1Lessons LearnedTwelve important lessons in corporate restructuring and recoveryoperationsIntroductionEvery business faces...
2Lesson 1. Timely intervention.OptimistAn entrepreneur or business manager is generally a natural optimist. If the results...
3High-energy motivatorCorporate restructuring is a discipline in its own right. It is a specialisation based on manyyears ...
4Vision, courage and experienceThe turnaround action plan is used to set out the future of the various activities: which s...
5Get the bank involvedIt is wrong, but also dangerous to devise plans without involving the bank. The bank oftenholds a ri...
6Choose core activitiesAssess the strategic position of all activities, but look in particular at the short-term cash flow...
7Replace your managementRestructuring is a traumatic experience for incumbent managers. In some cases, they will betreadin...
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White Paper Lessons Learned Uk

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I would like to share with you the 12 most important lessons for carrying out corporate restructuring or recovery assignments. The lessons are based on many years of experience and, to be quite honest, learned through bitter experience. I will now briefly summarise the key lessons in the white paper for you.

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White Paper Lessons Learned Uk

  1. 1. 1Lessons LearnedTwelve important lessons in corporate restructuring and recoveryoperationsIntroductionEvery business faces threats at some point in its life cycle. Following a period of growth, forinstance, when it finds itself in a situation in which its original structure is no longer suitable tosupport efficient business processes and deliver the desired outcomes. Or when thebusiness finds itself in a difficult economic environment, or is forced to head in a newdirection because of changing market circumstances. Threats are often also caused bydifficult staff or other situations that constitute a constant problem in the business or manifestthemselves unexpectedly, for instance, because of illiquidity, claims, reputational damage orfraud.Corporate restructuring or recovery refers to the restructuring of the operations, finances,legal personality, tax situation, asset base or other structures of an organisation. It isopportune if potential threats result in financial risks. The distinction between restructuringand recovery lies in the urgency with which the risk needs to be neutralised.Generally speaking, a corporate restructuring operation is launched following a loss of capitalvalue. Sometimes also referred to as a “half past eleven” situation. Corporate recovery isrelevant when there is a loss of profits or – worse still – a loss of liquidity. A “five to twelve”situation.A recent survey by Roland Berger Strategy Consultants revealed that businesses in Europetypically wait for 16 months before taking corrective action. Most businesses only intervenedonce there was a profit crisis (54%) or – worse still – a liquidity crisis (17%).I would therefore like to use this white paper to share with you twelve important lessons incorporate restructuring and recovery operations (i.e turnaround operations). These lessonsare based on many years of experience and, to be quite honest, learned through bitterexperience.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  2. 2. 2Lesson 1. Timely intervention.OptimistAn entrepreneur or business manager is generally a natural optimist. If the results aredisappointing, he will tend to focus on the chinks of light or look the other way (i.e. boostingrevenues) rather than start slashing costs.Late informationSupervisory directors and other stakeholders with ultimate responsibility for the company areoften only able and willing to intervene when hard information is available, for instance, in theform of serious losses or independent reports that would legitimise intervention. This is bydefinition already too late. Results are often also given an artificial gloss for a certain periodof time.Consensus mentalityLate intervention is also caused by the non-confrontational consensus mentality that istypical in the Netherlands. But the later you intervene, the bigger the problems will be.Lesson 2. Hire independent interim specialists.Your usual advisors will all have been involved in some sort of restructuring at one time oranother, but it is rare for them to be specialists in the field of restructuring and conductingrecovery operations. All too often, it is decided to use functional specialists such as lawyers,tax consultants, auditors or business consultants. Or industry specialists. And they are oftensourced from within the organisation itself or from within the network. These will generallysuffice for advising on particular fields of expertise, but are not usually the right choice tooversee an entire restructuring process or to implement a turnaround operation on site.Avoid potential conflicts of interest. Do not make internal or external professional serviceproviders responsible for a restructuring or recovery operation where they already adviseyour company in some other capacity, such as your accountancy firm. Make sure you avoideven the potential for any conflict of interest by hiring an independent professional.Restructuring is a critical operation. In experienced hands, the risks are limited. To take onan operation like this without the right experience would be thoroughly irresponsible.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  3. 3. 3High-energy motivatorCorporate restructuring is a discipline in its own right. It is a specialisation based on manyyears of managerial experience in businesses at various stages in their life cycle. A goodcorporate restructuring or recovery manager has strong analytical skills, and is a high-energyorganiser who is driven by achieving results. He must be capable of motivating people andgaining their trust in a short space of time, but must also possess integrity and strongcommunication skills.Industry experience?Specific knowledge of products or the industry is less important and may even provecounterproductive, because the fixed paradigms of an industry may obscure the solution tothe problem. In every industry, the business processes often run along the same patterns,and only the way they manifest themselves is different.Experience within specific economic segments (e.g. heavy industry, service industry or non-profit sector) may be valuable, however.Choose an interim consultantThe strength of an interim corporate restructuring officer lies in the temporary nature of hisassignment. The building phase following the restructuring demands product-marketstrategists with commercial flair. But the corporate restructuring manager is more focused onsolving problems and taking corrective actions against loss-making activities than onstrategic expansion and innovation. He has to leave the business when the restructuring iscomplete.Lesson 3. Make a plan.Make a note of all considerations and make a judgement. If you decide in favour ofrestructuring, you should then make a turnaround action plan. You will certainly need aperiod of three months to prepare everything properly. If things are more urgent, it may bethat you do not have that much time. A corporate restructuring professional can perform aquick scan of the business, business unit or activity in two to three weeks. Based on theoutcomes from this process, you can work on the turnaround plan in parallel with theimplementation of the initial recommendations. On my website (www.executive-im.com), youwill find a Quick Scan checklist which explains what is required to implement theserecommendations and put a restructuring or recovery action plan together.Ensure that a turnaround plan is available as soon as you replace the incumbentmanagement or as soon as an interim corporate restructuring officer (iCRO) is assigned towork with them.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  4. 4. 4Vision, courage and experienceThe turnaround action plan is used to set out the future of the various activities: which shouldbe divested, which need restructuring, what will the business look like at the end of therestructuring process, and how will you achieve this? But what is really important is vision,courage and experience. These qualities are needed to develop a strategy, to establishmanagement, to line up the financing, timing and implementation.Lesson 4. Choose a project-based approach.Restructuring will occupy a lot of management‟s time and attention for a number of months.Time and attention which is nearly entirely focused on solving a number of one-off, largelyinternal problems. The major risk of this is that the day-to-day operations will becomeneglected, innovation will come to a halt and the business will find itself on a slippery slope.Avoid the flight response and delaysThe implementation of the restructuring and the day-to-day operations should thereforealways be segregated. It is preferable that different people are selected to manage and staffthe two activities. This will head off the flight response of operational managers towards the„exciting‟ restructuring operation. It will also prevent additional problems, such as delays inthe restructuring process caused, for instance, by getting bogged down in day-to-dayoperational problems. This will also prevent necessary, but controversial decisions frombeing postponed or put off indefinitely, and also avoids „contamination‟ of the remainingmanagers who will take up a more unifying role as they build the future of the business.Lesson 5. Get it right first time.“Desperate times call for desperate measures.”Be prepared for immediate and drastic intervention in order to avoid the need for a secondround of restructuring or even a recovery operation, which will often entail additional andunnecessary damage. Do not embark on a restructuring operation with over-optimisticprognoses or limited finances. The process should always begin with a well-founded workingcapital and cash flow forecast. This will show where there is scope for any potential savingsand revenues. It also provides an understanding of the consequences of the restructuringmeasures as you proceed. What‟s more, it ensures that you are continually able to makeadjustments and see the effects of the recovery operation.Generous marginsRefinancing is difficult to secure during a restructuring or recovery operation. The confidenceof financiers in the new plan will often be limited. Disposing of assets, divesting thrivingbusiness activities or securing new venture capital in advance represent better options thanrelying on impressive financial results or the generosity of the bank.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  5. 5. 5Get the bank involvedIt is wrong, but also dangerous to devise plans without involving the bank. The bank oftenholds a right of pledge on the assets and is always the most appropriate financial backer of arestructuring operation. It has a major interest in business continuity because restructuringoffers the best prospects of recovering the credit provided. Large commercial banks in theNetherlands will usually take a largely reasonable and constructive stance in situations likethis. You should therefore go and speak with the bank as soon as the outlines of the plan areknown.Lesson 6. Carry out two-stage restructuring.A restructuring or recovery operation reveals problems in almost all departments and inalmost all aspects of the business operations. Solving all of these in one fell swoop isimpossible. The answer to this is a two-stage approach to deal with the minor issues oncethe major issues have been dealt with. If you don‟t do this, the restructuring will get boggeddown in details and delays.Stage 1. This should not last longer than two to three months. This stage is for dealing withthe most serious and urgent problems. Unviable activities are discontinued, superfluous staffare made redundant, and managers at lower levels who fail to perform are replaced.Stage 2. In this stage, the organisation will be fine-tuned. Business processes will bestreamlined, and you will go through the organisation with a fine-tooth comb. This stagetakes a lot more time and effort.Lesson 7. Make a strategic shift.If there is an impending loss of equity, loss of profits, or – worse still – a liquidity shortage,this often means there is a strategic problem. Either the scale is too small, the technology isdated, you‟re using the wrong sales channels or the production location is wrong. In manycases, there will already be a hole in the business‟s equity position and the reputation willhave taken a hit.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  6. 6. 6Choose core activitiesAssess the strategic position of all activities, but look in particular at the short-term cash flowand revenue potential. You should cease any activities that require heavy investment or aremarginal. In the stage after restructuring, the core activities need to re-lay a solid foundationbeneath your business. New policy and new activities belong in a stage that is two or threeyears down the line.Really solving the problemRestructuring should be largely limited to cutting costs, disposing of operations or customerswith poor returns and reshuffling management. The restructuring will create breathing spaceand time, but the real problems can only be solved through a strategic shift. For instance,entering into a partnership or acquisition by a suitable party. Or even making an acquisitionto achieve critical mass, or finding a new major shareholder that represents a better matchfor the organisation. Make sure you consider and raise these options at an early stage. Thiswill allow you to anticipate them during the restructuring process.Lesson 8. Start by slashing the cost base.Every restructuring must start by slashing costs, taking account of falling revenues andmargins. Do not rely on revenue growth and added value, because this is simply the wrongapproach. Restructuring always leads to unrest within the organisation and rumours in themarket. Can the business still meet its delivery commitments? What will happen with theguarantee? You can at best maintain existing revenues by managing your sales machinemore actively or by increasing promotional efforts.Generous marginsA restructuring is a one-off opportunity to make drastic cuts in the cost base without toomuch expense. Use it. If performance is disappointing, a second restructuring is essentially anon-starter, but if revenues grow it is usually relatively easy to find additional capacity. Youshould always maintain a generous margin in the plans.Lesson 9. Make sure that additional management capacity is available at anappropriate calibre.In a restructuring exercise, measures which should have been taken previously areimplemented in a short space of time. It is unrealistic to assume that such an intensiveoperation can be carried out by the incumbent management team on their own. It willtherefore be necessary to replace the incumbent management team and to assist the newmanagement team on an interim basis by assigning a corporate restructuring professional towork with them.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56
  7. 7. 7Replace your managementRestructuring is a traumatic experience for incumbent managers. In some cases, they will betreading the thin line between hope and fear for months. The confrontation with the „victims‟follows immediately after the restructuring. Sentimentality and a sense of guilt are poorcounsel for a successful business. Don‟t take any risks: reshuffle the management team.Replace the most senior manager, strengthen the second tier and/or integrate with astrategic partner. The management should also be strengthened by assigning anexperienced outsider on an interim basis, who can also take on the role of the bad guy.Lesson 10. Don’t be tempted to compromise on staff.Choose the best and go forward with the minimum number of staff necessary to achieve theplans. Stripes earned in a forgotten past, years of service or age should not be a factor. Onlystrictly needed staff should be kept. If the business performs better than expected, additionalcapacity can always be hired.Lesson 11. Be honest and clear.Tell the true story, even if this is difficult. Looming problems are the consequence of mistakesmade in the past. Management is therefore responsible by definition. Don‟t blame others, butacknowledge it and start thinking about what you will do to prevent a repeat.Go easy on crucial staffReally good workers can pick and choose their employer. They are a hot commodity in thelabour market and will certainly start to look around if continuity is threatened. Make sure thisaspect gets the attention it deserves. Involve crucial members of staff when preparing therestructuring. Make use of their valuable contribution and secure their involvement.Create commitmentNo one is looking forward to hearing bad news. But it is made worse if staff hear it first fromoutside the business or in the media. By letting customers and vital suppliers know what thesituation is, you will gain their commitment and turn bad news into good news.Lesson 12. Limit your dealings with the media.Journalists do not generate customers or sales, but dealing with them can be time-consuming. Be honest, but limit the time they occupy to a minimum. But if your business ishit by a crisis caused by a serious flaw or a dangerous product, you should communicate thisextensively and in detail with all stakeholders.© Martin M. Kok Executive Interim Management B.V. - www.executive-im.com - T. +31 344 627 286 - M. +31 6 53 83 35 56

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