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A corporate management structure defines who is responsible for the various areas of a business, which allows the business to take advantage of economies of scale and coordinate its activities. A clothing manufacturer, for instance, may have separate departments for women’s, men’s and children’s clothes but a central marketing department. This divisional structure allows the different departments to focus on their specialized market and product while sharing information to facilitate better coordination. This type of structure, however, could result in higher costs for employees and duplicated efforts such as when purchasing supplies for multiple divisions.
Corporate entities are legal entities and have stockholders. They require a certain structure for management to conform to laws and protect stockholders’ interests. To this end, many corporations have a multi-tiered system of directors officers, shareholders, and directors who supervise the company’s activities.
The top of the pyramid is the chief executive officer (CEO) who is responsible for signing off on contracts and other legally binding decisions for the company. The CEO of a small corporation could be the sole director, shareholder, and officer, or the founder. In larger firms the CEO is appointed by the board of directors.
The board of directors is comprised of elected representatives of the stockholders who control the overall direction and policy of the corporation. They choose and oversee the performance of the CEO and handle succession planning. They also approve important business transactions and activities like contracting, asset purchases and sales and policies, as well as any new ones.