Corporate governance structures are usually organized in either a centralized or decentralized manner. A centralized organization will typically place decision making authority with those who are in high-level positions. The structure of the organization is a horizontal hierarchy. Decentralized corporations on the other hand give front-line employees and managers the authority to make and execute strategic decisions.
Most corporate governance structures are comprised of a board of directors, an executive management team, and departments that may be organized according to function, division, or a combination of both. The board of directors usually represents the highest level of power, control, and authority in an organization. They vote on company directives and help shape executive strategies. In terms of publicly owned corporations, the board of directors also acts as a sort of liaison between the company’s executive management team and its shareholders.
A centralized organization’s structure makes front-line staff and managers responsible for implementing the policies and procedures of executive management. Of the two main corporate governance structures, it allows the least amount of creativity and flexibility for its staff. They are usually not involved in the decision making process that directly affects how they perform their jobs. Some organizations solicit feedback from front-line employees, but implementation of those suggestions can often be delayed or brushed aside.
Sometimes also referred to as traditional organizations, centralized organizations assign to each position very specific responsibilities and authority. Positions are also ranked according to supervisory level and importance. Those individuals who hold positions that are higher up in the organization’s hierarchy possess greater amounts of control and decision making ability. Corporate governance structures that model a traditional managerial style place the majority of the decision making with top-level positions, which may rarely interact with the company’s end consumer.
In contrast, a decentralized organization gives lower level employees the authority to make decisions that directly impact the company’s customer or the employees’ job tasks. They do not have to go up the chain of command to get approval before acting. A decentralized organization will directly engage all employees in decisions that affect processes, procedures, and policies that might improve business conditions or job task efficiency. Of the two corporate governance structures, decentralized organizations tend to foster a more collaborative environment.
Another advantage to decentralized organizations is that the structure encourages more open communication. It also tends to result in higher levels of employee motivation and job satisfaction. Decentralized organizations are also referred to as flat or organic.