Formal hierarchy and real decision-making power

The formal hierarchy defines who may decide. Real decision-making power shows who actually influences decisions.

The two match less often than org charts suggest.

Formal decision rights are what is documented: signing authority, budget responsibility, reporting lines, committee mandates. They provide legitimacy, the right to make and answer for a decision.

Real paths of influence are what is not documented: Who is consulted before a decision is made? Whose objection stops a project even though they have no formal veto? Who has the decision-maker's ear, and when?

The decisive difference: formal decision rights are static. Real paths of influence are dynamic. They arise from trust, information and dependencies, and they shift without anyone making an announcement.

Those who only read the formal hierarchy do not see where decisions are really made.

The following scenario is based on patterns that occur regularly in corporate practice. The case described is constructed.

An international corporation plans to consolidate two business units. Formally, the decision lies with the board member for strategy. The proposal comes from Corporate Development. The committee is clearly defined. So much for the org chart.

The reality: the CEO supports the strategic direction in principle but knows that the consolidation will meet considerable resistance from the affected division head. He has built a close working relationship with the CFO over the years. The CFO is formally only involved in an advisory capacity but enjoys the CEO's high trust.

The head of Corporate Development, by contrast, is new to the company. Strong on substance, but without established relationships at board level.

Two weeks before the official decision date, the CFO has an informal conversation with the CEO. He does not argue against the consolidation in principle. Instead, he points to operational risks, possible departures of key staff and the foreseeable resistance of the division head. The CEO then decides not to pursue the proposal in its original form for the time being.

In the official committee, the proposal is “welcomed in principle but deferred for further alignment”.

For the head of Corporate Development this is hard to understand. He went through all the formal steps correctly. What he did not see: the decisive debate had already taken place before the official meeting, between people with more informal access and established trust than he had.

Formal responsibility had not changed. But the space in which the decision was made had.

1. Who talks to whom before the meeting? Decisions are not always made in the official committee. Positions are often clarified beforehand. Those in the preliminary talks have earlier access to the decision. Those not involved learn the outcome in the meeting.

2. Whose objection stops initiatives without formal justification? When projects suddenly “require further alignment”, there is usually someone whose informal resistance is not openly communicated. Who is it, and why?

3. Who has direct access to the decision-maker, and when? Not who formally reports, but who has informal access shapes decisions. A long-standing confidant can have more influence than the formal hierarchy shows.

4. Whose approval is sought even though it is not formally required? When leaders routinely consult someone who is not formally responsible, that indicates informal influence, possibly up to a de facto veto.

5. Who learns about decisions earlier than others, and why? An information advantage signals informal power. Those always informed first often belong to the decision-makers' network of trust.

The formal hierarchy is the framework. Real decision-making power is the game played within it.

Those who only know the formal framework recognise too late where a decision is actually being prepared. By then, even the best argument in the official meeting often no longer helps.

Read more: The three layers of power · Where decisions are really made

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