What is Delegation of Authority?

Delegation of authority is the formal process by which a board of directors assigns specific decision-making powers to another person — typically the CEO or a senior manager — while retaining overall accountability for the outcomes of those decisions.

Under Australian corporate law, board directors must act in the best interests of their organisations. But it is not practical for directors to be involved in every operational decision. As an organisation grows, directors need to be strategic about how they spend their time.

Delegating authority allows the board to pass on decision-making powers to qualified individuals while still meeting its legal obligations. This helps the organisation run smoothly without unnecessary delays.

What is Delegation of Authority?

Delegation is the allocation of powers to an individual who has the skills and experience to carry out the functions and duties of and act on behalf of a board of directors. To work properly, delegation of authority must be founded on three principles:

1. authorisations must be lawful, accurate and transparent,
2. delegates must only make decision they are authorised to,
3. and decisions must be signed and executed effectively.

Delegation of authority allows the board to regulate authority and accountability, allowing managers to make decisions related to finance, employees, and regulations.

The delegation of power focuses on the role or position rather than the person. Typically, individuals in positions such as CEO or Executive Director, and people assigned to board sub-committees can become delegates.

Exercising Delegation

A person who is authorised to perform duties and functions on behalf of a board member is a delegate. Delegates must ensure their name is recorded and must act in the best interest of the organisation, in accordance with legislation, regulations, and internal policies.

The goal of exercising delegation is to empower individuals in senior management roles to use their discretion and judgement when making decisions. While a delegate may seek advice from others they should not be influenced when making decisions.

Delegation of Authority Policy

Delegation of authority must be written down.

The policy sets out who can make what decisions and within what limits, so that authority is distributed without losing accountability. The right people should have the right level of authority to do their jobs — no more, no less.

A written policy also helps establish internal controls and supports due diligence when decisions are later reviewed or audited.

A good delegation of authority policy should describe the positions to whom board members can delegate their functions, what duties they may and may not delegate, and how to proceed when assigning authority to a delegate.

Key Principles of Delegation of Authority

While the delegation of authority framework is different for every organisation, there are common principles that apply to the non-profit sector. Authorised individuals should take on only the level of responsibility that supports the administration and decision making they need. A delegate should not perform duties or functions that place them in a conflict of interest and should not be encouraged to act beyond the scope of the powers delegated to them.

While delegates can exercise delegations according to the organisational policy, some may have limits placed on their powers. For example, a person assigned to a CEO role on an interim basis may only be authorised for a limited time, and senior executives should not have the authority to approve their own expenditures.

Advantages of Delegation of Authority

Delegation saves time. Directors can focus on strategy and oversight instead of operational decisions. It also reduces bottlenecks — when the right people have authority to act, decisions happen faster.

There is a risk-management angle too. Assigning financial approvals to someone with accounting expertise, for example, is safer than having a board member without that background sign off on expenditure.

Delegation should not be used as a form of control. The goal is clarity: who can do what, and within what limits. Those limits should be reviewed and adjusted as the organisation changes.

Disadvantage of Delegating Authority

The main risk is that directors assume delegation removes their liability. It does not. Directors retain oversight responsibility for decisions made by delegates. If a delegate is negligent or makes a poor decision, the board can still be held accountable — particularly where directors failed to supervise adequately.

“Directors are entitled to delegate to others […] What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries.” (ASIC v Healey & Ors [2011] FCA 717)

Setting limits helps manage this risk. But limits vary between organisations and can add to a manager’s workload. A poorly designed delegation framework can lead to breaches, weak internal controls, and in serious cases, fraud or corruption.

Documenting Delegations

Directors have the right to delegate their powers unless the company’s constitution says otherwise. However, the delegations must be recorded in a minute book and added to a running list of formal delegations, the DOA register. A delegations register is a record of the powers and functions that have been delegated by the board to the CEO. Its purpose is to maintain and provide up to date information about delegates such as staff members and committees who have been delegated with certain authorities.

A few examples of the powers and functions that could be added to a delegation of authority register include acquiring and disposing of assets, signing agreements such as leases and land use contracts, hiring and firing staff, and replacing equipment and vehicles. While some responsibilities are delegated to the CEO, the board remains responsible for monitoring, asking questions and holding staff accountable. Delegation should not weaken the board’s ability to provide oversight.

Frequently Asked Questions

Related Terms

Accountability

Chief Executive Officer

Committee

Governance

Minute Book

Additional Resources

Sample Delegation of Authority Policy 1

Sample Delegation of Authority Policy 2

Financial Delegations Better Practice Guideline

Delegation of authority for not-for-profits in Australia (Video)

Legal Obligations of NFP Directors