What do you know about turning around a troubled company? Less than you think, probably.
It may seem that any battle-scarred CFO would be armed with the skills it takes to transform into a turnaround specialist, parachuting into a distressed business, assessing its financial condition, and then handily dispensing any fiscal foes.
All the options for cutting costs — which in many cases is the overriding priority, especially at the outset of a turnaround effort — are familiar to any successful financial executive: axing employees, gutting non-core product lines, selling assets. Remember “Chainsaw” Al Dunlap, the brand-name turnaround king of the 1990s? His moniker seemed to say it all: Keep hacking costs until you reach a profitable core, then accept your applause (in the form of stock whose value Wall Street has driven into the stratosphere) and move on.
Yet Chainsaw’s methods ultimately led the SEC to fine him and banish him from the C-Suite forever. Could it be that a successful turnaround requires more than a familiarity with — if not a fondness for — cutting costs? “We are not hatchet people,” insists Steve Gerbsman, a veteran turnaround expert based in Kentfield, California. “We provide hope and leadership to people who are in trouble.”
Not that keeping a company’s operations alive is just an extended pep rally; chopping expenses may enable you to get the company running on a cash-flow basis. If the investor who brought you in just wants to clean up the company so it will appeal to a buyer, then you may have to keep an iron fist extended throughout, beating up on suppliers and requiring employees to submit every check for your approval.
Eventually, though, a company that has enough potential to be fixed requires a more people-centric approach. “In a sensitive situation, you need to be a good listener,” says Jim McHugh, a turnaround specialist in Concord, Massachusets. “Often you are brought in by an investor who is unhappy, and you’re working with a management team that is scared. To get at the real issues, everybody has to trust you.”
Only by digging deeper are you likely to find out that production schedules are routinely ignored, or a drug-addicted employee is swiping inventory, or the CFO hasn’t told his boss the truth — in a long time.
“There’s a reason we used to be called ‘turnaround artists,’ ” notes Alex Wolf, a corporate restructurer based in Wilmington, Delaware. “Fixing a company is more art than science. You have to come up with creative solutions.”
That may very well involve making moves that any CFO would find uncomfortable: stretching payables way out, risking an SEC investigation by missing filing deadlines, halting all cash advances. “In a true crisis you are managing cash, not managing the numbers,” says Bettina Whyte, chairman of the advisory board of Bridge Associates, a turnaround firm in New York City. “In a turnaround situation, there is no cost that is fixed.”