Looking for the Light

Guiding a company through a turnaround is no easy feat, but CFOs who can do it are in high demand.

CFOs should also communicate frequently with employees to help them understand the restructuring process and to make sure the business remains on track for a turnaround. Not only does the finance chief need to enlist the help of front-line workers in reducing costs, collecting receivables, managing inventory, and conserving cash, but he or she must also ensure that employees understand that a restructuring or even a bankruptcy filing does not necessarily mean that they will be out of a job.

While emphasizing the hard work that needs to be done, “you need to make sure you don’t send panic throughout the organization,” says Moriarty. He adds that “competitors can be ruthless in that scenario,” by, for example, alerting customers to their rival’s cash crunch. Word can filter back to employees, who may assume the worst and begin looking for work elsewhere unless they get some reassurance that things are under control.

There may also be some hard personnel decisions to make, says Sanginario. “Very often, when a company is in distress, there’s just a ‘lackadaisicalness’ throughout the company that’s very tough to change,” he says. “I’ve been at companies where every delivery they ship out is late, and it doesn’t even seem to bother anybody.” In that case, he says, the CFO may have to examine the corporate culture and replace problem staffers.

Still, “the CFO has to be careful not to cut things that can be critical to the company,” Sanginario adds. In an effort to clean house and jump-start a turnaround, finance executives, who often have years of cost-cutting experience, can go too far. Sanginario cites the example of one distressed client where the management team made deep cuts in their safety and environmental compliance group and later received a significant fine for an environmental violation. Finance chiefs need to strike a balance between reducing costs and ensuring the business has the resources to eventually return to its full strength.

Be an Honest Broker

As much as a restructuring will put a finance chief squarely on the front lines, CFOs should also recognize the valuable role they play as intermediaries, representing the company to stakeholders on all sides of the business: lenders, equity holders, vendors, and customers, in addition to employees and board members.

Understanding the interests of these various parties, and taking them into consideration in drafting restructuring and turnaround plans, is perhaps the most challenging and most valuable part of the finance executive’s job, says Moriarty. “It’s important for the CFO to really know everything that he can about the parties involved,” he says.

This reconnaissance can often help the finance chief find solutions to the company’s woes, he adds. “What buttons might the CFO be able to push with each of the various stakeholders?” he asks. “Say you’re running short on cash. Do the equity holders have the ability to provide more funding? Do they want to? Are the debt holders able to provide more flexibility relative to payment terms?”

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