Corporate Structure

Refers to the hierarchy of command within an organization that is purposed to carry out the work of the organization in an effective manner

A corporation's structure refers to how the business is organized to accomplish its goals. An organization's corporate structure is crucial because it determines its ownership, authority, and control. The shareholders, directors, and officers of a corporation represent these characteristics. 

The shareholders are the company's owners. The board of directors governs control on behalf of the shareholders, while the officers manage day-to-day operations.

Typical Structure for a Corporation (differs from company to company)

Shareholders = Board of Directors ⇛ Chairman of the Board/Chief Executive Officer (CEO) ⇛ Chief Operating Officer/President (COO) ⇛ Vice President (VP) Marketing, Vice President Finance (CFO), Vice President (VP) Production. 

In a large corporation, the shareholders are usually a separate group compared to management. The shareholders have the responsibility to elect the board of directors, which then selects the management for the company. In other words, the shareholders control the company since they elected the board of directors. 

The basics of corporate structure

Various departments contribute to the company's overall mission and goals in a typical corporate structure. For example, marketing, finance, operations management, human resources, and information technology are all common departments. 

Although there are often smaller departments within autonomous firms, these five divisions represent the central departments within a publicly-traded company.

Many businesses have a CEO and a Board of Directors, which is usually made up of the directors of each department, with one or more non-executive directors thrown in for good measure.

There are also company presidents, vice presidents, and chief financial officers (CFOs). However, there is a wide range of corporate structures, ranging from a single company to a multi-corporate conglomerate. The four main corporate structures include Functional, Divisional, Geographic, and Matrix.

It is important to note that the business structure we have discussed so far is based on typical corporations. There are other forms of business organizations that have different structures. These are sole proprietorship, partnership, Income trust, or a Co-operative (Co-op).

Board of Directors

Boards of directors are composed of two types of representatives and are elected by the shareholders. The first type comprises inside directors selected from within the organization. In addition, any officer involved in the organization's daily operation can be elected. 

Another type of representative is an external directorchosen externally and considered independent from the company. As a proxy for stockholders, the board is responsible for overseeing a corporation's management team. Essentially, the board of directors strives to meet shareholder interests.

Board members can be divided into three categories:

1. Chair:

  •  The board chair's responsibility is to lead the corporation and ensure the board runs smoothly and efficiently. 
  • In general, they are responsible for
    • Communication with the chief executive officer and other high-ranking officials.
    • Developing a company's business strategy.
    • Representing the board of directors and management to the general public and shareholders.
    • Upholding corporate integrity.
  • Elected from the board of directors.

2. Inside directors: 

  • Oversees the review and approval of high-level budgets prepared by upper management, as well as implements and monitors business strategy, and approves core corporate initiatives and projects.
  • A shareholder or an executive of a company.
  • Provide internal perspectives to other board members.
  • If they are part of the company's management team, they are also referred to as executive directors.

3. Outside directors: 

  • The difference between outside and inside directors is that outside directors are not direct management team members. Still, they have the same responsibilities as inside directors in defining strategic direction and corporate policy.
  • Outside directors are meant to provide neutral opinions on matters brought before the board of directors.

Management Team

It is the management team's responsibility to manage and oversee the company's daily operations and profitability. 

Chief Executive Officer (CEO): 

  • As the company's top executive, the CEO typically oversees all operations and reports directly to the board.
  • It is the CEO's role to put board decisions and ideas into action as well as to keep the company running smoothly.
  • Often, the CEO is also the company's president, making him or her an inside director (if not the chairman).

Chief Operations Officer (COO): 

  • The COO is in charge of the company's operations, including marketing, sales, production, and human resources.
  • The COO, which is often more hands-on than the CEO, is in charge of day-to-day operations while also offering feedback to the CEO.
  • The chief operating officer is frequently referred to as a senior vice president.

Chief Financial Officer (CFO): 

  • The CFO is responsible for evaluating and reviewing financial data, reporting financial performance, developing budgets, monitoring expenditures and costs, and reporting directly to the CEO.
  • The board of directors, shareholders, and regulatory agencies, such as the Securities and Exchange Commission (SEC), must regularly be presented with this information.
  • The CFO, often known as a senior vice president, regularly monitors the company's financial health and integrity.

Types of Business Structures

1. Functional Structure 

Employees are assigned to the same department based on the similarities in their skill sets, tasks, and responsibilities. 

As a result, communications within a department can be made more effective, and the decision-making process is more efficient. An example of a functional structure is a company with departments such as IT and Accounting.

2. Divisional Structure

Structures like this organize activities around specific markets, products, services, or customers. 

Using the divisional structure, teams are created that can produce similar products based on the needs of the individual groups.

Organizing a business into divisions based on the area or geography is an example of a divisional structure. Regional distribution centers are created to provide specific products or services to specific geographical regions.

3. Matrix Structure

A matrix structure consists of both functional and divisional elements. It promotes decentralized decision-making, greater autonomy, and better interdepartmental interactions, resulting in greater productivity and innovation. The downside of this structure is that it incurs higher costs. 

4. Hybrid Structure

Hybrid structures combine both functional and divisional components, just like matrix structures. This way, resources, and knowledge are utilized in each function while maintaining product specializations in different divisions. Many large organizations use hybrid structures.

Understanding a Company's Structure

The corporate structure of a company can be very different depending on the products/services it provides or the industry it resides in. To do this, the FP&A analyst needs to work closely with various business units in the organization to grasp their responsibilities and areas of expertise.

FP&A analysts must hold regular meetings and communicate regularly with business units to stay on top of market trends, new and existing projects, short- and long-term work plans, and potential opportunities in a project. 

By doing so, the analyst becomes familiar with the ongoing activities in each department and can also respond quickly to changes in budgets and forecasts with the most up-to-date information.

Due to the simplicity of the departments within the companies, functional and divisional structures are the easiest to build financial and forecasting models on. 

An FP&A analyst can easily gather data, analyze variances, identify data trends, and forecast future performance for each department.

FP&A analysts may collect data from each employee when performing detailed analyses. The analyst can easily track individual performance, work hours, and expenditures since all employees are in a single reporting relationship in a functional or divisional structure. 

Using this approach enables precise analysis of departmental costs, earnings, and productivity, without relying on many assumptions.

Employees in a matrix structure have dual reporting relationships, generally with their functional manager and their division/product manager.

 It is possible to have conflicts in resource utilization between a division and a function, which makes cost allocation more complex since a single employee can be assigned to both teams simultaneously.

Additionally, it is difficult for an FP&A analyst to create a perfect forecasting model for a matrix company since many resources overlap and there are ambiguous reporting lines. 

    Key Takeaways

    • Most corporations have a board of directors and a management team. 
    • An organization's board of directors is typically composed of inside directors, who are involved in the organization's day-to-day activities, and outside directors, who can provide impartial judgment.
    • Generally, all management teams have a Chief Executive Officer (CEO), a Chief Financial Officer (CFO), and a Chief Operating Officer (COO).
    Excel Modeling Course

    Everything You Need To Master Excel Modeling

    To Help You Thrive in the Most Prestigious Jobs on Wall Street.

    Learn More

    Researched & Authored by Michael Rahme | LinkedIn

    Edited by Colt DiGiovanni | LinkedIn

    Free Resources

    To continue learning and advancing your career, check out these additional helpful WSO resources: