As of December 31, 2015, the international Turnaround Management Association (TMA) reported that there were 487 Certified Turnaround Professionals (CTP) worldwide. Of those, only 24 of us are women.
If you saw the movie Bernie, you know that ethical issues are not always clear cut. The movie tells the true story of a gregarious, generous-hearted fellow who lived in Carthage, Texas. Everyone in the community loved him, but he killed his wealthy benefactor–shot her in the back four times and stored her body in the freezer.
Bernie should have gone to prison, right? Well…not according to almost everyone who lived in the town of Carthage. His benefactor was less than popular, and Bernie was otherwise such a nice guy and had been so generous to so many needy and appreciative people that almost everyone in the town was willing to give Bernie a “pass.” Pro-Bernie sentiment was so high that the Sheriff requested a change of venue so that Bernie, who had actually admitted to the killing, could be found guilty.
Bernie did go to prison, but this true-life story demonstrates that different people with different life experiences may have very different views about what is right and what is wrong.
The same holds true when it comes to ethical issues that face those who accept turnaround engagements. As you may recall from my article, Deconstructing the Code, which was circulated when I appeared on a panel at the annual conference of the Turnaround Management Association, there are huge disagreements among leading professionals about what is ethical and what is not.
When I won a Turnaround of the Year Award from the Turnaround Management Association (TMA) in 1997, I was thrilled. In addition to the thrill of being recognized for my achievements, during the award ceremony, I had the opportunity and the pleasure to deliver a thank you and give credit to Ron Torland, the CEO who brought me into the company, gave me full operating authority, worked with me side-by-side, and supported my decisions, some of which were extremely unpopular. The turnaround would not have been possible without his participation.
When I attended the TMA awards presentation at the conference this year, it struck me that things have really changed. There were so many awards given to so many people that there were no speeches–just lots of people marching across the stage.
Think about it: How many announcements about awards events or awards being bestowed do you receive every week? Clearly, these awards bring people into each organization and its events, and they are are certainly great marketing tools for both the organizations and the winners, but I can’t help feeling that the significance of these awards has been diminished.
During the annual conference of the Turnaround Management Association (TMA) which was held the last week in October, I attended two sessions about “turnarounds” and was truly taken aback by what I heard.
An underlying theme, articulated by panelists in both sessions was, “We’ve been focusing on fixing the balance sheet. Now we need to learn how to fix the income statement.” Really? What have these people been doing? And does this explain why TMA sessions and publications in recent years have focused on “restructuring” instead of “turnarounds?” (My article which was attached to my last blog post explores this topic.)
Fixing the balance sheet is relatively easy: collecting receivables, reducing inventory, selling unneeded assets, renegotiating debt. Fixing operations is generally more difficult and, in many respects, requires a different skill set. For companies to survive over the longer term, they need to have carefully conceived plans, the right people in place, and effective management control systems. In addition, they must deliver their products and services in ways that are both cost-effective and customer-centric. To me, ensuring that those pieces are in place is a vital role of the turnaround expert. Evidently, not everyone agrees with my view.
To me, the word “turnaround” means fixing the balance sheet AND fixing operations. What does it mean to you?
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.
Someone submitted a comment about my February 16th post in which he pointed out that Kay Hong has been appointed Interim CEO of Harry and David and asked whether I know her and whether her appointment is a good thing.
I haven’t met Kay, but I do know that Harry and David is at a crossroads that definitely requires someone with experience in distressed situations and someone who is strong not only financially but also operationally.
Some comments submitted in response to the Harry and David story in the Oregonian today confirmed my suspicions about what is going on operationally at the company; e.g., complaints about poor product, poor customer service, poor internal systems, and lack of adequate inventory control. All of those will need attention if the company is to prosper.
Most people here in Oregon are partial to our home-grown companies and are pulling for Harry and David to survive. Many jobs and the welfare of the area will be affected by the outcome.
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.
One of the headlines today in the New York Times reads, “In Gulf, It Was Unclear Who Was in Charge of Oil Rig.”
If “who was in charge” was, in fact, unclear, it is scary, but, in my experience, too often the case.
Example one: Several years ago, in the process of considering whether to accept a family-owned business client, I interviewed 7 family members, most of whom were in the upper echelons of the business. Because the company had no organization chart, I asked each person to draw one for me. No two charts were the same. The mother-in-law thought the son-in-law was running the company; the son-in-law thought the mother-in-law was running the company. No wonder the company was on the brink of bankruptcy.
Example two: A 25-year-old, FDA-regulated company with operations in both the US and Canada had been cited for FDA infractions before my arrival. Unlike the company in example one, this company had a detailed organization chart and job descriptions for every position, so when I met with the Director of Government Compliance and the Director of Quality Assurance, I asked which one was in charge of ensuring FDA compliance. The two looked at each other. Neither could answer.
You will not be surprised to learn that I solved the non-compliance problem by simply designating one person who had both the responsibility and authority for compliance. As a result, during the first FDA inspection following my departure, the company received its first-ever absolutely “clean” bill of health.
The lesson: Imagine a ship with two captains, each issuing different orders—a symphony, in which the conductor is “conducting,” while the concertmaster is directing the strings. No one would ever consider creating either of those scenarios. That’s Management 101. Why, then, do companies, from small to gigantic, allow that to happen?
Renee’s Rule: You can’t have two captains on the same ship.
In my January 20th post, “Distressed Investing Conference #1,” I wrote, “…the Turnaround Management Association today might more appropriately be called the ‘Restructuring Management Association’ because so much of the educational content focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies.”
In the most recent issue of The Journal of Corporate Renewal, in an article, “We are on a dangerous course,” David C. Finkbiner, CTP raised exactly the same issue AND pointed out the ethical conflicts inherent in situations in which “turnaround” experts get a piece of the action for selling companies.
In describing recent Turnaround Management Association panels, he said, among other things,
- For most companies, Chapter 11 is not the best solution.
- Few turnaround professionals are actually doing turnarounds because too many structure their fee arrangements to provide higher compensation for selling a company than for turning it around.
- As a result, many companies that could have been turned around have been sold for less than the value would have been realized had a turnaround occurred.
In response to my email to David saying that I wholeheartedly agreed with his article, he wrote that he had been hearing from “real turnaround people” all over the country–people who actually do TURNAROUNDS–who feel the same way.
I encourage you to read his thoughtful article.
Tomorrow, I’ll be leaving for the TMA’s (Turnaround Management Association’s) Distressed Investing Conference. http://www.turnaround.org/Events/Calendar.aspx?objectId=9313
When I first joined TMA approximately 15 years ago, the members were mostly other turnaround experts, like me, and the sessions focused primarily on turnaround issues. The sessions were filled with practical advice for people who actually turned around troubled companies. Not only did I always leave with valuable tips, but I also identified people who might help my clients survive. For example, Biff Rutenberg, Atlas Partners, was a panelist at one of the first conferences I attended. A couple of years later, when a client with over 60 locations needed to shed some properties and leases, Atlas Partners was a great help to them. http://www.atlaspartners.com/ap/
Today, TMA feels very different to me. Both the industry and the organization have matured. In addition to turnaround experts, the organization now has many lenders, attorneys, accountants, and other service providers, and the emergence of the mega-turnaround firms has changed the landscape.
The changes have expanded the spectrum of resources available to members; however, the Turnaround Management Association today might more appropriately be called the “Restructuring Management Association” because so much of the educational content focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies.
I am looking forward to the case studies which promise “operational” content and to seeing people I haven’t seen in years…..