Decision Memorandum

Decision Memorandum, Big Red Car?

Big Red Car here in the Olympic heat of Texas’ beautiful summer. The sun is shining. The heat is rising. The bougainvillea is blooming. The pool is calling. Today, we go swimming at Barton Springs and start swimming laps to rehab a painful Achilles Tendon — but I digress.

The Decision Memorandum is what, exactly, Big Red Car?

The value of standard operating procedures

The military harkens to SOPs — Standard Operating Procedures — which define how stuff is to be done, the same way, every time.

It is a perfect example of process standardization and streamlining that businesses and CEOs can use.

Dealing with a board of directors on acquisitions — and other big decisions — can have a time saving result if you standardize the approach.

The CEO and the Decision Memorandum

The CEO has to seek the approval of his Board of Directors on certain critical decisions, such as an acquisition or raising capital. A competent board quickly identifies what things they require a CEO to seek and obtain their approval for before sallying forth to do them.

Let’s use an acquisition as an example of something a board and a CEO should mutually agree upon.

Decision Memorandum, Big Red Car?

The Decision Memorandum is a document which fairly presents the decision to the board for its approval. It should cover the following:

Executive Summary
Asset Description
The Seller
The Acquiring Entity
Financial
Operations
Recommendations

All of these sections are described herein: Decision Memorandum Exemplar <<< click here for a good time

Read the Exemplar and see what is included. Modify it to your situation. No sacred cows were injured in its making.

[Pro tip: Make damn sure to require the individual who oversaw the acquisition (Managing Director – Acquisitions), the individual who is going to have to operate the acquired asset (General Manager – Operations), and the Chief Financial Officer to approve the deal before being submitted to the board. Make them sign in blood. This will save you a lot of headache in the future. The Boss learned this at full tuition when an acquisition’s wheels came off and, apparently, nobody was ever in favor of the acquisition other than The Boss. Full tuition, you will not have to pay, dear reader.]

Recusing the sponsor

Small point. A CEO, who has proposed the acquisition, should have no qualms about participating in the discussion and in vigorously recommending the acquisition but should recuse herself from voting as the proponent of the deal. This is the classy way to avoid a conflict of interest.

So, there you have it, dear reader. The Decision Memorandum. The final decision should be evidenced by a Corporate Resolution. We can talk about Corporate Resolutions on another hot, sunny, Texas day. To the pool, y’all. The deep end for the Big Red Car because, of course, I am gargantuan.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be good to yourself and sunscreen.cropped-LTFD-illust_300.png

 

  • sigmaalgebra

    For the importance of getting the CFO,
    etc. to sign in blood, it appears that
    there are some inexplicit assumptions. I
    outline three possibilities:

    (1) CEO Centered.

    The BoD holds the CEO responsible for the
    decision and, more important, its results.

    There the BoD accepts that the CEO
    will/may use information, analyses,
    recommendations, etc. from the CFO, any or
    all of the C-suite, some analyst on the
    staff of the CEO or CFO, anyone in the
    organization, outside consultants, advice
    of the BoD, etc. but still holds the CEO
    responsible for the results of the
    decision, no matter what advice he (she
    here and below) got.

    In this case, for the BoD having the CFO
    and the rest of the C-suite sign off on
    the decision in blood is irrelevant.

    (2) CFO Centered.

    The BoD assumes that the CEO hired the CFO
    to be the source of expertise on
    everything financial. The CEO is no more
    supposed to question the judgment of the
    CFO than he would that of, say, a board
    certified heart surgeon. Or, the CFO is a
    professional with the expertise and
    professional responsibility to make sound
    decisions.

    In this case, the BoD will look to the
    CFO. If the CFO signed his recommendation
    on the decision and the CEO accepted it
    and did at least a good job with the
    implementation and execution of the CFO’s
    recommendation, then the BoD would hold
    the CEO blameless.

    If the CFO’s recommendations often don’t
    work, then the BoD might expect the CEO to
    get a new CFO.

    (3) C-Suite Consensus Centered.

    The BoD accepts that no one person can bat
    1000 on such decisions, that business
    experience, judgment, intuition, acumen,
    etc. can be important, and wants the CEO
    to have made good use of at least the
    C-suite and maybe more and achieved a
    consensus.

    Then the BoD wants to see the decision
    signed by all the more qualified persons
    who were part of the consensus.

    At least for the first poor decision, the
    BoD will hold the CEO responsible not so
    much for the actual results of the
    decision but for the decision making
    process and, as usual, the
    implementation, execution of the decision.

    So, of (1)-(3), what is the real story;
    according to the BoD norms, which of
    (1)-(3) will the BoD want and accept?

    Or, maybe, the real norms are vague and
    the real situation is simpler: If the
    results are poor, then everyone on the BoD
    gets a free pass; the CEO will be in the
    center on the gallows; and there will be
    plenty of room on the gallows for any and
    all others in the company who were
    significantly involved.

    Then, should the CEO try to involve
    members of the BoD in formulating the
    decision? I’m guessing no:

    Why? Suppose a member of the BoD gives a
    recommendation. If the CEO takes the
    recommendation and the results are good,
    then the BoD member can take a lot of the
    credit. If the results are bad, then the
    CEO gets all the blame. If the CEO does
    not take the recommendation, then that is
    a strike against the CEO no matter what
    the results. So, for the CEO to ask a
    member of the BoD is for the CEO a
    lose-lose-lose situation.

    Or from

    “Shop Talk — Boards, A Pragmatic
    Checklist”, Posted on February 4, 2016 by
    Big Red Car

    at

    http://themusingsofthebigredcar.com/shop-talk-boards-a-pragmatic-checklist/#more-4839

    are

    ___21. Make sure that you
    discriminate among management, investor,
    and independent Directors.

    Have an Independent Directors meeting
    before the Board meeting. The Independent
    Directors should be the CEO’s most loyal
    supporters. Make it so.

    This is, perhaps,the most overlooked
    element of the care and feeding of Boards.

    ___22. Never, ever confide your personal
    challenges to a Board member. Do not
    confide in people who can fire you.

    Get a CEO coach and be unafraid to cry on
    the phone. Get someone who has been a CEO
    so they are not taken aback by the crying.
    You will do it, trust me. Being a CEO is
    hard work.

    ___23. When dealing with a Board remember
    that they will hire you as the CEO and
    they will fire you. It is their primary
    duty.

    Remember, at all times, you are dealing
    with people who WILL fire you.

    Eighty percent of VC funded companies
    replace their CEO in the first four years.
    Know this and act accordingly.

    Net, don’t confide in, don’t brainstorm
    with, don’t discuss details with, don’t
    show thoughts in progress to, and don’t
    ask advice from members of the BoD, at
    least not the non-independent members.

  • gonna say you need more than sunscreen today. People in Texas ought to take pictures of Jesus out of their churches and install pictures of Willis Carrier: http://www.carrier.com/carrier/en/us/about-us/willis-carrier/

  • JLM

    .
    The Decision Memorandum is a good way to standardize decisionmaking between a CEO and her Board of Directors. It is a useful and efficient tool. And why not?

    http://themusingsofthebigredcar.com/decision-memorandum/

    BRC
    http://www.themusingsofthebigredcar.com