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How delegation of authority (DOA) can enhance operational efficiency

Authors

  • Dan Helwing

    Partner, Financial Accounting Advisory Services, Ernst & Young LLP

  • Lindsay Jordan

    Senior Manager, Financial Accounting Advisory Services, Ernst & Young LLP

4 minute read 08 Apr 2025
Related topics
Financial accounting advisory services
EY Center for Board Matters

Delegation of authority policies aid decision-making and risk management, but companies struggle with a lack of information and guidance.

In brief

  • A well-crafted delegation of authority (DOA) policy can create decision-making frameworks that help companies achieve their strategic objectives.
  • Though most companies have implemented DOA policies, an EY study identified leading practices that can help address common challenges.
  • Training employees on how to use, enforce and update DOA policies represent areas of opportunity.

How EY can help

In today’s fast-paced business environment, effective governance practices are essential for fostering transparency, accountability and risk management. A fundamental component of corporate governance is the delegation of authority (DOA) policy, a strategic tool that can enhance organizational efficiency and increase operational resilience. “The delegation edge: A guide to successful delegation and authority,” a study conducted by Ernst & Young LLP (EY US) and the Society for Corporate Governance, finds that nearly 90% of respondents have implemented DOA policies. However, DOA policy format, content and governance varied significantly, revealing the need for information around common practices and areas of opportunity for improvement.

 

“Delegations of authority are a key aspect of the overall corporate governance framework and can be critical to internal controls and operational effectiveness. Companies are seeking relevant examples and guidance to inform their establishment of clear decision-making frameworks,” says Randi Val Morrison, Senior Vice President and General Counsel for the Society for Corporate Governance.

 

When implemented effectively, taking into consideration an organization’s operational nuances and risk environment, a well-documented DOA can have myriad benefits:

 

  • Increasing efficiency and employee engagement
  • Supporting accountability
  • Fostering a positive culture
  • Saving managerial time for other tasks
  • Improving compliance and trust

 

However, there is no one-size-fits-all approach to crafting a DOA. Companies that develop an ineffective DOA often face increased risks. These include miscommunication, the delegation of tasks to inappropriate resources, integrity issues resulting from excessive discretion, operational bottlenecks and inconsistent decision-making. Mistakes in these areas can be costly for an organization and can result in litigation, noncompliance with laws or reputational damage.

 

The study, based on a survey of more than 200 members of the Society for Corporate Governance at public and private companies, identified common challenges and provided guidance in the development and implementation of DOAs. Key findings include:

How EY can help

Format:

More than half of respondents (54%) indicate that the preferred format for DOA policies is a combination of memo and matrix. This dual-format approach — combining a narrative explanation of the authority delegated in the memo and a visual depiction in the matrix — allows stakeholders to more quickly and easily grasp their responsibilities and the scope of their authority.

 

Approach:

Most organizations prioritize the hierarchy of authority, starting with the board and then cascading down through the various organizational layers.

 

Administration:

Most companies manage their DOA centrally (73%), with the legal department, the finance department and the board primarily acting as custodians of the DOA.

 

Training:

Only 40% say their organizations conduct regular trainings on DOA policy updates. Periodic training is considered a best practice.

 

Challenges:

Insufficient training about the policy and its usage is cited as the top challenge by 36% of respondents. Respondents also report difficulty in tracking and enforcing the policy, difficulty in understanding roles and responsibilities due to the complexity of the organizational structure, and time-consuming updates and modification processes as their other major challenges.

 

Signatory authority:

Nearly two-thirds (65%) report that their organization’s DOA included signatories. Integration streamlines processes and can reduce the risk of unauthorized commitments.

 

Thresholds:

Nearly half (49%) lack a formal materiality policy. Determining materiality and DOA thresholds is a rigorous process that requires balancing risk management against operational efficiency.

 

To develop and implement an effective DOA, companies should consider the following steps:

  • Incorporate the DOA in the organization’s governance framework.
  • Review and revise the DOA to maintain alignment with the evolving business environment and operational regulations.
  • Confirm that essential company stakeholders agree with the policy directives so that the DOA aligns with governance and compliance functions.
  • Establish a method that streamlines and automates approval processes in the DOA, creating clear lines of authority.
  • Maintain adequate oversight from the board regarding delegation authority processes to remain compliant with other corporate policies and governing documents.

By adopting leading practices and addressing common challenges, organizations can harness the opportunities offered by a strong DOA and create clear decision-making frameworks that support their strategic objectives. 

Summary

A well-functioning delegation of authority (DOA) policy can be crucial for transparency and risk management in today’s business environment. A study by Ernst & Young LLP (EY US) and the Society for Corporate Governance finds that nearly 90% of organizations have implemented DOA policies. However, content and governance varied, and companies struggle with insufficient training. The study offers insights and strategies to equip directors and executives with the knowledge to develop and implement an effective DOA.

About this article

Authors

  • Dan Helwing
    Partner, Financial Accounting Advisory Services, Ernst & Young LLP
  • Lindsay Jordan
    Senior Manager, Financial Accounting Advisory Services, Ernst & Young LLP
Related topics
Financial accounting advisory services
EY Center for Board Matters

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