After The Restructuring
A couple of experiences following Revitalization Partners restructuring assignments point out the important lesson that while it’s important to know when restructuring management is needed, it is equally important to have a plan in place that preserves the new company culture following the departure of turnaround management.
Whether led by an interim CEO/President or Chief Restructuring Officer, a corporate restructuring requires a committed team of managers all with the goal of creating an effective culture for the company.
In many cases, existing management is the source of the problem and some new members of the executive team must be recruited and integrated.
Following the departure of the senior interim executive, it’s vital that the culture, direction and discipline that the restructuring team has developed; be preserved in order for the success of the turnaround to be ensured.
It’s important to realize that the senior manager or owner of a troubled company often doesn’t really believe there was a need for a restructuring executive. That decision may be made by a bank or equity holders.
“Once the restructuring is completed, it is often easy for the old management team to decide it was really they who resolved the problems and they really hadn’t needed help from outsiders in the first place …
Our examples are the restructuring of two companies with national footprints:
- One was a manufacturing/distribution company and
- The other a large product distributor.
In both cases, the turnarounds were successful, meaning that significant financial losses were reversed during the assignments.
We led a number of major changes in the cultures of the companies as we put programs in place to restore them to financial health. In one of the companies, our restructuring involved bringing in a number of outsiders as new key managers that both enabled and supported the significant cultural changes. In the other, the company was returned to the management of the owner/senior executive.
In the case of the manufacturing/distribution company, we were asked to lead a turnaround effort to address the management issues which had resulted in several years of significant losses and a substantial decline in the company’s value. During our engagement we completed a successful turnaround that included a number of cultural and operational changes including recruiting a professional CFO. These changes were focused on improving sales and expense productivity and resulted in a return to profitability. The new CFO was a critical element in managing the operations of the company and keeping it on track.
Upon the completion of the turnaround, the CEO returned to lead the company and essentially reverted back to the former pattern of decision making which had resulted in losses prior to our arrival.”
The CFO ultimately left the company and as a result the traditional financial and operational oversight was no longer present. The company incurred several years of losses subsequent to our turnaround and the company’s assets were eventually sold in a distressed sale.
This outcome might have been avoided if the CEO had continued to manage the company with the lessons learned during the turnaround or had hired a professional manager to continue with the efforts that had restored the company to profitability.
In the case of the product distributor, Revitalization Partners was asked to restructure a subsidiary that had been created by a large parent company through the merger of two smaller companies. Although the turnaround was successful, the market had changed and the parent company decided that it did not like the more direct interaction with consumers that the company required to be successful going forward.
As a result, it decided to exit the market by selling the company. The highly leveraged transaction left the company with barely manageable debt and the leadership of an inexperienced CEO.
Unfortunately, the acquiring company did not understand the complex structural and management changes the company had undergone. As a result, the highly cohesive management team that had successfully managed the turnaround remained cohesive only in their desire to exit the company.
Ownership & Management must Take Action …
A restructuring or turnaround is a process that represents a specific point in time. Once completed, the ownership and management of the corporation must take the necessary actions to preserve the functional and cultural changes that resulted from the restructuring efforts and build on those changes as a basis for taking the company forward.”