BUILDING ENDURING GROWTH AFTER BANKRUPTCY
By Jim Taylor
Gordon Bethune, the former CEO of Continental Airlines, speaks for every CEO when he summarized what leaders face after a bankruptcy.
“A bankruptcy judge can fix your balance sheet,” Mr. Bethune said, “but he cannot fix your company.”
He is absolutely right. Bankruptcies don’t happen by chance. No matter what the specific circumstances may be, something along the way was unforeseen on management’s part or, more often than not, was the direct result of leadership decisions.
Yet, rarely are bankruptcies the result of a single mistake alone. A confluence of factors is typically involved which, when combined, can create enough force to bring the organization to a standstill.
Consequently, the path forward must take a multi-faceted approach as well. No one mistake caused the problem, so no one improvement is ever enough to alleviate the situation. The post-bankruptcy management team must drive a strategic transformation that literally impacts every aspect of the business and involves all stakeholders from the top down—from investors to employees, from vendors to suppliers, from customers to relevant third parties.
The ultimate objective is to achieve enduring growth that continues long after the turnaround phase is complete. Achieving profitable growth, however, is far easier said than done. To do so requires a clear vision, a stated mission and agreed-upon values that are adhered to—and believed in—by everyone in the organization.
Opportunity-driven leadership is a powerful approach for turning a bankruptcy situation into long-term growth and success. In fact, it may be the only way to launch a bankrupt company on a path to accelerated growth if the goal is to keep the pre-existing company moving forward, instead of selling to an outside third party.
An opportunity-driven approach has four key components, all of which must work together to eliminate the problems that caused the bankruptcy and to build the framework necessary to fuel ongoing growth and expansion. The specific components are:
All are critical. And all must be a primary focus for the post-bankruptcy leadership team.
Structure Change: The First Priority
The most essential step involves developing an effective leadership team. The most common mistake at this point is to assume that senior management and department heads are the only employees who need to play leadership roles. A culture of leadership involves far more than the senior-most managers; it literally includes everyone in the organization.
As a first priority, it’s important to develop an outside board of directors or advisors. Since some pre-existing advisors and/or board members were responsible for the current situation, a new group of outside advisors sends a very clear signal that the future will be different from the past.
Subsequent changes involve re-organizing the corporate structure as necessary to support the future vision, develop a strategic roadmap and implement the plan. Regular meetings with employees to re-emphasize the new direction, obtain feedback and demand accountability provide the leadership team with a forum for reporting and communicating both metrics and the processes required to achieve them.
Right People, Right Skills
Without the right people in the right job, no business will ever succeed. During the initial turnaround phase, assessing the existing staff and determining whether they are an asset or a liability is mandatory. Skills alone are not enough to determine whether employees will be a fit moving forward. Other factors include their willingness to change; whether they buy into the new vision, mission and values; their ability to communicate, and their capacity to motivate.
Position descriptions are absolutely essential, and must include clear direction, metrics and accountability procedures to ensure employees continue to deliver quality work. Matching people’s skills with the right task and position is a catalyst for allowing employees to excel, as well as to become a strong advocate for driving leadership enterprise-wide.
Money is Always the Bottom Line
A bankrupt company with no need for money is an oxymoron. Money is always of primary importance in a post-bankruptcy scenario, and how it is managed can either fuel growth or exacerbate the previous problems.
Recapitalization of the balance sheet is, of course, obligatory to move forward. Like every other aspect of the post-bankruptcy process, one specific capitalization approach typically isn’t enough.
Vendors and customers, for example, can play a major role in improving cash flow in the short term. Neither vendors nor customers have anything to gain when a company goes out of business. Asking vendors to extend their payment terms and customers to expedite theirs—no matter how minimally—can make a very real impact on cash flow when it is needed the most.
Finding equity partners who buy into your vision, mission and values is, perhaps, the most critical strategy for accelerating growth in the short-term. By demonstrating tight control of operations and a relentless focus on cost effectiveness prior to soliciting investors, the likelihood of attracting the best resources possible is far greater.
Communication is Key
Employees. Customers. Vendors. Suppliers. Stakeholders and a wide range of industry influencers all have a vested interest in the post-bankruptcy cycle. Customers need to know they can continue to expect service, quality, value-added offerings and, in the best of all worlds, exceed expectations beyond what was possible in the past. Communicating thorough newsletters, emails and personal contact allows all parties to keep abreast of the current state.
Employees must also be kept up to date, and because many are likely to fear for their jobs, morale-building tactics when appropriate should become the new norm. Occasional notices, special events, and other ways to recognize outstanding work should become a focal point of the new corporate culture.
The Door to Opportunity
After a bankruptcy, opportunity in and of itself rarely knocks. It’s up to the management team to open the right doors on its own. Looking for opportunities that were overlooked in the past—such as product lines that were previously dropped; services competitors provide that offer the chance to diversify; social media and implementing plans based on structural changes, outstanding people, new capital resources and proactive communications, to name a few—are the keys needed to open the kinds of doors that will lead to a better future. The culture itself must change, and culture starts at the top. So does enduring growth.
Jim Taylor is CEO of Fort Worth-based Falcon Steel Company. He has led several companies through turnarounds and high-growth phases. In 2006, he received the International “Stevie Award” for outstanding CEO in a turnaround, and has also managed public and private companies nationwide.