Introduction to Governance Part 2: Protocol
In part one we discussed what governance is, and how it can be used to manage an organisation. In this part, we’ll look at how protocol shapes an organisation and ensures that management’s tone is clear.
Matters reserved, matters delegated
Every organisation has a board or owner who is held responsible for the organisation’s overall activity and actions. In companies, this is usually the Board of Trustees. A not for profit may have a body who is elected by members to oversee professional staff. Governments have officials who are elected by constituents. A small business, with only a few staff may only have an owner or partners who are responsible for the business.
The people responsible cannot always make decisions; therefore, they can give some authority to their staff. The decisions that that managers keep are called matters reserved, and those which they give to their staff are called matters delegated. Matters are normally delegated to staff based on:
Seniority – more senior members of staff should have more training and expertise; therefore, they are expected to be able to take decision on more material issues.
Responsibility – staff should only be given authority to approve matters they take responsibility for. For example: A member of staff who restocks shelves should not be given authority to approve a refund to a customer.
Risk – Matters which, if approved incorrectly, would cause harm to the organisation should only be delegated to staff who understand how to assess those risks. For example: Large scale purchases should be routed to a senior manager who would confirm that an the purchase achieves the highest value for money based on the company’s future goals.
What can be delegated?
Matters which are delegated should have two components:
They should commit the organisation to do something. Matters delegated normally require that the organisation act afterwards. Examples include sign contracts, authorise expenditure, or sign and submit a tax return.
They should have a limit. Authorities given should be limited in value. This ensures that management always can monitor exceptional approvals or take decisions that materially affect the company.
How can management delegate authority?
The Board (or owner) delegates authority when they set out what others can approve. Sometimes these authorities are written down and are standard for everyone. For example: A company may all members of the sales team to approve sales contracts valued up to £350,000 per year. In other companies, staff hold varying roles or there may be many layers of management; therefore, a more complex system might be needed setting layers or a matrix of approval to confirm profitability with each staff member having a different level of authority.
An organisation can implement some or all the following methods:
Develop a framework which lists staff roles and what they may approve. This works better in small companies where staff are responsible for full areas of the business. For example: There’s a member of staff who handles all sales, and a different staff member of handles all expenditure.
Develop a framework with subsections. Subsections allow different aspects of an activity to be delegated. For example: Middle managers may approve operating expenditure, but not capital expenditure. Each section can then be delegated to specific members of staff via an agreement between the staff and his or her manager. This works well in large organisations where normal operational income and expenditure varies based on the market.
Develop a framework and assign governance procedures and policies setting out where they apply. For example: A member of staff may have authority to approve expenditure contracts, but they can only do so after they’ve been reviewed by a procurement team for amounts greater than £500,000. For contracts less than that, they can simply approve the contract.
Each of these methods has benefits, and each of them contains challenges. Organisations can set tone by choosing one over the other. By having a looser governance structure with more authority given, management sets a tone that they trust their staff. In organisations where management is less personable with staff, a more structured delegation may be needed because staff must understand exactly what they can and cannot approve.
How does protocol fit within the larger governance structure?
In some organisations, protocol is the only requirement because staff understand how to take decision and do not need additional guidance. This works best in smaller Intorganisations where managers work closely with staff. In a larger organisation, it might be required to connect protocol with a process flow and set a governance policy to ensure that the right decisions are taken.