BT - Business organisational structure, functions and governance

Contents
Formal and Informal Business Organisation ......................................................................... 3
DEFINITIONS: ..................................................................................................................... 3
IMPACT OF INFORMAL ORGANISATION: ........................................................................... 3
Business Organisational Structure - Part 1............................................................................ 4
FORMAL ORGANISATION STRUCTURES............................................................................. 4
Business Organisational Structure and Design ..................................................................... 9
ORGANISATIONAL STRUCTURE ......................................................................................... 9
Business Organisational Structure - Part 3.......................................................................... 11
THE MAIN FUNCTIONS AND DEPARTMENTS IN A BUSINESS .......................................... 11
Business Organisational Structure - Part 4.......................................................................... 13
THE MAIN FUNCTIONS AND DEPARTMENTS IN A BUSINESS - CONTINUED ................... 13
P3 - Strategic Action ............................................................................................................ 17
Mintzberg Organisational Forms ..................................................................................... 17
Organisational Culture ........................................................................................................ 20
DEFINITIONS: ................................................................................................................... 20
VALUE STATEMENTS: ....................................................................................................... 20
FACTORS THAT SHAPE AN ORGANISATION’S CULTURE: ................................................. 21
EDGAR SCHEIN THEORY: .................................................................................................. 21
CHARLES HANDY MODEL: ................................................................................................ 22
GEERT HOFSTEDE MODEL: .............................................................................................. 24
Committees in Business Organisations ............................................................................... 26
DEFINITION: ..................................................................................................................... 26
COMMITTEE STRUCTURE: ............................................................................................... 26
PURPOSE OF COMMITTEE: .............................................................................................. 27
TYPES OF COMMITTEES: .................................................................................................. 27
ADVANTAGES AND DISADVANTAGES:............................................................................. 28
COMMITTEE CHAIR AND SECRETARY: ............................................................................. 29
Governance and Social Responsibility in Business .............................................................. 30

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DEFINITIONS: ................................................................................................................... 30
SOCIAL RESPONSIBILITIES KEY PRINCIPLES:..................................................................... 32

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Formal and Informal Business Organisation
DEFINITIONS:

Formal organisation - formal structure that is in place which enables the business to
operate. Formal organisation characteristics:

- Company
Legal structure:
- Sole trader
- Commercially focused
Organisational objectives:
- Non-profit
- Finance Internal structures/functions: -
Sales
- Purchases etc

Informal organisation - network of personal and social relationships that arise as people
associate with other people in a work environment including: culture, ways of working,
attitudes, behaviours, trust, communication and other factors.

IMPACT OF INFORMAL ORGANISATION:

The informal organisation can have hugely positive or hugely detrimental impact on the
good running and performance of that business.

Positive impact: Negative impact:

1) Commitment; 1) Disgruntled staff;

2) Idea generation; 2) Low productivity and profits;
3) Surfacing issues; 3) Strikes;
4) Delivery of change; 4) Increased organisational risk profile;
5) Problem solving. 5) Stifled innovation;
6) Customer perceptions and decreased sales.

Keeping things positive:

− Employee development;
− Informal working;
− Open communications;
− Fair treatment for all;
− Authentic leadership.

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Business Organisational Structure - Part 1
FORMAL ORGANISATION STRUCTURES

1. Entrepreneurial;

2. Functional;

3. Matrix;

4. Divisional; and

5. Boundaryless.

Comparison of organisational structures:

Comparison of organisational structures - continued

Comparison of organisational structures:

Type Description Pros Cons

Entrepreneurial - Single individual at the top - Fast decision- - Narrow experience.

structure - Single point decision- making. - Over-domineering
making. - Top table centre.
- Direct reporting line to the involvement in - Increased risk profile.
top. decision-making.
- Centralised supervision. - Knowledge
- Few formalised deployment.
governance structures.

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Comparison of organisational structures - continued

Type Description Pros Cons

Functional - Discrete groups (functions or - Specialist focus. - Silos-loss of focus on

structure departments) - Prevents duplication wider objectives.
- Split by responsibilities. of efforts. - Communication.
- Specialist staff expertise. - Operational clarity. - Internal bureaucracy.
- (several departments with
heads reporting to CEO)
- Some governance structures.

Matrix - Additional reporting layer. - Customer/business - Complexity and costs.

- Resources from each function. focus. - Timing of delivery
- Often two individual reporting - Employee conflicts.
lines. engagement. - Conflict in objectives.
- Often customer-centric. - More nimble decision - Stress and lower
making and productivity level.
execution.

Divisional - Decentralisation. - Divisional growth - Loss of economies of

- Autonomous operation. focus scale.
- Often two individual reporting - Faster decisions for a - Costs.
lines. particular market/ - Silos-Dilution of
- Often customer-centric product/customer ethos/culture.
- Large business organisation segment
- Only when economics and - Executive
economies of scale retained development
- Knowledge and
understanding

- Latest thinking in - Empowering. - New thinking, so

Boundaryless organisational structure. - Motivates people. unknown.
- No real formal structure in - Lower barriers/silos - Risky implementation.
place. - Flexibility and - Could result in loss of
- Organisational awareness and nimbleness. control.
motivation.
- Use of informal organisation.

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ORGANISATIONAL STRUCTURE CONCEPTS

1. Ownership and management:

a. Owner managers;

b. The non-owner management model;

c. Agency risk;

d. Large/majority shareholders;

e. No large/majority shareholders.

2. Management and direction:

a. Highly centralised direction;

b. Less centralised direction.

3. Span of control and scalar chain:

Span of control: Number of people ordinarily reporting to a given manager in an

organisation.

Scalar chain: Concept of connectivity between the very top and the very lowest
employee in the organisation (by Henry Fayol).

Note: The span of control and the length of the scalar chain are inversely related and
have a material impact on the organisation.

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 Shorter span of control Longer span of control
Concept + +
Longer scalar chain (Tall) Shorter scalar chain (Flat)

Format of organisation

Factors influencing the 1) There are limits to the ability of 1) Managers are able to
choice of concept managers in the organisation; manage a greater number of
employees;
2) The direct reports in question are
very complex resources; 2) Tasks are easier to
manage;
3) The organisation demands a lot of
non-supervisory effort from its 3) Managers are allowed
managers; to spend more time on
supervising the direct
4) There are limits to the amount of
reports.
time that managers can spend
supervising the work of direct reports.

Key characteristics - + Highly controlled + Fewer managers (lower

costs)
Pros + Smaller teams +
Faster communication
+ Promotions +
Faster decision-making

Key characteristics - − Lots of managers (costs) − Management stress

Cons − Internal management time − Fewer promotion

opportunities
− Communication −
Less controlled
− Slower decisions

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 4. Outsourcing and offshoring:
Outsourcing: The process by which an organisation ceases to internally perform a
function and instead engages another organisation to perform the function on its
behalf.

Advantages Disadvantages
a. Cheaper to outsource; a Certain loss of control;
b Risk of data
b. Specialists; and
breaches/confidentiality; and
c. Quicker to engage; c Overly dependent;

Offshoring: The process by which an organisation ceases to internally perform a function in

its domestic state, and instead moves a performance of that function to one of its
operations in another state (typically a much lower costs jurisdiction).

Advantages Disadvantages
Cost saving; and Considerable distance away;
Technical resources offshore that may Risk of data breaches/confidentiality;
not be available in its domestic state. and
Cultural differences.

Key tips for choosing offshoring:

− Key strategic services should always be handled with care, given the increased
political risk of some offshore locations;
− Offshoring is best suited to those services where significant cost savings are possible;
− Service is not put at risk; and
− Service can be managed effectively over computer networks.

5. Shared services: Hybrid feature of functional and divisional organisations, e.g.,

number of independent business divisions sharing a single function.

Advantages Disadvantages
a) Lowers the performance of that
a) No duplication of effort;
division; and
b) Deliverables in a standardised
b) Lowers engagement of employees.
form; and
c) Making things even more efficient.

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Business Organisational Structure and Design
ORGANISATIONAL STRUCTURE

An academic named Robert Anthony designed the Anthony Hierarchy which describes the
different activity levels managers undertake in an organisation:

1) Strategic activities: These activities relate to the building and execution of the
organisation’s strategy. An organisation’s overall corporate strategy is concerned with
decisions involving:

− What products to sell;

− What markets to be in;

− What the organisation stands for as regards principles, culture, etc.

Note: There are also sub-strategies in how a particular function is managed and how it
executes its role in the corporate strategy (e.g., marketing, HR, finance, operations,
production, etc.), which are typically longer term in nature.

2) Tactical activities: Such activities are not carried out to establish a new strategic
direction or strategy and typically represent the domain of middle management.
Tactical activities are generally medium-term in nature and represent a practical
delivery of a project or task that will enable execution of the strategies defined at more
senior levels. Such execution involves project planning and delivery, the mobilisation of
resources, etc.

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3) Operational activities: These activities are generally carried out at the lower levels of
the organisation and ensure that day-to-day tactical items are delivered. They are
short-term in nature as the organisation may decide to cease any of these activities or
implement different types of controls to ensure such delivery.

Another major element that an organisation must consider is the extent to which it is
centralised or decentralised:

A. A fully centralised organisation is one which operates in a single physical location.

Being centralised has many advantages:
− Given that all staff are on a single site, decisions may be made more quickly
and there will be better access to all skillsets under one roof;
− It may be cheaper to operate, given there is only one facility and, therefore,
less management time required for supervision and other tasks; and
− Communication may be quicker and more impactful given that everyone is
under one roof.

B. A fully decentralised organisation is one which operates in numerous physical

locations where every function is in a different location, often without even a head
office. There may be benefits in operating a decentralised model:
− Managers may be more easily motivated in a smaller business unit given that
they may get more responsibility to manage operational matters compared to a
single office location;
− Decentralised units may provide greater reach to the customer communities
in which the organisation operates, boosting the engagement with them; and
− The model may have a cost argument. If the decentralised locations are lower
cost than a city centre location, then, in overall terms, it may be cheaper even
despite the need to hire more managers.

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Business Organisational Structure - Part 3
THE MAIN FUNCTIONS AND DEPARTMENTS IN A BUSINESS

There are seven primary functions in most business organisations. They are:

1) Research and development: If an organisation is simply a reseller of products

developed by others, the R&D function will not be a significant feature. However, for
organisations that are focused on their own products, it is likely to play a very important
part. R&D is typically very closely aligned with the overall product and marketing
strategy of the business, focusing its activities on agreed products to be developed and
then launched in the future, which is known as development expenditure. A research
expenditure occurs when there is no clear commercial link at some particular point, but
a possible future opportunity might arise from such expenditure. R&D functions usually
have very specialised technical experts (e.g., material scientists, nutritional experts, etc.)
and production development experts (e.g., designers, quality assurance, etc.);

2) Purchasing: The role of purchasing is to ensure that the organisation has all the inputs
(e.g., materials, components, packaging) to enable it to build its products and deliver
them to its customers. The purchasing function has to operate in quite a complex way:

− It has a key role to play by ensuring that it gets the inputs at the right price;
− It must ensure that the inputs purchased have the right quality;
− It must ensure that it carefully manages the quantities of inputs being ordered and
delivered; and
− It plays a part in supplier selection.

3) Production: This function is responsible for the production of the end product or service
that will be sold to customers. It does this by combining inputs, such as materials, with
facilities, such as factories and machinery, and employee labor. The job of the production
function is to manage each of these components in a way that ensures the end result is
delivered. This might include:

− Procuring the right facilities and the right machinery;

− Assigning roles and tasks to employees;
− Making sure that the end product is of the right quality;
− Managing how the inputs come into the production process;
− Minimising waste; and
− Ensuring the equipment is clean and safe and operating efficiently.

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Note: The production function may also be involved in longer term production strategy,
looking at areas such as factory location, production methods, and the determination of
acceptable organisation quality control and product quality standards.

4) Service provision: The provision of service is simply looking after the customers of the
organisation. This can take many forms:

● It can be a customer service phone line;

● It can be shop-based sales staff; or
● It could be after sales service.

Note: Many organisations will have service standards they expect their staff to adhere
to when dealing with customers (e.g., telephone calls from customers should be
answered within 5 rings, or customer complaints should be resolved within 14 days,
etc.).

5) Administration: This function is usually located at the head office and manages that head
office. It may also sometimes manage the property management element of sub-offices (e.g.,
heating and other utilities). The role of administration is to ensure that the organisation in
overall terms is kept running. Usually, the administration function includes the group
secretariat responsible for senior committee management and statutory filing obligations,
and various other legal and regulatory compliance activities.

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Business Organisational Structure - Part 4
THE MAIN FUNCTIONS AND DEPARTMENTS IN A BUSINESS - CONTINUED

6) Finance: This function is one of the most important departments in the organisation, and
it contains very specific expertise in different finance and accounting areas. Ordinarily, it is
headed by the CFO who reports to the CEO. Some of its key roles are:

a. To produce financial information for management about the organisation’s

performance. This often involves the production of two types of financial information:

Financial Accounting Management Accounting

− Represents a recording of every − Its role is to look at the performance

financial transaction in monetary of the business in terms more
terms; specific to the business;

− The performance is measured in − Aids business control on a daily

accordance with basis;
− standardised accepted accounting − Forecasts what may happen in the
principles; and future and, therefore, helps to set
business plans; and

− It facilitates the supply of financial − ⚫

− Assists in decision-making
information for other users;

b. To carry out statutory or mandatory reporting to external bodies. Companies must

produce financial accounts in a certain manner and in accordance with accounting
standards, reporting the accounts under the local Companies Act. However, such
organisations as PLCs have more complex reporting obligations (e.g., a director's
statement about the operation of the business). When an organisation borrows money,
it may have to ensure that its performance meets covenants (which may be financial-
based or operational-based);
c. To raise short-term and long-term finance either in the form of investor funds or
borrowing in order to run the organisation. It may also assist in the acquisition of short-
term equity finance or longer term public shareholder capital via a public listing on a

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 stock exchange. In each of these areas the finance function's expertise is fundamentally
critical in helping the business make a decision and proceed;
d. To manage the cash flow position of the bank account, including the collection of debts,
etc. Here, the finance function plays a critical role in measuring cash flow profiles and
ensuring that the business has policies and structures in place. It may also be responsible
for:
− Ensuring that debt repayments are made and that there is funding to meet such
repayments;
− Setting and executing a dividend policy, only paying dividends when the business
is in a certain cash surplus position; and
− Payment of day-to-day operational costs and expenses and managing the timing
of such payments to ensure that the business has the cash flow to do so.

Example:

Let’s say a business has a single supplier and must pay for supplies within 30 days or not get
the supply in future. It then takes this supply, adds value, and sells it on. It sells on a 30 days
basis to its customers also but is not strict enough in its collection of debts from its
customer, who instead pays within 60 days. Very soon the business will run out of cash. In
this scenario, the finance function might:

− Put an overdraft facility in place to enable it to pay the supplier whilst it awaits
payments from customers;
− To negotiate a longer credit period from the supplier;
− Impose much tighter collection criteria on the collection of debts from customers
ensuring that they pay within 30 days.

e) To help in developing the overall corporate strategy and the development of

individual functional strategies. This role may involve:

− The translation of general business objectives into financial metrics that can be
measured ensuring that the business objective is met;
− The active management of those metrics against the plan by the building of
budgetary control and reporting structures;
− “What if” decision modelling. This could include the modelling of different strategic
options in terms of a possible range of financial results in order to assist in making a
final decision on which strategy to proceed with;
− Disseminating the overall strategic plan into operational plans;
− Challenging the strategy by asking the management some key questions and
challenging them on the plan to ensure that they are comfortable with its
achievability; and
− Conducting a scenario-based risk assessment of the strategy and the action plan.

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7) Marketing: Marketing is the process by which an organisation communicates with its
customers about its products, with the objective of selling those products to those
customers at a profit. The marketing function plays a vital role in the execution of overall
corporate strategy. The primary components of any corporate strategy are going to be:

− Which products to sell;

− To which customers;
− How to market the company in the marketplace; and
− How to convey the company as a brand.

These are all part of a marketing strategy which is then executed by the marketing function
via the marketing strategy. A marketing strategy then drives a detailed marketing
operational plan outlining the actual activities it plans to undertake.

For example, if the overall corporate strategy calls for the organisation to become known for
very high quality of its goods, the marketing strategy might outline the details of how it
plans to deliver on this goal in detail, perhaps, by constructing an appropriate advertising
campaign with key messages about quality and so on. It may also build some key quality
messages into its branding or corporate logos and straplines.

Marketing can also play a key input role to the overall corporate strategy by doing market
assessments for product gaps in the market. This may form strategic opportunities for the
company or feedback via an audit of its existing product offering.

Once an organisation has decided upon the key elements of corporate strategy and the
underlying marketing strategy, it will then need to put its plan into action. Typically, an
organisation presents its offer, know as the “Proposition”, to the customer by using the
Marketing Mix , which contains four Ps:

a) Product: The focus could be on beauty, quality, durability, eco-friendliness, age-

appropriateness, colour, etc;

b) Price: It could be concerned with the quality for the price, price comparisons to others,
luxury-driven, discount-based, promotional, loss-leading, etc.;

c) Promotion: This includes advertising through various media types (e.g., radio, TV,
direct promotion, etc.);

d) Place: It can be its own outlets or the outlets of others. It can be direct sales, internet
sales, or sales through catalogues, coupon systems, etc.

Example:

Imagine a business wishes to sell high quality cakes. How it will go about marketing these
products?

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 1) It will tell the customer about the product itself (e.g., that it is a beautifully made,
high quality cake);

2) It will tell the customer about the price(e.g., that this is a reasonable price compared to
other cakes);

3) It may promote the product via newspaper advertising, large banners, direct sales, or
by public relations such as the sponsoring of events.

4) The business may sell its products via shops, supermarkets, or internet.

Whether or not the customer proposition is successful depends on how successful the
organisation is in managing the Marketing Mix. The marketing department may also be
responsible for:

− Monitoring of communications structure;

− Continuous monitoring of competitors, researching their activities, analysing their
strategic movements and reporting to management;
− Watching trends; and
− Ongoing customer research.

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P3 - Strategic Action
Mintzberg Organisational Forms

Mintzberg organisational forms theory explains main elements present in any organisation
and then explains different organisational types based on those elements. The theory shows
what happens to an organisation as each of those elements becomes important.

There are 6 different elements to represent a company:

1) Operating core. This represents the individuals making the company’s products or
providing its services. This is the primary activities from inbound logistics through
operations to outbound logistics;

2) Strategic apex. This element provides control to the organisation (board of directors),
ensuring the organisation follows its objectives;

3) Middle line. This represents the middle managers in a company converting the
directions of strategic apex into the work of the operating core;

4) Technostructure. These are the people who standardise work and put into place control
systems in a company;

5) Support staff. This is the provision of ancillary services that the company needs
infrequently.

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6) Ideology. This is the beliefs and values of the organisation, normally shared by the
managers and workers.

However, the theory doesn’t stop there. Mintzberg used the basic theory so show what
happens when each of the 6 elements takes precedence, which gives us 6 different
organisational types :

1) Entrepreneurial structure. This is where the strategic apex is the most important
element. It shows a young company which is dominated by the founder:

− All decisions are made in the strategic apex;

− The middle line is much less important;
− The company tends to be dynamic.

2) Machine bureaucracy. This is where technostructure becomes important. It shows an

older company which has set up too many controls and systems so it cannot change
quickly:

− Best suited to a static environment where change is not needed;

− Many controls and regulations to follow;
− Work patterns will be standardised.

3) Professional bureaucracy. This is where the operating core becomes important. The
provision of goods and services is the main aim of the company and all other elements
serve this aim:

− The operating core must be supported as they provide the client facing service;
− There will be standard work patterns (audit methodology that the firm follows);
− Change will be limited, but professional staff can change as needed.

4) Divisionalised organisation. This is where the middle line becomes important. Here, the
levels of management increase and the company may even split giving a divisional
structure:

− Tend to be large or old companies;

− The company doesn’t change much due to the bureaucracy;
− Products made tend to be similar.

5) Adhocracy. Here the operating core is important. In this situation the workers are in a
complex and fast-changing environment:

− It is a complex and / or dynamic company;

− There are complex tasks to be done;
− All people in the company work together to support the important people.

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6) Missionary organisation. This is where the ideology becomes important. Organisation is
based around a central belief and all the organisation focuses on maintaining that
belief:

− Firm belief in the core ethic of the company;

− Normally a fairly stable company;
− The environment that the company operates in is fairly stable.

Note: There is no structure in Mintzberg theory that considers the support systems as being
important. However, the virtual organisation keeps its core competences and everything
else is outsourced.

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Organisational Culture
DEFINITIONS:

Organisational culture describes the collective behaviours of people in an organisation and

the meanings that people in the organisation attach to those behaviours. This might include:

1) Language;

2) Symbols;

3) Habits and traditions;

4) Beliefs;

5) Acceptable norms.

VALUE STATEMENTS:

Often the real vision and values of the people as defined by actual behaviours may be
different from what the organisation wishes them to be. Examples:

1) Attitude shown to customers:

− Does the organisation care about the customer?

− Does it have a culture of not acting in a customer-centric way?

2) Attitudes towards customers:

− Is it a culture which shows personal respect to all?

− Is it part of the culture to treat subordinates purely as resources to be used
and abused?

3) Employees attitude to their work:

− Do employees buy into the organisation’s goals?

− Do employees care about goals to such an extent that they work as hard as
possible to deliver them?
− Is there a culture of working bare minimum hours?
− Is there a relaxed attitude to casual wear or is the culture more formal,
demanding business suits?

4) Communication:

− Do people speak openly and face to face?

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 − Is communication formal and conducted by means such as email?

5) Performance:

− Is the culture one of individual performance or does it promote team goals

instead?
− Is the culture about just delivering your own objectives, or does it promote
observation and input in the activities of others and other areas?

FACTORS THAT SHAPE AN ORGANISATION’S CULTURE:

1) The founder. The stronger and more individualistic the founder’s attitudes and
behaviours, the more likely it is that the organisation’s long-term culture will be
influenced by him;

2) The journey to the new. If an organisation had a lot of success over the years, it will
surely continue to do so;

3) Other people. Key hires may bring new thinking or new ways of doing things;

4) Current leader. A new CEO can initiate significant effort and resources to change a
culture;

5) Current setup. If there is a too rigid supervision structure, this might discourage
employees from open communication;

6) National culture. Different national cultures will value certain behaviours differently
(communication, family).

EDGAR SCHEIN THEORY:

Organisational culture is built up on three different levels:

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Example:

Let’s imagine an organisation’s employees have very flexible hours and casual dress. The
hours and dress are the observable items - the Artefacts. These Artefacts may be
representative of values in the organisation around personal expression and allowing
employees to be an individual. Underlying all of this may be the Assumption imbedded in
the key board members about the importance of work-life balance and its importance to
them as individuals.

CHARLES HANDY MODEL:

Identifies four types of different organisational cultures:

1) Zeus culture. The culture is shaped by the power of one individual;

2) Apollo culture. Culture is built on the roles of individuals and the rules and
structures associated with them;

3) Athena culture. The culture is built on tasks and output;

4) Dionysus culture. Culture is shaped by persons in the organisation and their interests.

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GEERT HOFSTEDE MODEL:

Identifies four main types of dimensions where differences between national cultures could
have an impact on the culture of an organisation:

1) Power and distance:

− Describes the the acceptability of large inequalities between different ends of the
command structure or scalar chain;
− High PD cultures accept and expect that power is unequally distributed and thus
accept instruction more readily, believing this to be the accepted norm;
− In low PD cultures, subordinates strive to progress to have more power, and try
to balance power inequalities.

2) Uncertainty avoidance:

− Describes the extent to which cultures dislike and avoid uncertainty, change and
unstructured
− situations;
− High uncertainty avoidance cultures prefer plans and rules, laws and regulations
and prefer to follow detailed plans for small changes;
− Low uncertainty avoidance cultures are more comfortable with unstructured
situations and tend to challenge the status-quo more readily, being more
tolerant of such challenge and conflict.

3) Individualism/Collectivism:

− Describes the degree to which individuals are integrated into groups;

− The focus is on personal achievements and individual rights where individual
achievement and
− dynamism is highly valued;
− Organisations with such cultures tend to be very formal and impersonal;
− In collectivist societies (low individualism), individuals act predominantly as
members of a lifelong and cohesive group or organisation;
− Such cultures tend to focus more on the team, teamwork and team goals and
make judgements based
− on the achievement of teams or groups rather than on what individuals do.

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4) Masculinity/Femininity:

− Concerned with the extent to which the the different genders influence the
culture;
− Masculine values are competitiveness, decisiveness, ambition and assertiveness,
and material
− success whereas feminine values reflect quality of life, the quality of relationships
and consensus.

Note: These dimensions can be lower or higher in relation to the way the organisation
operates in the nation.

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Committees in Business Organisations
DEFINITION:

A committee is a group of people appointed for a specific function by a larger group and
typically consists of members of that group. A committee may operate in any environment
where it makes sense for a small group to run an agenda on behalf of a larger group.

COMMITTEE STRUCTURE:

A committee will typically have the following structure:

1. Chairperson - the senior member of the committee. Chairperson ensures that the
committee delivers on its objectives and does so by:
− Ensuring that each meeting is held effectively,
− Keeping the discussion appropriate;
− Managing the contributions of other committee members;
− Calling for votes;
2. Agenda - list of the items to be discussed at the committee meeting. It is normally
distributed in advance to enable members to review it, make necessary research or
consider their positions on each decision;
3. Minutes of meeting - record of the meeting that contains all discussions between
committee members, the decisions taken and all actions points. Minutes are normally
distributed to committee members after a meeting in draft;
4. Secretary - normally responsible for setting up committee meetings, inviting members,
issuing minutes, ensuring that agreed actions are completed.
5. Other features:
− Meetings are held at regular and fixed intervals;
− Each meeting follows the previous by firstly confirming that members approved
the minutes of the last one,
− all actions were completed and all members have the current agenda;
− A quorum (minimum number of attendees required) is called before a meeting
starts.

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PURPOSE OF COMMITTEE:

Committees may have multiple purposes:

1) To be an instrument through which the executives make key decisions;

2) To run a major specific project or address a major issue in the organisation;

3) To be accountable or consultative in nature rather than delivery focused.

TYPES OF COMMITTEES:

The main types of committees are:

1) Executive committees - have been delegated direct responsibility from the owners of
the organisation to run it on their behalf (e.g. Board of Directors). They consist of :

− Chief executive;
− Chief financial officer;
Secretary;
− Other executive and non-executive directors; - Sub-committee (not necessarily).

2) Permanent committees - often implemented to take accountability for a specific key

area in the organisation which is then reported to the Board (e.g. Lending Committee,
New Vehicles Committee). Example 1: A bank might have a Lending Committee which
reports to the Board and which is responsible for the quality of lending in the bank.
This may contain:

− Key executive from the Board (e.g., Chief Credit Officer);

− Other Senior Managers who are not executives (e.g., Retail Lending, The Head of
Credit Cards). Example 2: An auto manufacturer might have a New Vehicles
Committee reporting to the Board responsible for the development and delivery
of the new vehicle pipeline. This might include:
− The Executive in charge of production from the Board;
− Other Senior Managers (e.g., The Head of Marketing, The Head of Design, The
Head of Engineering).

3) Management committees - not responsible for a key specific area in the organisation.
Instead, they are normally charged with running all aspects of standalone business.

Example: Imagine there is a Corporate Group which has lighting business, heating
business, and a consumer electronics business. Separate Management Committees will
likely run each one with that committee being responsible for all production, finance,
people, and other issues in their business.

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4) Special purpose committees - set up within an organisation to address a specific one-off
topic, issue or project.

Example: Imagine an auto manufacturer that discovered a faulty in their airbags in one of its
vehicles. There may be different impacts arising from this:

− The need to get new airbags;

− Replace airbags in vehicles sold;
− Notify customers about the problem and what they need to do;
− Involve the regulators explaining what has happened;
− Deal with any legal aspects that may have arisen as a result of being sued for any
defects.

To resolve this issue, much time and energy will be required to deliver specific tasks.
Hence, an option for the Board might be to chair a Special purpose committee involving
Senior Managers from all key departments.

ADVANTAGES AND DISADVANTAGES:

Advantages of having a committee:

− A committee will be comprised of members who have varied experience which

results in better decision making;
− Committee structures are better for innovation because of the wider experience
which encourages more innovative ideas in any discussion;
− Group brainstorming will often produce a better solution to a given problem;
− Different representatives of important groups will participate in the making of
key decisions which makes them feel part of the process and improves the
decision making;
− It allows effective communication across the organisation about decisions taken;
− It is often easier to receive difficult communications from a committee member
who has been at the meeting itself.

Disadvantages of having a committee:

− If a committee is comprised of too many members or managed by an ineffective

chair, they may be very time consuming with unnecessary levels of discussions;
− Opportunity can be lost as a result of too long decision making;
− Over onerous time commitments by executives can mean that they are less
focused at doing their core job;
− Committee members can compromise on their true opinions in the interest of
reaching consensus.

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COMMITTEE CHAIR AND SECRETARY:

Both the Chair and the Secretary have key roles in ensuring that committee structures help
the organisation to perform successfully.

Characteristics of a good Chair:

1) Must be a strong and capable leader;

2) Must have excellent organisational skills and the power to motivate and encourage
the rest of the Committee;

3) Must have strong expert understanding of current issues;

4) Must be a good communicator with the ability to articulate problems and issues
clearly;

5) Must be impartial, giving all members a fair explanation at any discussion;

6) Must be decisive in dealing with inappropriate dialogue of debate and controlling

difficult members.

Characteristics of a good Secretary:

1) Must be a brilliant organiser given the responsibility for numerous key activities
(setting up minutes, constructing and sending out agendas, inviting members, taking
and sending notes);
2) Must be extremely diligent in chasing members on their actions;
3) Must be a great communicator assisting the Chair.

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Governance and Social Responsibility in Business
DEFINITIONS:

Corporate governance - the system of rules, practices and processes by which a company is
directed and controlled.

Corporate governance components:

1) Risk management;

2) Performance management;

3) Professional ethics;

4) Legal compliance.

Corporate social responsibility (CSR) - self-regulatory mechanism whereby a business

monitors and ensures its active compliance within the spirit of the law, ethical standards and
national or international norms.

Corporate social responsibility areas:

− Environment;
− Charity;
− Poverty/Education etc.

Note: These areas are important because their effect can be damaging to the society and
the economy. Theory of agency - supposition that explains the relationship between
principals and agents in business.

Many academics believe that the managers of some companies only manage the goals of
that company that are aligned with their own individual goals. Hence, organisations become
managed on the basis of a set of goals, but primarily focused on the enrichment and
advancement of its managers.

Therefore, other corporate goals may conflict with these individual goals, such as
compliance with the law, and may become diluted in the absence of standards and
guidelines. Many states now develop corporate governance standards, guidelines, and codes
regarding corporate governance and CSR that they expect organisations in their economy to
adhere to. Some of these are optional, others are not.

Corporate governance and CSR become extremely important as a result of scandals (such as
Enron, Exxon, Barings bank).

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Corporate governance and CSR frameworks key documents include:

1) UK - Corporate governance code (previous versions: Combined code, Cadbury report);

2) USA - Sarbanes-Oxley act 2002.

CORPORATE GOVERNANCE KEY PRINCIPLES:

− Ensure that financial reporting standards are adhered to;

− Independence of auditors / non-executive directors;
− Proactive and effective risk management;
− Take account of all stakeholders;
− Have data available to properly manage organisations;
− Ethics;
− Accountability.

Key characteristics of the board:

1) Executive directors:
- Chairperson
- Chief executive officer;
- Chief financial officer;
Organisation of the board
- Chief technology officer, Chief investment
officer - depending on the organisation;
- Secretary;
2) Non-executive directors.
1) Reserved decisions list; Major
2) strategic/risk decisions;
3) Other:
Activities of the board - Internal controls;
- Executive oversight;
- Strategy;
- Financial management.
- Experience;
- Training;
Attributes of directors
- Geographically spread;
- Skill sets.
Selection of directors By nomination committee made up of a
majority of non-executive directors

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Committee's responsibilities and features:

Remuneration committee Audit committee

- General pay policy; - External audit;

- Specific directors’
- Internal audit;
arrangements;
- Very independent NED. - Risk management framework;
- System of internal controls;
Note: Audit committee can be comprised of only NEDs.

Public oversight:

− Financial performance;
− Compliance;
− Key committees;
− Board information;
− Risk management systems;
− Internal control mechanisms.

SOCIAL RESPONSIBILITIES KEY PRINCIPLES:

1) CSR policies:

− Details are often published;

− May be selfless in their contribution to the community;
− Focused in such a way as to be aligned with other organisational goals;

2) Legislative protection;

3) Sustainability.

Social responsibility is a principles-based responsibility. A hard responsibility is a responsibility

that might result in fines or prosecution if not adhered to, However, social responsibility such as
charitable giving and community support might be deemed soft responsibilities which are more
optional.

But how does an organisation do about determining what social responsibility objectives it
should have? Typically, it will do this via stakeholder analysis. The organisation should map out
its internal, connected, and external stakeholders. They might be:

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 − The local community;
− Customers and staff;
− Owners;
− The government;
− Other special interest groups.

The following question must be considered then: what social responsibilities to each of these
stakeholder groups expect the organisation to have as an objective?

For example, its employees might expect that the key local charity is supported financially, so,
perhaps, an annual contribution is made.

From this analysis, an organisation can then compile a set of policies, objectives, and activities
which it will execute as its social corporate responsibility strategy.

Remember: In line with the setting of objectives, the ultimate decision around any conflicting
social responsibility needs around different stakeholders is likely to be decided based on the
power of stakeholders involved.

In terms of the overall social responsibilities of the organisation it looks as follows:

Source Requirements

Law / Regulations “Hard” requirements, legislation derived, not optional;

CSR analysis; “Soft” policies, optional, social pressure, stakeholder needs

Personal ethics / Views “Softer”, personality driven.

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