ORGANIZATIONAL FITNESS, BUSINESS TURNAROUNDS & THE ROLE OF THE CHIEF RESTRUCTURING OFFICER - WILLIAM H. PARKER, CTP, PRINCIPAL, EXECHQ CHRISTOPHER ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ORGANIZATIONAL FITNESS, BUSINESS TURNAROUNDS & THE ROLE OF THE CHIEF RESTRUCTURING OFFICER WILLIAM H. PARKER, CTP, PRINCIPAL, EXECHQ CHRISTOPHER R. KAUP, TIFFANY & BOSCO, P.A.
5/7/2021 2
WHAT IS A CHIEF RESTRUCTURING OFFICER?
❑ Today, a CRO is a business operator who comes from the corporate world,
turnaround consulting firm or CEO who has led a successful turnaround. The
CRO is the ‘Quarterback’ and main person dealing with lenders, bankers and
equipment creditors so credibility and trust are quickly built.
❑ The CRO’s role is to have complete operational, financial and personnel control
to implement the restructuring programs quickly. The organizational fitness
assessment, strengths, weaknesses, opportunities and threats analysis {SWOT}
leads to a conclusive operating plan replete with objectives, strategies, action
steps, due dates and responsibilities along with a Gantt chart to track results.
❑ CROs give the company management and creditors more of a say in the
running of a company than a trustee is required to do so. CRO's have
sometimes been compared to "turnaround" consultants although the CRO
differs from a turnaround consultant in that the CRO is an official of the
company and has executive power.
❑ While CROs officially report to the company and its board of directors, they are
considered to have greatly strengthened the hand of creditors since the CRO
can make executive decisions following a direct meeting with the creditors.5/7/2021 3 WHY IS A CHIEF RESTRUCTURING OFFICER CRITICAL TO A SUCCESSFUL TURNAROUND? Human Resources ❑ Effective CROs are also exceptional people managers who strike a balance between challenging teams and offering support—leaders who both motivate people to change and hold them accountable. The CRO’s ‘Duty of Care” is to the respective Board of Directors of the enterprise and that should never be lost. However, all officers and directors of an insolvent company, including a CRO, owe fiduciary duties to creditors per well settled case law. Legal Affairs ❑ They possess talents, skills and experience to comprehend difficult business decisions that involve delicate legal matters. ❑ CROs have the capacity to efficiently and effectively partner with the bankruptcy lawyer to work out complex legal matters. Turnaround Process ❑ Has the ability to develop and implement an effective turnaround plan. ❑ Can credibly “Sell” the turnaround plan to opposing counsel, lenders and judges. Determine the basis for optimizing the exit strategy and recruitment of employees; define the future management of the organization.
5/7/2021 4 THE DISCIPLINE OF EXECUTION, ORGANIZATIONAL FITNESS and the BUSINESS TURNAROUND ❑ Organizational fitness blends two passions of mind–leadership and fitness–and refers to the perpetual growth and productivity of a company, team, or organization based off the people that serve the company’s purpose. Having the wrong person in a critical job position is like trying to fit a square peg in a round hole–it may fit eventually, but the end result won’t be pretty. ❑ A “Fit” organization is one that is both willing and able to face new threats as they emerge based off the people that define its culture and the competencies such people have that create value for the organization. ❑ A chief restructuring officer (CRO) is a senior officer of a company given broad powers to renegotiate all aspects of a company's finances to deal with an impending bankruptcy or to restructure a company following a bankruptcy filing. ❑ CROs are sometimes seen as an alternative to a receiver or using a trustee in bankruptcy in a reorganization bankruptcy, because the trustees may not be knowledgeable in field of business conducted by the company.
5/7/2021 5 SIGNS OF DISTRESS IN A TURNAROUND SITUATION
5/7/2021 6
THE ORGANIZATIONAL FITNESS FRAMEWORK
❑ STRATEGY AND OBJECTIVES: How Competitive Advantage Will Be Achieved.
❑ SKILLS AND CAPABILITIES: Competence of the Organization.
❑ STRUCTURE: Roles, Responsibilities and Reporting Relationships.
❑ SYSTEMS: Formal Systems and Procedures {Get stuff done}.
❑ STYLE OF LEADER: The Behavior of the Leader and the Top Team.
❑ STAFF: People and Their Backgrounds; The DNA of the Organization.
❑ SHARED VALUES: Habits, Beliefs and Behaviors {Culture}.5/7/2021 7 ORGANIZATIONAL FITNESS 7 S MODEL
5/7/2021 8
BUSINESS TURNAROUND PROCESS
Conduct the Organizational Develop Revenue Growth Determine Leadership,
Fitness Assessment, Ferret Strategies and Margin Responsibilities and
Out Major Business and Drivers Around Products Accountabilities Around
Legal Decisions and and Customers Key Performance Indicators
Develop the Turnaround
Team of Key Advisors
Strengths, Weaknesses, Communicate the Information Technology
Opportunities and Threats Turnaround Plan to Bankers, Systems, Facilities
Lenders, Equipment Management and
{SWOT Analysis} Requirements
Creditors and Vendors.
Gain Buy-In
Development of the Stabilize Finances, Develop Operating Plan Execution
Operating Plan {objectives, Weekly, Quarterly and and Milestone Calendar, Hit
strategies, action steps, due Annual Cash Flow, the Numbers
dates and responsibilities} Deleverage the Balance
Sheet5/7/2021 9
KEY ELEMENTS OF THE TURNAROUND PLAN
❑ Develop a Turnaround Story
▪ All stakeholders want to know the end game and exit strategy. Must build a
communications strategy to lenders, alternative financial institutions and judges.
❑ The Team
▪ Must have a knowledgeable and experienced restructuring attorney. Cultivate
or replace key employees; someone is responsible for the deteriorating
performance of the company.
❑ Review the Strategic Options
▪ Determine why the key performance indicators are not being met
{competition, internal operating issues, customers, unclear objectives or
employee execution issues}. Restructure payment terms on secured and
unsecured debt; use the possibility or probability of bankruptcy.
❑ Stabilize Finances
▪ Bring in financial institutions that are more entrepreneurial in nature to fund the
turnaround. Must deleverage the balance sheet and improve cash flow.5/7/2021 10
DRIVERS FOR EBITDA IMPROVEMENT
FINANCIAL MANAGEMENT
❑ Drive “Good” Sales: Enter niche markets, patent new products to create
barriers to entry. Develop the gross margin matrix by customer; high
volume/low margin, low volume/low gross margin, low volume/high gross
margin and high volume/high gross margin.
❑ Lower Cost of Goods Sold: Develop scale economies, acquire captive access
to raw materials, increase efficiencies in processes {production, distribution,
services and labor utilization}, implement cutting edge cost control systems.
❑ Control Operating Expenses: Budget and monitor expenses, identify fixed
versus variable expenses, manage expenses at lowest level possible, keep
track of recast items.
❑ Define the Value Proposition: What does the business stand for? Identify what
the company is the “Best in the World At”. Clearly define why the company
exists along with its competitive advantage in the market.5/7/2021 11
REDUCE THE COST OF DOING BUSINESS
FINANCIAL AND OPERATIONAL MANAGEMENT
❑ Increase Economic Value/Decrease Capital Base: Invest in only positive high
growth projects. Withdraw or liquidate underperforming businesses, units and/or
assets, implement product line profitability capabilities to determine winners and
losers. Utilize information technology to drive decision making; institute business
measures and key performance indicators that lead to outcomes {results}.
❑ Reduce Business Risk: Perform at a higher operating level compared to
competitors, long–term contracts, etc. Institute financial transparency, including
the retention of audited financial statements. Negotiate ‘Forbearance
Agreements’ with lenders, lessors and key vendors to prevent foreclosures, lawsuits
and evictions.
❑ Reduce Cost of Capital: Maximize use of debt to support equity, possibly use less
costly equity substitutes, such as mezzanine debt, reduce surprises {volatility of
earnings}, consistently test the market cost of debt, walk down the private capital
access line whenever possible.
❑ Reduce Customer Concentration: No single customer should account for more
than 20% of sales.5/7/2021 12 ABOUT ExecHQ® and PARKER REVENUE GROWTH STRATEGIES ❑ ExecHQ® is an advisory firm that provides the as-needed services of executive- level human capital required for the way healthy companies are run today. Our team of over 100 highly-experienced experts are available on an as-needed basis to immediately impact strategic initiatives and generate results at a fraction of the cost of full-time executives. ❑ Parker Revenue Growth develops and executes revenue growth plans and turnaround strategies for mid-size companies, non-profits and private equity portfolio businesses. The company also functions in a restructuring capacity in companies that are in crisis and require immediate solutions to pressing financial issues. Parker Revenue Growth is an outcome driven company that develops and executes business plans and organizational fitness strategies to maximize value, operating results and financial health. ❑ On Thursday, August 9th, 2018, the Turnaround Management Association granted Parker the Certified Turnaround Professional (CTP) designation. The Certified Turnaround Professional (CTP) designation provides evidence of an individual’s commitment to the turnaround and corporate renewal industry and also attests to a level of expertise that non-certified professionals may find difficult to prove.
5/7/2021 13 ABOUT TIFFANY & BOSCO, P.A. ❑ 80 Attorneys. ❑ 53 Years Old. ❑ 8 Cities: Phoenix, Birmingham, San Diego, Albuquerque, Detroit, Las Vegas, Orlando, Fort Lauderdale. ❑ Full Service: 57 Practice Areas. ❑ Entrepreneurial. Dynamic Work Environment. ❑ Innovative Structure Provides Unique Benefits for Clients. ❑ Experience. Commitment. Results. ❑ Client Focused. Extraordinary Responsiveness. ❑ Talented and Resourceful Legal Team. ❑ Innovative Solutions to Challenging Problems for Businesses, Individuals & Families ❑ Legal Services Tailored to Particular Client Needs ❑ ExecHQ Strategic Alliance Partner ❑ Tremendous Involvement in Our Communities and Charitable Involvement ❑ https://www.tblaw.com
5/7/2021 14
APPENDIX AND CREDITS
❑ What is a Business Turnaround?
www.accountantnextdoor.com/what-is-business-turnaround-meaning-and-
process/
❑ What is Organizational Fitness?
https://www.hbs.edu/ris/Publication%20Files/02-044_73165235-abd3-4160-9077-
766a6ce55b18.pdf
❑ Michael Beer, Cahners-Rabb Professor of Business Administration, Emeritus at the
Harvard Business School, co-founder and Director of TruePoint Partners, a
management consultant firm.
❑ Enduring Ideas: The 7-S Framework | McKinsey
❑ Chief Restructuring Officer Role and Responsibilities {Marsal Alvarez}
https://www.mckinsey.com/business-functions/transformation/our-insights/when-
do-you-need-a-chief-restructuring-officer#
https://www.alvarezandmarsal.com/sites/default/files/sidebar-callouts/chief-
restructuring-officer.pdfYou can also read
