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Columnist
Why every company should have a turnaround expert on its board. A "workout" professional -- an executive-level person experienced in cleaning up corporate nightmares -- belongs on every major corporate board. Most business crises don't happen overnight. They are a result of a series of bad decisions that cascade into a crisis. If the defective decision making announced itself with bugles and drums -- if the looming crisis sent out invitations to the show -- then even a mediocre board could respond appropriately. But problems tend to build incrementally, and the parties involved become accustomed to the signals that should prompt concern and dramatic action. As a rule, the workout specialist on the board is a discomforting presence -- a glass half-empty, gloomy soul who presumes and assumes the nightmarish potential of every business scenario. The board psychology, by its nature, assumes a certain status quo, a certain prettying up of existing business management at the margin. There is nothing necessarily incorrect in that approach. But the presence of a workout personality prepares for an alternative approach, a different sense of urgency, and a worthwhile safety valve in case of serious trouble. Topping the List of Concerns A workout professional focuses on several key criteria when evaluating where a company is in its history. At any stage along the way, the comfort of the moment can shield signs of trouble, which the workout mind is inclined to seek out and clean up. The first and most important criterion is the company’s financial performance and cash flow. The cash flow statement indicates whether the company is generating positive, free and clear, cash flow -- and whether that cash flow is coming from company operations or from outside sources such as floating debt or equity. The second screen is the trend for revenue, profit, and cash flow from the past five years. If the performance is declining in these areas, the company is in trouble -- the kind of trouble that needs more than a bit of tinkering. The workout professional is inclined to be less in love with the company’s overall industry environment if the enthusiasm isn’t justified. The “we’re much smarter than anyone else in our business” philosophy dominates many boards -- and it can lead to catastrophe if you linger too long in a dying industry. Strength of Management The next area of concern in the workout analysis is the strength of the management team. While boards are slowly evolving into governing bodies more inclined to take a clear-headed look at the executive team, workout specialists have both the professional detachment and experience to challenge and purge the unsuccessful, with little associated angst. At one company where I was brought in as a workout CEO, the senior management turnover in the previous two years had been 100 percent. It is impossible to deliver even basic services at a company where the senior staff is undertrained and inexperienced. High management and general employee turnover is a signal that demands swift response -- an awkward and uncomfortable action that is more likely to be suggested by a workout professional on the board. Competitive Position The final major area that workout professionals tend to focus on is the competitive position of the company within its market. Does it have a niche in which it excels, in which it can extract a premium? Some companies can succeed by peddling commodity products, but boards and senior management of such companies often delude themselves with strategy that assumes a premium is due a company that does not sufficiently differentiate itself from competitors. On the other hand, handsome profits in a particular niche can attract competition in markets with low barriers to entry -- a circumstance that companies are often slow to plan for, or even to admit may occur. Edgy Attitude The most important skill that a workout person brings to a board is the ability to recognize a crisis when it is in its infancy -- and to be comfortable with the often uncomfortable actions that must be taken to address that crisis. The more quickly a crisis is identified, the more quickly it can be contained. All of this is familiar territory for a workout professional accustomed to being asked for clear-headed evaluations of a company. In a room full of board members, you should be able to identify the workout specialist without being introduced. Those who chose -- or are chosen -- for such work exude less comfort and a bit more edgy attitude than people who are normally considered attractive candidates for board slots. The skills these workout folks bring to the table are important, if not essential, for modern corporate boards. You may not want them to be a majority on the board -- but to have none at all is a mistake, especially in the present corporate environment. |
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| Suzanne
Hopgood is president of The Hopgood Group LLC, a workout, turnaround,
and crisis management firm based in Hartford, Conn., http://www.hopgoodgroup.com.
She has served as the CEO of a number of public and private companies
and currently is chairman of Del Global Technologies, an international
manufacturer of medical imaging and power supply equipment. She founded
her workout firm in 1985. She can be contacted at hopgoods@hopgoodgroup.com.
A longer version of her article appeared in the Second Quarter 2005
edition of Directors & Boards. Copyright © 2005 Directors & Boards, P.O. Box 41966 Philadelphia, PA 19101-1966. All rights reserved. Contact the webmaster. < Privacy Notice > |
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