If You Don’t Have the Appropriate “Human Capital”…
It Doesn’t Matter How Much Working Capital You Have..It Still Won’t Be Enough

By: Robert D. Katz
Managing Director
Executive Sounding Board Associates Inc.

As a turnaround consultant when we enter a situation, our clients have certain things in common, they are usually understaffed, their employees are over worked and resources are limited.

Even if funding is plentiful which it rarely is, if the right people are not in place, as the title suggests, no amount of money will be enough. Eventually it will run out.

There is no doubt that at some time in our working careers we have all faced similar scenarios. On Friday the boss comes to you and says a particular work product is needed for Monday. You slave all weekend working around the clock, deliver a finished product on the boss’s desk bright and early Monday morning. You walk by the boss’s office two days later and the file is still sitting there untouched, in the same place you left it. It hasn’t moved or been reviewed. What toll does it take on your moral? How did it make you feel about the way you were managed? Or the regard/disregard your supervisor showed for you?

The turnaround, restructuring and resuscitation process requires significant commitment. Characteristics include experience, outstanding attitudes, desire, perseverance, dynamic leadership, vision and integrity amongst many others. Finding, developing and managing these characteristics in existing and new personnel will be one of the most challenging and rewarding initiatives that a Turnaround Manager will undertake. Doing it successfully lays the ground work for success. Unsuccessfully usually will be the precursor to failure.

What follows include suggestions, stories, strategies and opportunities to experience the thrill of victory and success and minimize the chance to experience the agony of defeat.

There is No Substitute for Experience.

A company in transition needs leaders who have been in this position before, negotiating with lenders and creditors, determining who to pay and when to seek extended terms; evaluating the needs and timing for improvements, maintenance and repairs; whom to provide raises to? And when not? Can the Company afford a new product rollout? Cannot it afford not to?

Out of the box thinking is mandatory at all levels! The President of a former employer once said. “Don’t just bring me the problem, bring me the solution as well. I may chose to do something different, but at least it shows me you have given thought to solving the problem.

The Vision

Exceptional people and exceptional entities, have leaders with great vision that do extraordinary things. Great vision is not only about developing plans and strategies for the future but also about successfully execution. Being able to change on a dime and reinvent the Company, keeping its product and/or its services current and fresh.


Who has the Vision…Where has it faded?

• WalMart, always on the cutting edge, continues to reinvent itself, compared to Kmart with tired stores, consistently struggling (not withstanding the current merger).
  
• The National Football League, has passed Major League Baseball as the national past time. Compare to the NHL which is on strike and may lose the entire season, or the NBA which has a significant image problem, i.e Kobe Bryant last season and Ron Artest this year.
  
• Walt Disney was synonymous with vision; 30 years ago they purchased hundreds of thousands of swamp acres outside Orlando, much of it sat for 20 years undeveloped. Only recently in the last ten years has the majority of the development occurred. Recently, however, they have struggled with direction and currently are just another Company with flat earnings and underwhelming performance.
  
• Caesars Entertainment and Wynn Enterprises of the most successful gaming entities in the world, generating multimillions in growth and cash flow; compared to Trump Casinos that went through bankruptcy yet again.

Great Leaders Understand How to Treat People…..

They understand when it’s time to push and when its time to coddle; what works for some doesn’t work for others. Corporate politics are left for others. Great leaders know when and how to put scared cows out to pasture. Making an impact early is critical; there exists a short window to build initial credibility. There is rarely a more significant ingredient in the early stages of a turnaround than Executive(s) capable and willing to take control.

I have never been reminded it more than in the below examples.

Executive Sounding Board Associates Inc. (ESBA) was brought into a situation as the Chief Financial Officer for a middle market manufacturing company by a new President who had been with this particular division less than a month.

During the first meetings with the management staff, the Vice President of Sales who was relatively pushy and not effective but had gained the favor of previous management, had been asked to provide some reports and information. He showed no interest or inclination; slid a folder over to me and proceeded for the next five minutes to tell us what a great job he was doing.

Looking around the room at the reaction of the other managers, I sensed this was typical, when he was asked to do something he didn’t want to do. When he was finished, I slid the file back and mentioned that “If he was doing such a fabulous job..he would never have met me”. The reaction of he and the other managers was reminiscent of being on the playground when a bully was put in its place. There was immediate and significant impact.

At the same Company, the new President was brought out of retirement to lead the resuscitation of this particular division. The ineffective past President (who had been reassigned to another division) was still “sticking his nose in this Division’s business”. The new president went to the chairman and said “if you are going to let him stick around, then you are better off saving your money on me. If you want me to turn the Company around, you will see to it that the former President stays out of my way and let me do what is needed”. That was the last time the past regime was heard from. Shortly thereafter the Company was generating cash, customer service, on time delivery and employee morale had improved dramatically. An Executive capable and with the ability and vision to manage and care about people… makes a difference! He/she can lead ordinary people to do extraordinary things.

To Successful in Times of Transition Find an Opportunity to:

Reward and Give Raises

Discussions and opinions invariably come up regarding this topic. In fact it came up in a situation I am currently involved in. Given how tight cash flow is, should they forgo giving raises and the annual holiday party? I told them absolutely not!

Even when times are tough it is critically important to reward excellence! If you don’t find a way to do it, superior performers will do it elsewhere. That doesn’t necessarily mean you do things lavishly, but you must find a way to reward great work and efforts.

Find Hidden Talent and Let It Shine

Within all organizations there are talented people who get buried. It happens at all levels from clerks up to senior level managers. A number of employees will do as they are told, because they don’t want to make waives. It is important for the success of the organization to find the Gems and give them the opportunity to shine. The best executives have the confidence, vision (that characteristics never seems to go away in discussing successful people or organizations) and ability to enable others to succeed by giving them enough latitude and opportunity without overwhelming.

As an interim CFO, where I normally present the monthly reports, I have told senior level executives to have the Controller make the presentation. I lay the ground work by explaining to the management team, that this maybe new for the Controller and she may be a little nervous, but if you don’t give her the opportunity to grow here, she will do it somewhere else. It is truly immeasurable the difference opportunity makes.

Rectify the Blame Game

When things aren’t going well, there is always excessive finger pointing.

Part of changing attitudes and making a difference is accepting the responsibility, even when it may not be your fault. The following demonstrates. In developing financial and operating forecasts estimates are always used. Employees are at times fearful of giving their opinions/estimates for fear of being wrong or blamed. In that context I let people know that they won’t be blamed “or hung out to dry” if their estimates are off.

With regard to similar situations, if you have the responsibility it is critically important to have the authority in order to drive change. Responsibility or authority, having one without the other is a sure recipe for failure.

Do Current Employees have these Attributes or is an Infusion Needed?

Finding people throughout the organization capable and willing to deal timely with sensitive and critical issues is of paramount importance. And, it is not just in the executive suite. In many cases the main customer contact is a staff level customer service representative. Or, the main contact with suppliers is a purchasing or accounts payable clerk, not usually the highest paid person at the Company. Imagine, your customer service representative is terse with a major customer; or the payables clerk is nasty to a key supplier. There is a good chance then you may not get the product you might otherwise have received. Or worse you find out about it, when the customer leaves for a competitor or raw material doesn’t arrive when scheduled, shutting the plant down, because you were put on hold and nobody informed you.

However, as part of our business there are always time when layoffs or termination are a necessity. Carefully managing the termination or transition process is critical. If it is not done in an orderly way, it could have a far reaching and detrimental impact on the Company’s prospects for a successful reorganization/restructuring /turnaround effort.

A few other details to ponder and consider when developing “The Team”:

• Find a way to motivate and inspire.
  It makes all the difference in the world.
  
• The Attitude Paves the Way.
  

  Consider somebody who may be a little light on experience but whose is hungry with drive and desire. Attitude-positive or negative- is infectious. Accepting that nobody is happy all the time, but some people act as if there is a black cloud hanging over their heads. There is NO ROOM for any negativity, no matter how much value perceived or otherwise an employee is deemed to have.
  
  
• Past Experience in this space.
  Those who have been part of the turnaround/reorganization know what it takes to be successful. Nothing takes the place of experience, dedication and willingness to work the hours. Until you have chased a representative of a utility company up the electric pole, negotiating with him/her not to turn off the power. Or until you have negotiated with a lender to fund an overadvance to cover payroll and protect their collateral, that they would otherwise not be inclined to fund, you really don’t have the same conception of what being out of money or availability means.
  
• Creativity.
  Making the most of limited resources requires more than just doing the same things the way they had been done in the past. The old methods have not been effective. Creativity, developing, identifying and implementing new strategies and methods of advertising, selling, marketing distributing, producing etc, will add significantly to the operating performance, profit and morale.
  
• Perseverance.
  The highs are the highest, the lows are the lowest and some times it changes by the hour. No, is just a detour…in getting to yes.
  
  

  I describe one of my colleagues as having the perfect personality for being a restructuring consultant. If a portion of the plant ceiling collapsed. He would come by sweep aside the debris and rubble himself, call the maintenance team to bring a few extra brooms and instruct the personnel department to call the employees and tell them we would be a little late starting today as we rearrange the layout of the production line. Nothing fazes him.
  
  Great leaders help ordinary people do extraordinary things.

Finally,

Above All Integrity and Honesty Matter Most

There is no posturing, there are usually no politically concerns built in, what you see is what you get. If the answers is not known, great managers pledge to find out. If for any reason it’s not in the best interest of the client or if confidential information can’t be disclosed, people are told such.

Personnel evaluations should be handled the same way. When a person is doing fabulous work, be the first to let them know. If they are underperforming also let them know immediately. People appreciate, although they may not like it and it’s tough to distribute, immediate and honest feed back. Underperforming employees will never know it unless they are told and will never correct the problems and get better.

The human side of the equation is sometimes the most difficult to manage and yet may have the largest impact on any business or organization. Make sure you allow the appropriate time and resources to maximize its value…Remember do unto others as you would like them to do for you. While maybe a cliché, it never becomes obsolete.

He is a member of the Commercial Finance Association’s Education Foundation and has led numerous operational and financial turnarounds for Middle Market, private and public companies. He represents Debtors, Secured and Unsecured creditors both in and out of bankruptcy. He can be reached at (215) 568-5788 or at rdkatz@esba.com.