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The Org Chart

The most common method for depicting the structure of an organization, including an emerging company, is the “organization chart”, which shows both the division of work activities among various units and the formal hierarchy of authority.  The organization chart provides an overview of who does what within the company and at whose direction these activities are carried out.  Once they reach a certain size and complexity, companies generally departmentalize their activities by function, product, territory or customer and many companies evolve toward the use of some combination of two or more of these types as the business grows and becomes more complex.


The traditional form of organization chart includes a box for each of the key positions in the company and each box has a line connecting it to the applicable immediate supervisor that defines the primary reporting relationship for the position.  By looking at the organization chart one can quickly determine the authority of a position by looking at how high on the chart it is, how many subordinate positions report to it, and how many activities must be integrated through the position.  The summary information on the organization chart is typically supported by job descriptions that detail the tasks to be performed; the skills necessary to perform the tasks; and the qualifications, education and/or experience considered to be necessary in order to perform the responsibilities of the position.


What the organization chart does not show is the various policies and practices of the company with respect to key issues such as planning and control, compensation, promotion and recruitment.  In addition, every company has its own set of informal structures that arise in response to the formal structure and the personalities and attitudes of the specific and unique individuals that make the organization run.  As such, in order to understand how the company really works it is necessary to identify four important facets of organizational structure—the formal set of organizational interrelationships depicted on the organization chart, the job descriptions and responsibilities, company policies and practices, and the casual and spontaneous communications that arise outside of the formal direction of management (i.e., social networking).


Companies should consider how a formal manual and additional training and communications can be used to describe the organizational structure and provide managers and employees with a guide to how the work of the company will be divided and coordinated.  Without this information, employees will encounter problems in completing their tasks and thus may experience high levels of stress and anxiety.  This process should begin from the very first day that employees join the company with an explanation of the company organization chart and any additional chart or diagrams that may have been prepared to outline work activities in a particular group or department.  New employees should be provided with a copy of the organization chart and a follow up meeting should be scheduled for soon after the employee arrives to spend additional time explaining the company’s organizational structure and how the employee’s department or group, and specific job duties, fit into the overall work flow.



Basic Management Challenges for Emerging Companies

While the success of any emerging company is dependent on a number of factors—the specific business model, technological advantages, the skills and talents of the management team, and competitive and other environmental factors—it is now well understood and accepted that companies often rise or fall based on whether they are able to create management systems that effectively support growth while minimizing and the tension and strife that often occurs when organizations expand rapidly and are confronting with substantial demands from external sources.  There are obvious differences in the scope and detail of the management systems used by smaller companies and large global organizations; however, the basic challenges are essentially the same regardless of size:

  • A clear organizational structure must be defined that includes all of the key functional activities required for the company to achieve its goals and objectives.
  • Markets with the best potential for the company’s products and services must be selected and sales and distribution strategies must be designed to meet the specific requirements of each market.
  • Production methods and strategies must be established that control costs while satisfying quality standards and keeping inventory levels low to free up capital while still allowing for timely fulfillment of customer orders.
  • Risk management strategies, including insurance and security measures, must be established. 
  • Attention must be paid to governmental and community relations including compliance with applicable laws and regulations.
  • Human relations policies must be established to ensure that the business runs smoothly and the company is able to recruit and retain talented managers and employers.
  • Planning systems, including performance evaluation and measurement tools, should be created and regularly evaluated and the key elements of the company’s plan should be communicated throughout the company.
  • Financial controls and reporting systems, including projections and budgeting systems, must be implemented and continuously reviewed to ensure the company is able to finance growth, invest in new opportunities and keep track of all aspects of business operations.

No company has solutions for all of these areas in place at the time the business is launched and it is common to try and address strategic issues and other growing pains through informal meetings and personal observations long after it is clear that the preferred and necessary approach is identification and adoption of formal and sophisticated management systems.  The consequences of neglecting the task of creating management systems is that the company stumbles once it hits a certain size and is unable to take advantage of growth opportunities that can be seized and exploited by competitors that have the systems in place.  An unprepared company without reliable management systems cannot deliver on promises made to customers, suppliers and investors.  Moreover, the senior managers of the company will grow increasingly frustrated with the costs of burdens of attempting to carry out activities that should be routine after a certain point in time.


Clear and concise business strategies coupled with management systems that address each of the areas above are essential to facilitating coordination within the company and ensuring that necessary information is collected, analyzed and distributed to those inside the company that have a “need to know” and to external stakeholders such as the board of directors, investors, banks and regulators.  Also, as referred to above, management systems allow senior managers to reduce the amount of time they spend on routine transactions and focus on the “big picture” and expanding the organizational domain of the company.  The utility of management systems for emerging companies during their start-up and early growth stages would appear to be clear; however, there is still much to be learned about how such systems can be implemented for these types of companies given that most of research in this area has focused on larger firms that have been in business for significant periods of time.


SEC Final Rules on Disqualification of Bad Actors from Rule 506 Offerings

The first of a two part series on the rules recently adopted by the SEC relating to disqualification of "bad actors" from Rule 506 offering was posted today on the Legal Solutions Small Law Firms Blog.


California Recognizes Authority of Board to Adopt Emergency Bylaws

Obviously the board of directors has substantial and broad authority with respect to exercising the powers of a corporation and corporate statutes in the various states generally include a lengthy list of those powers which are then typically interwoven into the charter documents (i.e., articles of incorporation and bylaws) of each corporation.  One area that is sometimes neglected is how the affairs of the corporation will be managed during times of "emergency".  Corporations have often adopted "emergency bylaws"; however, statutory authority for these rules is not universal. California recently became one of the states that recognized the authority of the board to engage in advance planning for situations that hopefully will never occur.  See more at FINDLAW Corporate Counsel.