This article with its associated sample form will assist in-house counsel who are struggling with issues related to signing authority, staff approval limits, and information passing
Top Takeaways
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An updated delegation of authority document that all stakeholders in a company can agree to makes it clear who can sign for purchases or develop and approve corporate strategies. It can also improve information flow within a company.
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The delegation of authority document is a living document to be updated as needed. It should be made available to all employees at a company to eliminate confusion about who has authority to take various corporate actions.
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Initial adoption of a delegation of authority may be difficult in companies that have not had one, but if in-house counsel sees issues arising from the lack of such a document, the implementation will be worth it.
What is a Delegation of Authority Document?
A delegation of authority document, or “DOA,” is a document that aims to set approval guidelines for the various functions of a business. These guidelines help alleviate confusion over who has authority to make decisions on behalf of the company.
As in-house counsel, it is crucial to ensure that approval procedures are being followed and honored; failure to do so can lead to employees acting outside the scope of their authority and potentially subjecting the company to legal troubles.
In-house attorneys are encouraged to bring a DOA to their employer, especially if you are experiencing the frustration of having different departments and employees involved in legal affairs (such as with outside counsel) without your knowledge or are finding it hard to control legal spend.
Implementing a DOA can be a difficult challenge for a company that might not be accustomed to such limitations. However, most employees tend to agree that having a definitive document that outlines approvals and other strategic procedures is more than worth the pain of its introduction.
In this article, I introduce a sample DOA form that you can use, and explain its functions so you can craft it to meet the needs of your organization. I also highlight the need for supplemental forms and encourage regular training to ensure the success of your efforts.
Introducing the Delegation of Authority
A delegation of authority document covers the various business activities in which your client may participate. The sample DOA that goes along with this overview divides such responsibilities into four types: Finance, Human Resources, Legal/Compliance, and Strategy & Others (the catchall category).
You will need the assistance and buy-in of people from each of those four functional groups, as well as approval from the board of directors and executives, in order to make the document as robust as it can be.
Several functional roles are displayed across the top of the DOA grid, and are adjustable depending on who desires/needs approval authority and according to the structure of your company.
For example, this sample form was adopted and anonymized from a group of companies that had a holding company administering several subsidiaries. For some matters up to a specified dollar amount, a subsidiary may be able to make approvals on their own without holding company approval; for others, the holding company and board of directors may also need to be involved. The specific roles are not important as long as the ones that are in the DOA meet your company’s needs.
Each corporate role involved in an approval can be given one of four approval levels, again depending on company needs:
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Inform (“I,” meaning the corporate role does not have approval authority for that category but must be given written notice of the action);
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Request (“R,” meaning the role level or levels that is or are able to initiate a project in that category);
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Confirm (“C,” a middle-level type acknowledgement that the person holding the role is on board with the requested project); and
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Approve (“A,” meaning the role level must approve the project for it to proceed).
The Inform action is often given to the board of directors if it is a project that they should be aware of; however, the board of directors or anyone else assigned to an “I” action should pre-approve the fact that they will not have strict approval authority on that issue and acknowledge that they have given final approval authority to the “C” party or parties. If there is a concern, then the “I” should be changed to a “C” or an “A” as needed before the DOA is implemented.
Types of Activities for Approval
In the Finance section, there are various types of goods and services that a company may need to procure (including inventory and capital expenditures). Those are split into various dollar amounts to help delineate how much an employee at a certain managerial level can approve on their own without a higher-up’s approval.
For example, maybe a department manager does not need to get their boss’ approval for purchases up to $10,000, but does need their approval at higher levels; in that case, the department manager might be given a “C” level of approval for up to $10,000 in purchases. If the purchase amount is higher, then the manager could be given an “R” level and their boss the “C” level.
These are adaptable to the company’s comfort level and customary practice. Remember that not all corporate roles listed across the top of the grid need to be involved in all potential business activities. The goal is to simplify the approval process, not to add red tape for the sake of control.
The remainder of the Finance section contains other activities that may require the involvement of the corporate finance team, like engaging tax professionals or paying royalties. The examples included in the sample form are not exhaustive but may still be illustrative.
In the Human Resources section, activities like bonus payouts, termination agreements, and hiring requisitions are included and may involve different corporate roles than in the finance section.
In the Legal/Compliance section, this is where in-house counsel can control the approval and potential negotiation of contracts, as well as the approval of and contact with outside legal counsel. If you are having trouble with employees contacting outside counsel without your knowledge, this is a place a DOA could really make your life easier.
Finally, the Strategy & Other section covers areas like corporate restructures, insurance policies, and long-term corporate strategies.
Suggestions on Implementation
Initially, the first thing to do is to get the board of directors to support the plan to implement a DOA (if applicable to your company; if there is no Board of Directors, your CEO should be completely on board with the idea). Whoever is at the top of the hierarchy in your organization must understand the reasons for implementing the DOA as well as the process by which you will introduce it.
The top-level officers in the organization will need to be reassured that they will have ultimate approval for any activities they deem necessary, and will have the final approval for the DOA creation itself (see L10 in the sample DOA form), as well as for any updates made to the DOA.
After receiving top officer buy-in, it would be suggested to pull all department heads and critical role-holders together to explain the DOA, the process by which it will be implemented, and to welcome input and insights.
It may be easiest to already begin with a sample DOA with roles and approval levels sketched out, and then take individual suggestions; if a blank DOA is presented to people, it may be too overwhelming for them to contribute. Everyone should take back to their functional groups the lists of activities and approval levels that pertain to them, and then their feedback should be considered and applied where reasonable.
After these initial functional group reviews, a follow-up meeting can be scheduled to present the revised DOA to the department head cross-functional team, followed by a review period and then presentation of the approved DOA to the board of directors for final review.
Along with implementation of the DOA, there should be a form developed that allows for the sign off of various roles on a given project. At one of my prior companies, these forms were called “project approval requests” or “PARs.”
PARs included:
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space for the project requestor’s name and department;
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the PAR preparer’s name and department (if different from the requestor);
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a brief summary of the project and the projected costs;
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the date by which the PAR should be approved;
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room for the attachment of pertinent contracts or other supporting documents; and
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room at the bottom for the names and roles of all who are on the approval list in the DOA for that particular project(this is where each approver would sign and date the PAR to indicate their acceptance or for the approver to express any hesitations to the contrary).
During the beginning months of implementation, it might also be advisable to have a space for the project requestor to put the code number of the project according to the DOA on the form as well, so everyone knows what part of the DOA is applicable.
Three further suggestions for implementation: First, in-house counsel might be a great role to administer the DOA and its revisions and applications. Questions about the correct approval category can also be directed to you as counsel, and this will give you a bit more control and insight into how the processes are going.
Second, training regarding the DOA should be given to all employees before and after implementation. These trainings can demonstrate sample projects and go through the process of finding the right category of project on the DOA, as long as showing what a completed PAR should look like.
Third, make sure all in the organization are aware of where they can find the DOA. The DOA is not inherently proprietarily confidential to a company, so access to it by all can increase efficiencies and general support of the DOA.
Conclusion
Implementing a delegation of authority document will empower your organization to move forward confidently on projects, with all knowing that appropriate controls are in place to ensure that their actions are endorsed.
Additional Resource: Sample Delegation of Authority
Author: Casey B. Harris