The Approval Catalogue: Which Decisions Should Not Stay with Management Alone

Most companies do not get into difficulty through decisions their board has approved. They get into difficulty through transactions the board never saw: the major project with new technology for the flagship customer, the long-term outsourcing contract, the move into private label. Each of them lay below the threshold that required approval. Together, they changed the company’s risk profile.

The catalogue of transactions requiring approval is the instrument that closes this gap. In many mid-sized companies it was drawn up once when the board was set up and has not been touched since. It covers the purchase of land and the taking up of loans – and says nothing about where risks actually arise today.

Why this is in management’s interest too

At first glance, an approval catalogue looks like a restriction. For management it is the opposite. It defines what management decides alone and where it involves the board. Drawing this line cleanly in advance means never being accused of concealing risks – and avoiding the conversation in which the board asks why it only learned about a loss-making project from the annual accounts.

The roles remain separate. The board is not a second management team and approves neither prices nor individual orders. But it must know where risks arise that can affect the company’s survival.

Four minimum contents that are often missing

1. Major projects above a fixed threshold. Individual projects above a company-specific size – as a guideline from around 3 % of the previous year’s revenue – are presented to the board with their opportunities and risks. Management reports on their status in writing every quarter. This applies to plant engineering as much as to IT or construction projects: the installation abroad where part of the invoice is still outstanding years later, or the pilot project with a technology that is not yet mature.
2. Long-term binding contracts. Risks outside the books arise in series business too: the multi-year sponsorship contract, but above all outsourcing contracts – for IT or distribution logistics, for example. They solve a cost problem in the short term and create a dependency in the long term that the company can only escape at great effort. The know-how that leaves with them often cannot be rebuilt.
3. Decisions that affect the brand. For a brand manufacturer, entering private label, supplying discounters or significantly expanding distribution is a fundamental decision. It changes what the company stands for in the market and can hardly be reversed.
4. The price and terms system. Not individual prices, but the system of list prices, discounts and terms belongs in the catalogue. The reason is the time lag: a company can shine for years with growth and market share gains while its gross margin erodes point by point. By the time this is noticed, the damage is large, and the way back takes just as long.

Acquisitions: conditions instead of yes or no

The most delicate case is the acquisition that lands on the table at short notice – as a late paper under “any other business”, with the remark that the opportunity will be gone in a few days. The board can only lose: if it approves, it shares the consequences of a barely examined purchase. If it refuses, it is seen as timid, and nobody can ever prove that the concerns were justified.

The better way is to make approval subject to conditions. This forces management to examine the project thoroughly once more, and in doing so it often finds pitfalls nobody would otherwise have seen. Five conditions have proven their worth:

1. A business plan covering three to five years, showing with which products, against which competitors, with which target customers and at which price positioning which result is to be achieved.
2. An external due diligence with its own reporting line. An independent reviewer who stands by the results and reports them directly to the board – not via management. Alongside financial and legal due diligence, this includes operational due diligence.
3. One person in overall charge. One person leads the process from negotiation through to integration and answers for the result – financially too, with a substantial part of their variable pay, as a guideline half.
4. An audit of the target company’s management, combined with a contractual commitment from key performers not to resign for at least 24 months.
5. Talks with the target company’s major customers that show whether the takeover would jeopardise the business relationship.

A catalogue like this is a nuisance for management. But it moves the discussion from belief and opinion to facts. Sometimes it turns out that the idea carries less weight than expected. Sometimes the opportunity turns out to be larger than assumed. Either is a better outcome than a gut decision.

Conclusion

An approval catalogue that has not been reviewed since the board was set up governs the risks of that time. Anyone revising it should not ask what used to require approval, but where in the company risks can arise today that the board only learns about once they can no longer be hidden. The four minimum contents and the five conditions for acquisitions are a starting point – each company sets the thresholds according to its size and business. How we support boards and advisory boards is described under Services.

Would you like to know where risks are arising outside your field of view? The Quick Health Check takes five minutes to complete and shows which state your company is in and which fields of action offer the greatest leverage – as a five-page profile, reviewed by an experienced consultant and free of charge. Start the Quick Health Check.

This article is based on two chapters from “Erfolgreiche Arbeit in Aufsichtsgremien”, published by 10-P Consult in 2025.

Further articles:

Operational Due Diligence: What Buyers and Investors Need to Know About an Industrial Company Before Signing (link)

Price Cuts in a Downturn: The Cascade Nobody Plans (link)

The Leadership Control Loop: From Goal to Execution (link)