Company Turnaround Options for Shareholders – what works, what doesn’t and why
by Giles Campbell, CEO of Red Pike Capital
When the shareholders of a business are faced with a broken, loss-making business, turning around the company is a highly desirable outcome. How to do this, however, is the question. There are three commonly used approaches for shareholders to attempt company turnarounds:
- Financial Restructuring
- Advisory led turnaround
- Hire an interim turnaround CEO
Financial Restructuring (doesn’t normally work)
This approach alleviates the most immediate problem as management see it – the lack of money. Debt restructuring and injection of additional capital will definitely make the problem go away for now. It is highly unlikely, however, to change the behaviour of management or the cashflow performance of the business, so is rarely successful on its own. Management rarely vote in favour of their own replacement. You will be back in the same place again soon.
Advisory led Turnaround (also doesn’t normally work)
Shareholders appoint professional advisors to guide the existing management team into fixing the company. This is commonly a requirement forced on management when shareholders have to put more money into the company to prop it up. The advisors will develop various ideas and approaches to improving the company, however, the problem with this approach is that the minute the advisors step out of the company the advice will be shelved and the management team will revert to old behaviours. It is unusual to change behaviours and performance without a change of people.
Interim Turnaround CEO (normally works – more scary)
Hiring an interim turnaround CEO can seem like the nuclear option, however, it is by far the most successful way of permanently transforming a business to profits. An interim turnaround CEO is hired on a short-term contract with the sole task of fixing the business, including developing a long-term direction as well as a structure of business that is profitable in the short term. His approach and style will be radically different to a long-term CEO. Total transformation of the business will be implemented immediately and decisively with no regard for internal politics or personal agendas. Along with a change of people will come a change of company structure, products/services offered, company culture, behavioural norms, reduction in office politics, increase in task focus, improved market awareness and ultimately a transformed cash flow. The impact of this approach is not to be underestimated. Many of the management team may be changed in short order. Non-contributing cost centres will be closed down. Non-performing products and services may be severed. Transformation is rarely clean or easy.
Mini Case Study
A retail company where I was interim CEO for 9 months went from —$8m EBITDA to +$20m EBITDA. This required a total restructure of the store portfolio, the management team and over 200 change projects across the business. It was a huge effort on the part of everyone involved, however, the business is now utterly transformed at every level. The strategy, the brand portfolio, the team behavioural norms, the culture, the KPI’s. There is no easy path for it to return to the old behaviours. The people with those behaviours are no longer there. It is this approach of utter transformation which underpins and ensures the success of the interim turnaround CEO.
Hiring an interim turnaround CEO
Before hiring an interim turnaround CEO it is important for shareholders to have the potential interim turnaround CEO review the business and report on the potential for the business to be fixed, what it will cost and how long it will take. This is not a job for consultants or advisors. It can only be done by the person who will be responsible for delivering it. For most companies this can be done in a week or two, depending on the size of the business.
Whilst hiring a turnaround CEO to conduct a total transformation of a company is the most radical option open to shareholders, it is also the most likely to deliver long-term stability and profits. As with the financial restructuring option, there will be a need for more cash in the short term. Delivering transformation in a business costs money and the negative trading performance is unlikely to disappear overnight. The long-term prospects are good, however, and the main decision for shareholders to make is whether it is worth the investment to save the company. Only you can decide that.
Giles Campbell is a turnaround CEO who has led the successful turnaround of a wide range of companies, from retail fashion to electronics manufacturing, from £2m turnover to £100m. Awarded European Turnaround of the Year 2013 for recovering a central London Ad Agency, he is a speaker on turnaround leadership and advocate of hands-on company recovery.