Definition
Centralized Management refers to an organizational structure wherein decision-making and day-to-day operations are managed by appointed officers or executives rather than by shareholders or owners. This hierarchical management style is typical in corporations, where the roles are distinctly distributed between shareholders (owners), the board of directors (governing body), and officers (management team).
Examples
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General Electric (GE): GE’s operational decisions are made by its appointed executives rather than its shareholders. The board of directors oversees the management team to ensure that the company’s objectives are met.
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Apple Inc.: Apple’s strategic direction and daily operations are managed by its executive team, including the CEO, COO, and CFO. Shareholders vote on major policy decisions and elect the board of directors, but they do not engage in everyday operational decisions.
Frequently Asked Questions
What are the benefits of centralized management?
Centralized management ensures uniformity in decision-making, streamlines processes, and aligns the organization’s activities with its overall goals. It also enables quicker decision-making since fewer people are involved.
What types of organizations typically use centralized management?
Corporations, especially large and multinational ones, typically use centralized management. This structure can also be found in government agencies and large non-profit organizations.
How does centralized management impact shareholder involvement?
In a centralized management structure, shareholders have a limited role in day-to-day operations. They exercise their influence primarily through voting on major issues and electing the board of directors during annual meetings.
Can centralized management lead to inefficiencies?
Yes, it can lead to inefficiencies, particularly if the organization becomes too large, resulting in slower decision-making, overburdened management, and reduced flexibility. However, effective corporate governance can mitigate these issues.
How is centralized management linked to corporate taxation?
An organization characterized by centralized management typically qualifies as a corporation for tax purposes. This means it is subject to corporate tax rates and regulations.
Related Terms
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Decentralized Management: A structure where decision-making authority is distributed throughout various levels of the organization rather than being confined to top executives.
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Board of Directors: A group of individuals elected by shareholders to oversee the activities of the management and make high-level policy decisions.
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Corporate Governance: The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its stakeholders.
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Executive Management: The group of top-level officials responsible for the day-to-day management of an organization.
Online Resources
- Harvard Business Review - The Case for Centralized Management
- Investopedia - Board of Directors
- Corporate Finance Institute - Corporate Structure
Suggested Books for Further Studies
- “Principles of Management” by Charles W. L. Hill, Steven McShane
- “Corporate Governance: Principles, Policies, and Practices” by Bob Tricker
- “Management: An Introduction” by David Boddy
Fundamentals of Centralized Management: Management Basics Quiz
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