Archive

Archive by topic: Restructuring

The Turnaround Pope

December 30th, 2015

When I read the BusinessWeek article, Amid Scandal, the Pope Sticks With Reforms, it occurred to me that Pope Francis is leading an incredibly challenging turnaround.  As we all know, the Catholic Church has been faced with both sexual and financial wrongdoing, and Francis seems intent on bringing an end to both.  In addition, he is urging a more welcoming and compassionate approach while also expressing his views on global issues.

Any turnaround requires significant change and involves

  1. Identifying what change is needed
  2. Defining and implementing specific actions to be taken to achieve that change
  3. Persuading key stakeholders, at every step of the way, to accept and support the change

Stakeholder persuasion is often the most challenging aspect. It has been said, “If you want to make enemies, try to change something.”  Although Francis enjoys broad support both within and outside of the Church, he also faces an entrenched bureaucracy and opposition from “conservatives.”  At least some members of those factions, threatened by or disagreeing with his actions, are surely trying to thwart his efforts.

Beneath his kind, gentle-but-strong public presence, Pope Francis must have a spine of steel.



Ethical issues in turnaround engagements

October 22nd, 2011

In July, I was invited to write an article for the conference issue of The Journal of Corporate Renewal, the publication of the Turnaround Management Association (TMA). The topic I selected was “Ethical Issues in Turnaround Engagements.”

Although TMA  declined to print the article in the conference issue because they found it to be too controversial, Jack Butler, an internationally recognized partner at Skadden’s corporate restructuring and governance practice,  invited me to participate in the Advance Education Panel he is moderating at the TMA Conference in San Diego next week  and to include the article in the materials distributed to session attendees.  The title for the panel is “Ethical Challenges in Large, Mid and Small Companies.”

I intended the article to be a call to action by TMA, and it will be interesting to see how it plays out.  It is my understanding that the article will be shared with TMA’s Strategic Planning Committee as well as the Certification Oversight Committee for the Certified Turnaround Professional program.  I have been invited to submit it again for the March issue, which will be devoted to ethical issues, but I certainly hope that the content will be out-of-date by then!

Although I have made some revisions to the original (suggestions for refinements made by several people I interviewed), all of the basic points remain unchanged.  Here is a link to the article:  Deconstructing the Code.



Harry and David Update

March 23rd, 2011

There’s a very tight lid on communications from Harry and David. I don’t know what’s going on inside, but here are some things I do know:

1.    According to media reports, two lawsuits have been filed against Harry and David.

  • The first was filed by Drew Reifenberger, Executive Vice President and Chief Customer Officer, who was fired by then-CEO Steven Heyer in January. The basis of the lawsuit? Termination without cause and lack of contractually required payments.
  • The second suit, claiming almost $10 million, was filed last week by Convergys Customer Management Group (CCMG).  According to the suit, Harry and David and CCMG signed a 2-year contract which required CCMG to provide call center services and to hire an additional 25 full-time personnel during that period.  CCMG is requesting payments due under the contract.

2.    On February 18th, Harry and David announced the hiring of Kay Hong as “Chief Restructuring Officer and CEO.”

3.    Harry and David is hiring.  Careerbuilder.com shows 14 jobs that have been posted since Kay Hong was hired.  Positions advertised include store managers, Controller, Director of Online Marketing, Director of Market Research, and Manager of Website User Insights.  Nothing in the ads indicates that this is a “turnaround” situation.

What is the significance of all of the above?

With regard to the lawsuits

1.    When the contract was signed with CCMG in August, did Harry and David’s CEO and upper management realize that Harry and David’s situation was precarious?  If so, was it ethical to enter into an agreement it might never be able to honor?  Was it wise? If Harry and David’s CEO and board did NOT realize that the situation was precarious, they certainly should have.  Any competent turnaround CEO would have known that, but, of course, Wasserstein hired Heyer, who was not, in fact, a turnaround expert.

2.    Who signed the contract with CCMG?  Was it Heyer, or was it Reifenberger?  If it was Heyer, it raises questions about his experience, wisdom, and ethics.  If it was Reifenberger, is that part of the reason his employment was terminated?  Again, however, responsibility lies with Heyer and the board.  One of the first groundrules established by an experienced turnaround CEO is that material contracts require his/her sign off.

3.    Is the company not paying CCMG and Reifenberger because it is conserving cash so it can successfully navigate a planned Chapter 11?

With regard to “Chief Restructuring Officer and CEO”
—In my experience the title CRO is used primarily in a bankruptcy situation, so the title suggests that the company expected to file Chapter 11 at the time Hong was hired.

Hiring: If you follow my blog, you know that my assessment is that poor quality control coupled with poor customer service have contributed to the problems facing the company, so I am happy to see that they MAY finally  be focusing on the customer experience.  One caveat, however:  when I advertise for positions in turnaround situation, I usually try to let applicants know right away about the situation facing the company.  Some people love a challenge.  Those are the people I am looking for.  I have met many people, however, who have been recruited into troubled situations in which the executives have failed to disclose the company’s situation.  Shame on the companies!

On a different note:  Perhaps the recruiting is a signal that management believes that Harry and David can, in fact, survive.



What does a turnaround expert DO?

February 21st, 2011

I have recently been asked by reporters, “What would you do at Harry and David?”

I responded with a description of the turnaround steps described below.  Those steps are always the same, but the specifics vary from project to project.  (When I spoke with reporters, I also discussed some of the situation-specific actions I would initiate.)

My S.O.P. (Standard operating procedure)

  1. Get total control of cash
  2. Prepare short-term cash forecast
  3. Select Turnaround Team from key, existing management team members
  4. Convene the team; go through financial statements line by line–first, looking for ways to improve short-term cash situation, second, identifying ways to increase revenues (and/or margins) and decrease costs — (note: understanding the financial statements inside and out is critical!)
  5. The result is a written plan that includes a list of who is responsible for achieving what results by which dates and financial projections, which are the numeric representation of the plan.
  6. Then, it’s time for the team to implement!
  7. Design and begin  implementation of a sound management control system if one does not exist
  8. In the meantime, there are generally crises to contend with and negotiations with a wide range of stakeholders.

In addition to the above, I also send a web-based confidential survey to all employees.  The employees know what’s wrong, what needs to be fixed, and often see things that people at “corporate” miss.  Surveys to vendors and customers can be equally enlightening.

The above steps make it sound like the turnaround process is an orderly one, but it’s not.  Leading a turnaround is like being a general on the battlefield.  It’s messy and fraught with peril.   You have a plan, but unexpected crises are constantly arising.  I always tell prospective clients that it will feel like the opening scene from Saving Private Ryan.  One of my favorite owner/clients used to stop by my office occasionally and say, “I’m having a ‘Saving Private Ryan’ day.”



Harry and David: leadership requirements

February 20th, 2011

After I published the post below, it occurred to me that you might be interested in a prior post about what leadership qualities are required in turnaround  situations.  Here is a link.



Harry and David: From my interview this morning….

February 16th, 2011

This morning, I was a guest on Bill  Meyer’s radio talk show.  The topic?  Harry and David and the problems facing the company.  You can download the podcast here.

Bill asked some interesting questions, some of which I’ll be addressing in future posts; e.g., why would a distressed company prefer to avoid bankruptcy when in bankruptcy they can shed leases and have other protection? How can you have higher profits with lower revenues?

In the meantime:  During the show, I promised to post some key financial  statistics for Harry and David from 2006 through 2010.  (Their fiscal year-end is approximately the end of June.)  Here they are:

Year Revenue Net Income
2006 $524,384,000 ($9,713,000)
2007 $561,017,000 $32,001,000
2008 $545,064,000 $4,608,000
2009 $489,596,000 ($20,179,000)
2010 $426,774,000 ($39,228,000)



Harry and David

February 12th, 2011

You may be interested in what I had to say about Harry and David in these articles from the Portland Business Journal and the Medford, Oregon-based Mail Tribune over the last two days.

I’ll have more to say on this topic later….but from feedback I’ve been getting, it appears that the problems I saw were only the tip of the iceberg.



Distressed Investing + Leadership

January 25th, 2011

Wednesday, I am leaving for the Distressed Investing Conference of the Turnaround Management Association and am eager to see whether presenters spend much time discussing  leadership considerations.

Many investments in distressed companies  fail because the investors (most of them private equity firms) pay too little attention to selecting and managing company leadership, but the last time I attended this conference, 2009, there was only one session (really, it was only one panelist) who highlighted this very important issue.

Mike Heisley discussed the fact that distressed companies require a leader with traits that are very different from those required to lead  a “healthy” company.  He was exactly right.  Click here to view my post from that event.



A retail story fit to print….

January 16th, 2011

Well… after I wrote last night about my frustration with news media reporting only part of a story, my local paper, The Oregonian, ran a wonderful story today by Laura Gunderson describing the success of a local retailer, Kitchen Kaboodle.

According to the story, someone (unnamed in the story) in the company had the idea of being open only on days that are traditionally profitable. Changing the days open plus lowering prices, according to the story, has allowed Kitchen Kaboodle to return to profitability.

The story about Kitchen Kaboodle is one of those unusual circumstances in which the entire story can be told–well, in which the company actually wants to share both the revenue and profit side of the story. Their problems are widely known locally, so it’s helpful for them to share all.

Besides, everyone likes a good turnaround story.



Restructuring of the economy

February 21st, 2009

What we are experiencing is nothing less than a restructuring of the U.S. economy.

In some ways, it is like the  country is in Chapter 11.  Some assets are being sold; some, liquidated.

One thing is very different from a Chapter 11, however:  There are no rules for this kind of restructuring.