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Corporate Hierarchy

Updated on April 18, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Corporate Hierarchy?

Corporate hierarchy in organizations refers to the arrangement of employees in a certain order (from top to bottom) based on their power, authority, and responsibility. The main purpose of this structure is to place individuals in a hierarchy for clear communication and effective reporting lines within the organization. 

Corporate Hierarchy Meaning

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Alternatively, it is also called business hierarchy. The corporate hierarchy structure establishes a line of order and leadership within departments. It also ensures an adequate flow of information via hierarchy. In addition, it also aids in better decision-making. However, this structure may create gaps for bureaucracy inefficiencies within the organization. 

Key Takeaways

  • Corporate hierarchy is an organizational structure that follows a certain order of command from top to bottom. It is based on power, duty, and authority. 
  • The key members of the business hierarchy include shareholders, the board of directors, CEO, COO, presidents, vice presidents, HOD, managers, supervisors, and other employees. 
  • It creates a sense of dedication, discipline, teamwork, supervision, accountability, and delegation within the organization. 
  • Such hierarchy allows a smooth communication and reporting line from top to lower management. There is an adequate flow of information from senior executives to employees.  

Corporate Hierarchy Explained

Corporate hierarchy is a form of organizational structure that positions individuals in proper sequence based on their job roles and power. It resembles a structure where people are ranked and placed in descending order. In short, it forms a pyramid-like structure with distinct levels like top, middle, and lower management. For example, a CEO issues orders, followed by managers, and then the subordinates at the bottom. 

Several key members share the supremacy corporate hierarchy title in the organizations. It includes the board of directors (BOD), chief executives (CEO, CFO, and others), department managers, and supervisors. Their job is to ensure the subordinates follow the proper chain of command at every level. It flows from the top management to the lower levels of the hierarchy. However, any change in the corporate hierarchy levels could interrupt business operations. Therefore, it is crucial to follow the correct order of placement. 

The complexity of the business hierarchy depends on the organizational structure itself. Small businesses with lesser personnel count find it easy to issue orders. But, as the firm expands, the structure also becomes complex. For example, a startup firm may have a well-defined chain of command. However, as the organization matures, the hierarchy will involve many individuals. 

Several elements determine the corporate hierarchy title of the individuals working in the organization. It decides the right place or department for them. These factors include job role, company size, departmental design, and authority. Before recruiting a person, the management will consider certain factors (like job role, performance, and capabilities). It will determine the employee’s position in the organization. Considering these factors, the management will place them in the suggested hierarchy. However, the process of installing the hierarchy in the organization differs. Firms must create an outline for the same, inclusive of some components.  

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Positions

Every organizational structure consists of certain levels that further include various positions. They help in determining the role of an employee. So, let us look at the corporate hierarchy chart for a better view of the concept:

#1 – Shareholders 

In the corporate world, shareholders have supreme power over any other person. They hold the power to influence the decision-making process. Thus, individuals having the highest stake in any company can overpower the decisions. Moreover, they also oversee the appointment of BOD, transaction deals, and distribution of dividends

#2 – Board Of Directors 

Also known as BOD, refers to the advisory board that makes major decisions for the organization. These individuals have the responsibility to attend Annual General Meetings (AGM). During these meetings, they discuss business growth, financials, revenue streams, and management-related questions. Through consensus, the decision is implemented throughout the organization. BOD also includes a chairperson with the organization’s highest authority on these matters. 

#3 – Chief Executive Officer (CEO)

After the BOD, the CEO is considered the highest-ranking member of the organization. They set out missions, goals, and objectives for the employees to achieve within a certain timeframe. As a result, many employees consider the CEO as a source of motivation. 

#4 – Chief Operating Officer (COO)

The COO is an employee responsible for creating a framework for implementing the mission statements. They work closely with the CEO on business plans and ensure their timely execution. Plus, they also monitor the hiring needs of the firm. 

As a part of the C-level, other designations also have a major role in the business hierarchy. It includes Chief Commercial Officer (CCO), Chief Financial Officer (CFO), Chief Compliance Officer, Chief Marketing Officer (CMO), Chief Human Resources Officer (CHR), and similar roles. They typically represent the corporate hierarchy for their department. For example, the HOD of sales reports to the CMO, who later communicates to the COO or CEO. 

Other Positions

Let us look at the rest corporate hierarchy structure within the organization:

#1 – President 

Following the C-level employees, the president is the next leader. They have a micro perspective that helps in the strategy development of the mission statements. They also handle the short-term goals of the organization. In addition, they represent the company in public by conveying business plans and developing customer relationships.  

#2 – Vice President 

As the name suggests, they assist the president in curating strategies and making business decisions. Also, they oversee the business operations and track internal staff to meet the desired targets. 

#3 – Head Of Department (HOD)

The organization is divided into different divisions that define the respective departments. And to monitor them, each department has a head. They delegate work to the managers and monitor their performance and the entire department.

#4 – Managers 

Managers rank below the HOD but act superior to their subordinates and other employees. They ensure that the delegated work is performed on time and report it to the HOD and President. Besides, they also work with the HRs (Human resources) in hiring. 

#5 – Supervisors

These individuals are the last ones to act in authority. The supervisors ensure that the employees receive training and upgrade their skills to perform the job effectively. Also, they monitor their performance and provide suitable feedback on it. 

#6 – Employees

Employees form the largest group of people working in the organization. Their main job is to perform the work allocated by the senior management. 

#7 – Others 

Apart from the hierarchy positions mentioned, organizations may also hire independent contractors, freelancers, and other professionals who function as subordinates. They might not work full-time, but they significantly contribute to the firm’s success. 

Examples

Let us look at the examples of corporate hierarchy levels to comprehend the concept better:

Example #1

Suppose ABC Ltd is a technology-based firm with 2000 employees. The entire organization has three major levels, forming a pyramid. It includes the top, middle, and lower management. However, certain people are delegated at different levels to manage the company.

For example, Keven is the CEO who decides the company’s goals and objectives along with the COO. Later, Jessy (the COO) prepares the draft strategies and communicates them to the other C-level executives. These executives then direct the HOD to delegate the work to managers, who later assign it to the employees. This entire process follows the chain of command from top to bottom. 

However, in this hierarchy, any person cannot change the order. If they do so, the reporting lines will get disrupted, leading to delayed projects. 

Example #2

According to the reports and releases by tech giant Apple Inc., the company still follows the corporate hierarchy chart structure. Tim Cook is the CEO, and the hierarchy is further divided into Presidents, Vice presidents, Chief Design officers, and COO. 

This hierarchical structure has been in effect ever since the inception of Apple to ensure maximum operational efficiency. It has made a significant impact on the smooth inner functioning of the company by encouraging and safeguarding the creative flow necessary for such a tech innovation company.

Importance

Corporate hierarchy is an essential element of the organizational structure. It provides a clear roadmap to the senior executives on workflow management. However, there is more significance to the topic. Let us look at them:

#1 – Accountability And Delegation  

Being responsible for their work is a key attribute in the corporate world. When senior executives assign work to employees, the workload is distributed evenly. It creates a belief of responsibility and accountability for their job roles. Therefore, they perform and report on a timely basis. 

#2 – Supervision 

The development of a hierarchy installs indirect supervision on every employee. As a result, they are compelled to complete work on time, causing no delays. In return, it promotes efficiency and effectiveness within the organization. 

#3 – Commitment And Discipline

Working in a hierarchical organization demands commitment toward the delegated work. Employees at any authority must complete their work and report to the assigned senior. Thus, it creates a sense of corporate discipline among them. 

#4 – Teamwork 

An essential element of corporate hierarchy is the collaborative efforts of all employees. If all departments coordinate with the top management, the mission statements and goals will reach the milestone soon. Thus, it enables teamwork within the departments. 

Frequently Asked Questions (FAQs)

1. How to create a corporate hierarchy?

Following are the ways to develop a corporate hierarchy. Let us look at them:
● Design the company’s organizational structure and segregate it into top, middle, and lower management. 
● Define the roles and required specifications for them.
● Establish reporting lines and communication channels within these levels. 
● Delegate duties and authorities to individuals at each level. 
● Lastly, review the hierarchy periodically and monitor the employee’s performance.

2. Who heads the operation department in a corporate hierarchy?

The COO handles the operation department of the company. They monitor the day-to-day operations and work of the organization. 

3. Is line organization the same as a corporate hierarchy?

Both terms have different characteristics. Although they sound similar, they have differences. While line organization follows an unbroken and descending flow, it is suitable for small businesses. However, corporate hierarchy is feasible for both medium and large organizations. 

4. What is a hierarchy in corporate banking?

Corporate banking has a different business hierarchy compared to other organizations. Here, key members include the managing director, senior vice president, vice president, associate, and analysts. However, there can be additional designations depending on organizational structure. 

This has been a guide to what is Corporate Hierarchy. Here, we explain it in detail with its positions, examples, and importance. You can learn more about it from the following articles –

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