a corporation, there are additional organizational factors to consider. In a corporation, there is not one owner as there is in a proprietorship. A corporation is owned by the shareholders (although the founder of the company may hold some or even all the shares).
The corporation is led and managed by a Chief Executive Officer (CEO), who in turn is governed by a board of directors. The CEO leads and manages the operations of the company, while the Chairman of the Board leads the board while governing the CEO.
In looking after the shareholders’ interests, the board takes responsibility for making sure that the money the shareholders invest (or for non-stock operations, the interests of government, an agency, a university, etc.) is looked after. This puts a heavy onus of responsibility on members of the board, even in a small company.
Choosing Board Members
It’s not uncommon for the CEO to “recommend” people for the board, and then those individuals are granted admission by the board with what’s called a “rubber stamp” approach. This means that the board does not really know the applicant, but merely agrees to do the CEO’s bidding. Sometimes the governing body of an organization (as in a college) will select the members for the board. It’s up to the chairman of the board to supervise the CEO and to determine whether the selection process and nominations are in the best interest of the organization. To reduce the threat of conflict of interest or the selection of inappropriate board members, you are discouraged from having the same person in the positions of CEO and chairman of the board.
Note that in non-profit or not-for-profit societies and agencies, the CEO is often referred to as the Executive Director.
Board Issues
When a board is dysfunctional, or a weak board is run by a domineering CEO, it’s possible for the corporation to falter due to mismanagement. People who accept a board nomination are obligated to make themselves fully aware of their responsibilities, and not just jump at the chance to be on the board of an organization they wish to support.
A member of the board legally has obligations associated with that position, and in an age where the public and shareholders are demanding more accountability, members of the board will be held to a greater degree of responsibility than they have in to past.
These responsibilities include, but are not restricted to:
- Monitoring the actions of the CEO
- Ensuring that the company meets the bylaws of the organization
- Making sure that the company remains financially sound and is audited according to the law
- Ensuring that the company meets regulatory obligations that are established by governing bodies, like industry and government
The Role of Shareholders
It should also be noted that in the past, individuals often purchased shares (or stock) in a company, which made them a shareholder. If the company went out of business, the individual could lose their savings as the stocks lost value. Nowadays, it is more common for groups of people (as in mutual funds) and corporations to hold stock in different companies. This represents vast amounts of money being offered by shareholders, who, in any economic crisis, have experienced tremendous financial losses. As a result, the duty of responsibility assumed by members of the board of directors is becoming more highly regulated in many areas of the world.
The Big Picture
In a corporation, the organizational structure of a small business can evolve into something like this:
In some countries, depending on the law and governance, this structure can look different, or you will see the board referred to by other names. For example, there may be a board of directors that is managed by a second board (sometimes called the executive board).
Words of Wisdom
In his book Up the Organization: How to Stop the Corporation from Stifling People and Strangling Profits, Robert Townsend presents an irreverent and funny look at how organizations and their structure pigeon-holes and bores people. Although the book was written in 1984, it remains very relevant when we consider organizations that are committed to their hierarchies, treating executives with all kinds of perks and incentives that are unavailable to everyone else (special parking spaces, business class travel, learning opportunities, etc.). Townsend considers this a reflection of power. While these things seemed appropriate fifty or seventy years ago (before the workforce started to become well educated), they are no longer appropriate where we now have workers who are as valuable (or even more so) than their managers are, in terms of education and experience.
Current Thinking
Current thinking encourages organizational behavior that influences, as opposed to older practices of controlling employee behavior. However, in many workplaces, the reality is that power and control are strongly applied. Organizational behavior and industrial psychology are sometimes considered as extensions of the power applications of big companies, but they can be applied strategically to strengthen and improve organizational performance as well as individual and group engagement and satisfaction.
The application of systems theory is one way that openness and feedback are incorporated within an organization. This is where we see owners and managers learning what it means to be a learning organization, where they:
- Display a commitment to lifelong learning and development for themselves and their workers
- Demonstrate leadership qualities as opposed to management-only practices
- Embrace a commitment to engaging their workforce purposefully