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Centralized Control with Decentralized Responsibilities

Donaldson Brown, General Motors Corporation, ca. 1927

Treasure People and Exploit Tools

Preface

In recasting this essay for the web, editorial care has reduced the verbiage while hopefully retaining the meaning and flavor of the original. With that caveat, we are proud to present some finance basics. It is interesting to note that Mr. Brown had no formal training in corporate finance, he was an electrical engineer, brought into the role as General Motors grew into one of the leading businesses of the day.

As the GM management structure served as a model for many of today's Fortune 500, it is with some irony, we reflect that many of today's bedrock beliefs were designed by one "outside the field." This trend, innovation from the edge, you will see repeated throughout your survey of industry, whether on this site, or in daily practice.

T
here is probably no subject relating to industrial management more important than this. Yet, I am told, very little has been written which deals with it in a comprehensive way. There is a similarity of fundamental principles, however, and I shall be glad if a brief outline of our own experience may prove of use as introductory to further study.

I am going to take the liberty of first touching upon fundamental principles of management which are applicable to any industrial business today in order to illustrate the adaptation of those principles in our own particular circumstances.

All of us have a full appreciation of the importance of promoting initiative and enthusiastic effort down the line of organization by the delegation of authority and placement of responsibility. By responsibility we mean the exercise of prerogatives, either implied or specifically assigned to the jurisdiction of an individual.

Accountability would be a better word, for the individual who delegates authority does not divest himself[1] of responsibility. In the sense that each individual is responsible to some one superior, culminating through a series of lines of jurisdiction in the responsibility of the president himself, central control is absolutely essential as governing every activity in business management. This kind of control might be called administrative control; and the proper assignment of duties and responsibilities down the line of organization as administrative management.

Every man charged with responsibilities and vested with authority must be brought to realize that his function is tributary to the accomplishment of a central motive. Then whatever degree this spirit can be engendered throughout the organization to that degree the central motive itself becomes the controlling power.

Thus there is just one central motive in industrial management, i.e., the permanent welfare of the owners of the business. This central motive, or ultimate purpose, is served through the determination of what are known as policies. Such policies as it is possible to establish in clear cut terms must be laid down for the guidance of the administrative management. In cases where there is no concrete expression of policy the administrative management is none the less subservient to the policy viewpoint. Where doubt exists, those responsible for policies must be consulted.

Central Motive of Management

If there is a complete coordination, with full regard to the permanent welfare of the owners of the business, then it follows that centralized control exists. Most large businesses today are in the hands of corporations owned by scattered stockholders. The corporation has a board of directors. The directors, individually and collectively, have the responsibility to represent the interests of all of the stockholders; in other words, to see that centralized control exists.

Usually the board is comprised partially of those actively engaged in other directions, not in sufficiently close touch to exercise direct action in setting policies. This brings about the designation of a sub-committee, usually called the executive committee, comprised of board members more closely identified with the business, to whom broad authority is often delegated by the board.

But the board of directors has, and cannot evade, the sole duty of representing the stockholders. To the extent that discretionary power is left in the hands of an executive committee, it requires confidence and faith in the breadth of view and ability of that sub-group to exercise the prime function. There can be no shifting of the ultimate responsibility.

It is proper and advantageous to the stockholders that authority be conferred upon the administrative management as far as it is possible, so long as there is a proper degree of coordination, and policy compliance.

Article Continues…  
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