Troubled Companies

The following text has been prepared by Arthur Lipper III for British Far East Holdings Ltd. and is intended to be part of a book, “Troubled Companies”. No reproduction or publication of these writings is authorized, except with written consent of the author and owner.

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Chapter 3

Managing an Ailing Enterprise

(as Distinct from a Flourishing One)

As a result of being a Wall Street trained creature, I am a believer in trends. Trends continue until reversed, if reversed. In the case of markets there is an ebb and flow and markets may diminish but do not usually evaporate completely.

In the case of companies, when things go wrong they tend to continue to go wrong until something is done to correct, which means change, the situation.

Before any intelligent attempt to cause change should be undertaken there has to be a true understanding of that which is the cause of the problem or problems. It is not just sufficient for there to be a recognition that sales are slower to develop than thought would be the case.

It all goes back to the customer. Why are the sales not at the level predicted? Until the “why” is known there can’t be an effective cure developed.

Is the problem the quality, design or pricing of the product? Has the customer’s market changed? Are the competitors doing something they were not doing previously? Are the competitors suffering the same problems? Is this, whatever this is, a business we still want to be in? If not, what strengths do we have which could be better employed in another venture?

Life is very short and one’s personal credibility is an important asset, not one to be squandered by being ever optimistic and reassuring to others, especially those dependant upon you, when such an appearance is contrary to the way a realistic person would feel when in possession of the same facts with which you are burdened. This is not to say that leadership does not require positive thinking, as it does. It is to say that a leader is, above all, honest with those he leads.

“We will be in great shape once we solve the _____ problem”, is a reasonable and honest response to many questions. “As soon as we get (or learn, are able to deliver, etc.) _____ we will be in a better position to plan for the future”, is another reasonable description of a present situation. There is no shame in identifying one or more problems which have to be addressed satisfactorily before progress can be made. Further, point of departure and follow on statements could include; “We believe we can assemble the resources necessary to address the problem(s) now that we have identified that which has to be accomplished.” “We expect to emerge from this period as a stronger, better focused, leaner profit generating mechanism due to the steps we have taken such as: ______, _____, etc.”

The above proposed statements each reflect advice as to what to do as well as what might be said. Periods of adversity are or can be constructive if the attendant pressures result in an intelligent process of diagnosis, appraisal, prescription and aggressive implementation (of that determined to be the altered course). In combat, as a Marine, I learned that it is safer to keep moving than crawl into a hole and wait for something good to happen. Only by keeping moving can one have control over one’s destiny. Sometimes it is better to even move in the wrong direction than not to move at all as good things seem to happened to those who are aggressive versus those who are sheep-like passive.

The more accurate information which can be shared with those in a position to make a difference in the customer satisfaction performance of a company the more likely the managers will receive the desired support.

In his important book “The Great Game of Business” successful business manager Jack Stack, describes and advocates a process of distributing financial data regarding the company to ALL employees WEEKLY. Having been at one time a “need to know”, keep it confidential type of executive I am now a subscriber to the practice of “open book” management.

The greatest need of those managing troubled companies is to develop and communicate a plan which permits the confidence of; staff, customers, vendors and suppliers. Such a plan has to be reasonable and attainable, given the commitment of defined and hopefully available resources. Whether the plan is called a “Get Well” plan as is the case in one company on which Board I serve or a “Counter Attack” plan or a “Resurgence” plan is not important. That which is important is that it is believed and believable.

It is highly possible that such a plan is not best prepared by management alone as there are such logical and understandable reasons why management will find a need to justify prior positions rather than being only future focused as might be a knowledgeable outsider.

Of course, staff is going to have to be reduced in the case of troubled companies. The sooner the staff reductions occur the less they may have to be in ultimate number. Who should be terminated and how is a painful decision which must be made. The decision as to cutting departmental budgets is easier and leads to the staff decisions. Cash flow generation becomes the key factor in many cases and in these cases the budget cuts will have to be made with the impact on cash flow being the paramount consideration. One classic decision conundrum in the case of faltering revenues is that of cutting or increasing marketing expenditures. There isn’t a sure answer except that both possibilities should be considered.

As an investor in and professional observer of companies, many of which are or have been troubled, I respect the CEO and senior officers of troubled companies who voluntarily defer or reduce their personal incomes, especially at a time when staff reductions and cutbacks are being imposed on other team members. Such actions are a clear evidence of the officer’s personal belief the plans to address the company’s problems will succeed. I never doubt the officers will find ways of rewarding themselves when the problems are history.

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Reader comments and suggestions as to specific examples are welcome. All submissions will become the property of British Far East Holdings Ltd. with our appreciation, but without compensation to the party making the submission.

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