There are three different schools of thought about the Authority Sources which are discussed below:
Formal Authority Theory
According to this theory, all authority originates in the formal structure of an organisation. The ultimate authority in a joint stock company lies with the shareholders. Shareholders entrust the management of the company to the Board of Directors and delegate to it most of their authority. The Board of Directors delegates authority to the chief executive and chief executive in turn to the departmental managers and so on. Every manager or executive possesses authority because of his organisational position and this authority is known as formal authority. Authority conferred by law is also regarded as formal authority. Subordinates accept the formal authority of a manager because of his position in the organisation. The subordinates are aware of the fact that if they disregard the formal authority they will be punished according to the rules and regulations of the company. The formal authority theory further states that the superiors have the right to delegate their authority. Thus, formal authority always flows from top to bottom. [ Authority Sources ]
This theory states that authority is the power that is accepted by others. Formal authority is reduced to nominal authority if it is not accepted by the subordinates. The subordinates accept the authority if the advantages to be derived by its acceptance exceed the disadvantages resulting from its refusal. The subordinates give obedience to the managers because they visualise the following advantages:
1. Receipt of financial incentives.
2. Contribution in attaining the objectives of the enterprise.
3. Fulfilment of responsibilities.
4. Appreciation from colleagues.
5. Setting of an example for others.
6. Responsibility to leadership of superior.
7. Moral obligation because of regard for old age, experience, competence, etc.
According to acceptance theory, authority flows from bottom to top. A manager has authority if he gets obedience from the subordinates. Subordinates obey the manager because of the fear of losing financial rewards. This theory emphasises sanctions that a manager can use and overlooks the influence of social institutions like trade unions. [ Authority Sources ]
The supporters of this view assert that an individual derives authority because of his personal qualities and technical competence. Many persons derive informal authority because of their competence. For instance a person possesses expert knowledge in a particular subject people will go to him for guidance in that matter even though he has got no formal authority. [ Authority Sources ]