PERSPECTIVE 005
The Four Hats
Which hat are you wearing?
There is something I have encountered more often than I expected.
“I am the XXX. I decide.”
The XXX changes.
Sometimes it is the CEO or Managing Director.
Sometimes the shareholder.
Sometimes a director.
Sometimes the person who put in most of the money.
Each position means something.
And in the real world, each may carry considerable authority.
But they do not mean the same thing.
Over time, I have found it useful to think about four different hats.
The shareholder.
The Board.
The statutory director.
Management.
Sometimes different people wear each hat.
Sometimes one person wears several.
In smaller businesses, one person may even wear all four.
There is nothing inherently wrong with that.
The problem begins when we forget which hat we are wearing.
The shareholder
The shareholder owns an interest in the company.
That ownership comes with rights.
Some decisions properly belong to shareholders. Others may be specifically reserved for them.
A majority shareholder may, in practice, have considerable control over the direction of a company.
But ownership and management are still different things.
“I own the company” does not necessarily answer the question:
“Is this my decision to make?”
It depends on the decision, the rights attached to that ownership and the governance arrangements of the company.
The Board
The Board has a different role.
It provides direction and oversight and makes decisions that properly belong at Board level.
But there is another distinction that can easily disappear.
An individual member of the Board is not, by themselves, the Board.
The Board is a collective body.
A director may have a strongly held view.
They may even be the Chair.
But:
“I am on the Board”
is not necessarily the same as:
“The Board has decided.”
That distinction matters.
The statutory director
Then there is the statutory director.
This hat is particularly easy to misunderstand.
Appointment as a statutory director brings legal duties and responsibilities.
But those responsibilities should not automatically be confused with decision-making authority.
A statutory director may not have the authority to make a particular decision.
The matter may belong to Management.
It may require collective Board approval.
It may be reserved for shareholders.
At the same time, statutory directorship can carry personal legal duties that do not simply disappear because somebody else has made the decision.
That creates an important distinction.
You may not have the authority to make a decision while still carrying responsibilities concerning what you do in response to it.
Being told that somebody else has decided does not necessarily end the matter.
Neither does being a statutory director automatically mean:
“Therefore I decide.”
Management
Management runs the business.
And Management needs authority to do that.
A company where every operational decision has to be pushed upwards is not necessarily well governed.
It may simply be badly delegated.
The CEO or Managing Director needs sufficient authority to run the business within the responsibilities entrusted to that role.
But those last few words matter.
Entrusted to the role.
A CEO may have very broad authority.
In some businesses, particularly founder-led ones, that authority may be broader still.
There is nothing inherently wrong with that.
The question is whether everyone understands where that authority begins, where it ends, and when a decision belongs somewhere else.
Position and authority
Position matters.
It can bring authority, control and considerable weight in determining what happens.
There is nothing particularly surprising about that.
But as an organisation grows, relying on position alone can create problems.
The person making the decision may not have all the relevant information.
They may not be closest to the issue.
Others may carry responsibilities that also need to be considered.
And the consequences may eventually be borne by people who were never part of the decision.
This is where I find governance useful.
Not because it removes authority from people who legitimately have it.
And not because following a governance framework guarantees a better decision.
It does neither.
It provides a structure for determining where different decisions should sit, what information and approvals may be required, and who will ultimately be accountable.
For many organisations, particularly as they become larger and more complex, I think that gives them a better chance of succeeding.
So who decides?
This is where the four hats become useful.
We often use titles as shorthand for authority.
CEO.
Director.
Chair.
Owner.
But the title is only part of the answer.
The better question is:
Where does this particular decision belong?
If it has been delegated to Management, Management should be able to make it.
If it requires Board approval, it should go to the Board.
If it is reserved for shareholders, it should go to the shareholders.
And where statutory responsibilities arise, the individuals carrying those responsibilities need to consider them.
Governance does not provide the answer to the decision.
It provides a framework for working out who should be making it.
And who signs?
There is another assumption I have encountered.
“I am a director. I can sign.”
Again, one concept is being used to answer a different question.
Signing authority does not necessarily follow someone’s title.
A shareholder may have authority in a particular circumstance.
The Board may authorise a commitment.
A statutory director may have authority in another circumstance.
Management may have delegated authority within defined limits.
What matters is the authority applicable to that particular commitment.
This is one reason a Delegation of Authority exists.
It establishes what authority has been delegated, to whom, and within what limits.
If the commitment falls within that authority, the authorised person can act.
If it does not, the answer should not simply be to find somebody with an impressive enough title to sign it.
The matter needs to return through the governance structure to wherever the appropriate authority sits.
Sometimes that will be Management.
Sometimes the Board.
Sometimes shareholders.
The important point is simpler:
Decision authority and signing authority are not necessarily the same thing.
Escalation
There is another side to this.
I have seen decisions unnecessarily escalated because someone did not want to carry the responsibility for making them.
And I have seen decisions that should have been escalated kept away from the people or bodies that were supposed to consider them.
Sometimes because of ego.
Sometimes politics.
Sometimes convenience.
Sometimes bias.
Sometimes because someone wanted a particular answer.
Neither helps the organisation.
Good escalation is not about pushing decisions upwards.
It is about getting a decision to the place where it belongs.
That also means allowing people to make the decisions that have genuinely been entrusted to them.
Otherwise governance becomes bureaucracy.
Governance
I do not think governance guarantees good decisions.
It certainly does not guarantee success.
A business with very little formal governance can succeed spectacularly.
A business with extensive governance can fail spectacularly.
People still make the decisions.
They can still be wrong.
They can pursue different interests.
They can collectively agree on a strategy that ultimately proves unsustainable.
Governance does not remove any of that.
What it can do is establish a framework around how decisions are made.
Who has authority.
What requires approval.
When something should be escalated.
Who can commit the company.
And who is accountable afterwards.
As organisations become larger and more complicated, I have found those distinctions increasingly useful.
Not because governance always produces the right answer.
But because it gives us a better chance of knowing whose answer it was supposed to be.
Four different questions
Perhaps the confusion comes from treating several questions as though they were one.
They are not.
Which hat am I wearing?
What role am I acting in?
Who has decision authority?
Where does this particular decision belong?
Who has signing authority?
Who is authorised to commit the company in this particular matter, and within what limits?
Who carries responsibility and accountability?
Who must ultimately answer for the decision, action or obligation?
Sometimes the answers will point to the same person.
Sometimes they will not.
One person may wear one hat.
Another may wear two.
Someone may even wear all four.
That still does not make the hats interchangeable.
Perhaps before saying:
“I decide.”
Or:
“I can sign.”
There are four questions worth asking.
Which hat am I wearing?
Who has decision authority?
Who has signing authority?
Who carries responsibility and accountability?