Another of the many lessons that chief restructuring officers, like Muir, have learned is the importance of leadership. If a CFO is struggling during a turnaround, it’s usually because of a “lack of strength of character,” asserts KPMG’s Darlington. And a CFO’s strength of character will be tested every step of the way, even by the very people who appointed them. “I’ve had a lot of experience of being in hostile territory, where you’ve been appointed and the company doesn’t actually want you to do anything — they think just taking the appointment is sufficient,” he says. “But I’m not the retiring kind, so I tend not to let that persist.”
It wasn’t so much hostile territory as fast-sinking morale that Darlington faced during a brief assignment in 2003 to help with the turnaround of MyTravel. When Darlington handed over the group finance director reins to John Allkins in December 2003, the UK travel company had just announced a £911m loss, after earning £73m the previous year, and was smarting from two profit warnings. With the company vowing to turn a profit by 2005, Allkins got to work with Darlington on a restructuring plan based on a refinancing, the sale of some of its aircraft fleet and getting a sorely needed integration programme off the ground after several years of acquisitions. Among other things, this involved outsourcing a shared service centre that was “broken.”
It was an unusual situation for Allkins. Having been CFO of various tech companies previously, he had already been involved in major deal-making and efficiency plans, even setting up a global shared service centre at one company. He had the “experience and confidence that I would be able to make a contribution” to the turnaround. But MyTravel was different — it wasn’t in growth mode, for one thing, and he was joining a finance team that “had three years, including 2003, of restatements, so obviously the accounting policies and practices had been questioned and found wanting,” Allkins recalls. “They were pretty demoralised.”
He quickly realised every step he took was going to be under heavy scrutiny, and with good reason. Allkins explains that a big change between being in the executive suite at a growing company and a company in need of rescuing is that at the former “you have lots more decisions to make and each decision leads to other decisions and you’re not going to get all the decisions right.” But at the latter fewer options mean fewer decisions, but with a lot riding on each one. “If you screw up, then it’s game over,” he says. “If we had made a mess of it, there were 20,000 people who would have been unemployed. That, to some extent, is why you have to be even more careful in your decision-making. But you can’t let that paralyse you.”
There were two critical, albeit controversial, decisions that MyTravel’s executives made during the turnaround. The first was to pursue a £800m debt-for-equity swap in early 2004, a move challenged in court by irate bondholders. The two sides reached an agreement only hours before the final court case was due, with the bondholders accepting the stake in the restructured company originally offered. As Allkins remembers, it added a “whole other sub-strand” to an already complex turnaround.