Corporate Recovery Managing Companies in Distress

In <i>Corporate Recovery: Managing Companies in
Distress</i>, authors Stuart Slatter and David Lovett, drawing upon
decades of experience in Great Britain and abroad,¹ sketch
a roadmap for the successful rehabilitation of companies in
"turnaround situations." As defined by the authors, a
turnaround situation presents itself whenever a firm's "financial
performance indicates that [it] will fail in the foreseeable future
unless short-term corrective action is taken."² This
definition is broad enough to include firms that do not have a current
cash crisis, which is appropriate because firms often exhibit symptoms
of failure long before any crisis begins: </p><blockquote> <p>Such firms
are often stagnant businesses with underutilized assets and ineffective
management. Many such firms have survived over the years <i>in spite
of</i> their poor management. If a stagnant business is not turned
around, a crisis situation will eventually ensue because the
management is unlikely to be taking the necessary steps to adapt to
the changing product-market environment in which the firm is
operating... By adopting turnaround strategies early enough,
recovery can take place without the traumas usually associated with a
turnaround situation... If no corrective management action is taken
in a turnaround situation, the firm becomes insolvent, since
external events can only postpone insolvency, not avert
it.³ </p></blockquote><p>Because a turnaround situation may
present itself at almost any stage of the corporate life cycle
(excepting the start-up and early-growth stages), the authors note,
the book should be of as much interest to the everyday manger as to the
turnaround professional. After all, "turnaround management is
everyday management."⁴ </p><p>The authors seek to dispel
the myth, often fueled by the media, that the turnaround manager is
"some sort of corporate commando on a 'seek-and-destroy'
mission" to achieve short-term cost reduction.⁵ To
respond meaningfully to a turnaround situation, the authors argue,
management must adopt a "holistic" strategy that looks
beyond mere short-term crisis stabilization and toward long-term
strategic change that will harness the firm's sources of competitive
advantage with a view toward future growth—<i>i.e., sustainable
recovery</i>. The key elements of such a strategy, though they may
differ in their particulars, are in essence the same for every firm in
every industry, namely: (1) crisis stabilization, (2) leadership, (3)
stakeholder support, (4) strategic focus, (5) organizational change,
(6) critical process improvements and (7) financial restructuring.
Although set forth in linear fashion for the sake of discussion, these
elements are interdependent. The virtue of an effective turnaround
management team is the ability to address them simultaneously, in
"real time." </p><p>Like most business books, <i>Corporate
Recovery</i> consists primarily of stand-alone chapters that most
readers will consult on an as-needed basis. Chapter 1 introduces the
turnaround industry and emphasizes the authors' broad view both of what
constitutes a turnaround situation and of the objectives of turnaround
management. Chapter 2 discusses the common symptoms—and more
importantly, the underlying <i>causes</i>—of corporate failure,
rejecting as overly simplistic the "it all comes down to
management" school of thought and highlighting the various
internal and external forces that can contribute to a company's
demise. Chapter 3 provides a thorough anatomy of a crisis situation,
from the various risk factors (environmental, managerial and
organizational) that make a firm more susceptible to crisis, to the
effect of a crisis on both management behavior and the overall health
of the firm. Chapter 4 provides a general overview of the turnaround
process and lays the foundation for more detailed discussion of the
authors' "seven essential ingredients" for a successful
recovery in Chapters 6-8, 10-12 and 14. Chapter 5 discusses the
process of diagnostic review, from the initial
"quick-and-dirty" analysis of whether (and how) the business
can survive in the near term to the increasingly informed analysis of
its prospects for achieving sustainable recovery. Chapters 9 and 13,
respectively, cover the development and implementation of the business
plan going forward. </p><p><i>Corporate Recovery</i> is eminently
readable. The authors' writing style is lucid and unassuming, using
language plain enough not to leave non-management readers (such as
this reviewer) in the dust. While the authors backstop their positions
with academic research, they avoid in-depth discussion of theoretical
concepts. Having been "at the 'coalface' of turnaround
management"⁶ for more than 20 years, the authors
prefer empirical observations and examples drawn from their own
experience and from several high-profile turnarounds in the United
Kingdom and Europe (<i>e.g.</i>, British Aerospace, Westinghouse
Electric Corp., Bruno Banini and Philips Semiconductors). For more
"visual" thinkers, the authors intersperse graphs, tables
and flow charts (30 figures in all) at opportune times throughout the
book. These figures are rarely (if ever) superfluous, and complement
the analysis nicely. </p><p>The authors' instructional methods mirror their
management styles. They cover quite a bit of ground in relatively
little space (320 pages), using a hit-and-move approach that provides
a brief primer on each topic, refers the reader to outside sources for
more in-depth coverage and gives the bottom-line assessment of what
must be done. As one might expect from veteran turnaround artists, the
authors are very frank, and their advice often takes the form of pithy
comments that seem designed to throw a little cold water on the
situation. For example, on formulating a business strategy, they
write: "It is a common mistake for troubled companies to assume
they have some sort of divine right to exist. Few companies have that
luxury, and the strategy must justify an organization's existence very
clearly."⁷ On implementing the business plan, they
write: "The association of <i>one</i> individual with a specific
task is key. Collective responsibility inevitably leads to a
collective vacuum."⁸ </p><p>The authors also exhibit a keen
understanding of human psychology in an organizational setting. For
example, in their chapter on critical process improvements, the
authors note that "[t]roubled companies are often characterized by
the lack of any meaningful information, or the production of
information to justify internal behaviours or sustain compensation
packages despite trading realities." The cause is simple and
eminently reasonable from the individual manager's perspective,
namely: "There is a fear that measuring things will expose problems
and lead to blame being apportioned. This leads to arguments over the
reliability of information that is provided. ('It doesn't tell me what
I want to hear, so it must be wrong!')." The solution? A new
process of providing and sharing information that recognizes and
respects that "people behave according to how they are
measured" and, accordingly, creates "an 'amnesty from the
past' so that historical performance can be 'forgiven' and a clean break
from past behaviours can be made."⁹ In this and
several other passages throughout the book, the authors are very
careful to separate problematic personality and character traits from
the people who exhibit them, disparaging the former while empathizing
with the latter. Although the authors advocate playing
"hardball" with employees as needed, they state unequivocally
that it is "management's duty to treat everybody, every individual
member of the company, with respect, both those who stay and those who
have to leave."¹⁰

</p><blockquote><blockquote>
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<big><i><center>
Management or employees finding themselves in a turnaround situation
might turn to the book for a glimpse of the long road ahead, while the
management of a healthy firm might look to it...to ferret out behavioral
and organizational problems....
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<p> <i>Corporate Recovery</i> will serve different purposes for
different readers. This reviewer found a cover-to-cover reading very
rewarding and would recommend the same (or, at the very least,
Chapters 1-4) to anyone seeking a "big picture" perspective
on the turnaround industry. An experienced company doctor who is
already familiar with most of the principles in the book might
nonetheless find it a handy desk reference or self-checklist to help
stay grounded during the hectic turnaround process. Management or
employees finding themselves in a turnaround situation might turn to
the book for a glimpse of the long road ahead, while the management of
a healthy firm might look to it in connection with a critical
self-assessment to ferret out behavioral and organizational problems
that could develop into a full-blown crisis situation if left unchecked.
The various stakeholders of a troubled business (and especially, the
would-be providers of interim or exit financing for the turnaround)
might use the book as a rubric against which to evaluate management's
performance and the firm's prospects for a sustainable recovery. With
so many potential uses, <i>Corporate Recovery</i> would be a valuable
addition to any business library. In this reviewer's opinion, it
should be standard issue in the arsenal of every turnaround
professional.</p><h3> Footnotes</h3><p> 1 Mr. Slatter is a founding partner
of Stuart Slatter &amp; Co. and the chairman of Stuart Slatter
Training, as well as a visiting fellow in Strategic and International
Management at the London Business School. Mr. Lovett was an Andersen
partner for 18 years and founded its London-based turnaround practice
in the early 1990s. He is currently a managing director of
AlixPartners (London). Both authors were founding members of the
U.K.'s Society of Turnaround Professionals. </p><p>2 Slatter, Stuart and
Lovett, David, <i>Corporate Recovery: Managing Companies in
Distress</i> 1 (Beard Books 2004) (1999). </p><p>3 <i>Id</i>. at 1-2
(emphasis in original). </p><p>4 <i>Id</i>. at xiv. </p><p>5 <i>Id</i>. at 5.

</p><p>6 <i>Id</i>. at xiv. </p><p>7 <i>Id</i>. at 217. </p><p>8 <i>Id</i>. at 295
(emphasis in original). </p><p>9 <i>Id</i>. at 290-91. </p><p>10 <i>Id</i>. at
177. </p>