Tuesday, May 12, 2009


When making decisions, leaders often consider a path that leaves them options in case the decision needs to be changed or modified based on the results. It is called preserving optionality. Here is an example of how it used.

A number of years ago, my former partner and I decided it was time to promote three of our senior people to the partner level. As usual, we came at the situation from different places. My partner wanted them to be income partners with no vote on material firm matters and I thought they should be equity partners and participate in making the decisions required to run the firm.

We each made our arguments for our positions. My former partner asserted that our management and ownership process was very efficient and easy and that adding three more people to the mix would be very disruptive and not add value. I made the case for the other side of the argument. We then reached the point where we had to pick one or the other. We did this remarkably well by each of us saying how strongly we felt on the issue.

In this case, my former partner felt very strongly on his point of view. I decided to support his position because it gave us optionality. We could make the new partners income partners and decide later whether to make them equity partners. If we followed my method, we had no optionality. Once they were equity partners, there was no taking it away from them.

After a relatively short time period, it was clear to me that we had made the right decision for the time being. In fact, after one meeting, I laughed and said to my former partner, "Well, it is a good thing we didn't do this my way. That would have been a mistake."

Optionality, it is always good to make decisions that preserve optionality if the price for it is not too high.

Cheers, Mike

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