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What Are the Different Types of Corporate Governance Structures?

The board of directors usually represents the highest level of power, control, and authority in an organization.
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  • Written By: Helen Akers
  • Edited By: Jessica Seminara
  • Last Modified Date: 15 October 2014
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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.

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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.

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Discuss this Article

SkyWhisperer
Post 5

@hamje32 - I’m probably bucking conventional wisdom, but I like the larger organization. I like being told what to do (politely) and knowing what my boundaries are.

In my experience it has not hindered my creativity or professional advancement. Some companies, especially in the telecommunications or technology sector, have a hierarchical structure but still operate like small businesses.

They encourage employees to make suggestions and operate in a streamlined manner. I don’t think it’s an issue of the size of the business. I think it’s more of a reflection of corporate philosophy and the style of the company’s leadership.

hamje32
Post 4

I’ve found that the governance structures tend to follow the size of the business. Smaller businesses tend to be decentralized in their planning, giving employees greater input in helping to define the direction of the company. Ideas are welcomed and there is a lot more openness and creativity.

In the larger companies, you kind of work within your little cubicle, although I suppose that you can express whatever ideas you want within that context.

I’ve worked for both types of companies. I like the freedom in the small business structure, but there is something I was not prepared for. In a small business, you can’t wait for people to tell you what to do.

I had been expecting to be “managed” when all the time I was supposed to self-manage, taking a more proactive stance in figuring out what needs to be done and doing it. It’s been a learning experience, but it's still fun nonetheless.

chivebasil
Post 3

I have worked in both kinds of organizations and I have to say that I definitely prefer working in more open corporate governance structures.

When I worked in a more top down system I felt like I had no say at all. I did what my boss said while also trying to cover myself when I was giving instructions to people below me. My input didn't really matter at all.

Now that I am in a more open structure I feel like I make a real contribution. My input matters and I have been give a lot of responsibilities. Frankly, I feel like I am working harder and more effectively than I ever had before. And its been worth it. I am making more money, my work is more interesting and I think I will continue to move up in this company.

summing
Post 2

I think that organizations can experiment with both kinds of structures and can even incorporate elements of both into successful institutions.

Really the best way to proceed is to examine corporate governance best practices. Institutions around the world have carried out detailed case studies about organizational structures. There is a wealth of experience that can be drawn on when establishing a management structure. A lot of the corporate governance issues can be avoided by just examining what has come before.

gravois
Post 1

In my experience, lots of companies start out with a horizontal structure and many thrive for years in this system. But as they grow, and especially once they reach a certain size, they inevitably become more hierarchical. Most of the worlds largest companies exist in this structure. Some experiment with more open structures but they are essentially top down.

I hate to sound cynical, but I think that hierarchies are kind of natural. Its hard to keep track of everything in huge multi national corporations. Closed and easily ordered systems make sense a lot of the time. This is born out by the evidence.

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