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Turnaround
Specialists: How They Help The Attorney What Is a Turnaround Specialist? During the past few years attorneys may have encountered the term "Turnaround Specialist" or "Crisis Manager". As these Specialists work mainly with underperforming and/or troubled companies, it is important for the legal community to understand who the Specialist is, what they do and how to work with them. The Specialist has become a critical addition to the team seeking to guide a business through a crisis and back on the road to profitability. This team usually consists of company management, counsel, the independent accountant and the Specialist. An understanding of the Specialists’ role is particularly important to general corporate counsel as the Specialist can be most useful when brought into a problem situation before it is too late. What is a Turnaround Specialist?: The Turnaround Specialist is first and foremost a businessperson experienced in managing troubled companies in various stages of distress. His/her experience usually covers many different industries. He or she handles the business issues as opposed to the legal problems of the company. Most Turnaround/Crisis Managers work with smaller, private or public companies out of the glare of publicity. Turnaround Specialists generally fall into two broad categories: Crisis Managers and Turnaround Managers. The Crisis Manager concentrates on stabilizing a critical situation that is threatening the immediate survival of a business (such as negative cash flow or a calling of the loan by the bank). Simultaneously, he will perform a business viability analysis and begin to prepare either a Recovery or Orderly Liquidation Plan. The Turnaround Manager, on the other hand, will generally assume the role of CEO, CFO or GM for a period of time and guide the company through the recovery and growth process. Many Specialists function in either or both capacities. In either case, they perform their tasks in one of two modes: Interim Manager or Consultant. The Interim Manager will have direct authority and will take the reins of all or a portion of the troubled business. Turnaround Consultants do not take operating roles but instead advise management. Although most Specialists offer their services in both modes, they tend to concentrate in one or the other. What the Specialist brings to the Table: Restoring Credibility: The management of a troubled business has often lost much of their credibility with lenders, suppliers, employees, customers, professionals, non active shareholders and the community at large. Retaining a Turnaround Specialist is often the first sign to these constituencies that the company is taking positive steps toward both a recovery and rebuilding damaged relationships Leadership and Motivation: Where the Turnaround Specialist differs from most other business consultants is that they have managed businesses amidst the chaos, stress and uncertainties of a crisis or turnaround; some are entrepreneurs and survivors of their own troubled businesses. Unlike general business consultants, the Turnaround Specialist is more direct in her approach and decisive in her recommendations and actions: She tells it like it is. Negotiator and Leader: The Specialist is experienced in negotiating with lenders and trade suppliers in the midst of a crisis, thus is very useful in assisting counsel in these tasks. Additionally, he is an experienced leader. Functioning as both coach and quarterback, he works with sales, production, finance, etc. in setting and implementing goals and priorities that keep everyone (including the creditors and the professionals) on the same track. Nothing can be more dysfunctional in a crisis situation than having everyone off in their own direction with their own agenda. The Specialist brings his leadership skills, personal integrity, credibility and track record to the table where current management has usually lost these attributes. Functioning as The "Nerve Center." Word of trouble travels quickly, and the telephone has a tendency to ring often from concerned outsiders. In most cases the company staff is not ready to deal with the environment that trouble brings. The Specialist is the best equipped to serve as the business' temporary nerve center. Knowledge of Sources of Financing. The established Specialist usually has a network of debt and equity sources familiar with financing of troubled businesses and can use his credibility with these sources to assist in securing any necessary financing. How the Turnaround Specialist operates: The Specialist must assess the business and face a series of questions that existing management has probably never asked itself: What is the purpose of the business; should it be saved; if so, why; are these reasons truly valid in the light of all circumstances? (It should be emphasized here that in 99 cases out of 100, the problem is not merely lack of money!) The Specialist must gather information, evaluate it for accuracy, and analyze it quickly so that those initial questions can be addressed openly and honestly. That process focuses upon the following issues: Is the business viable; is there a core business which can be saved and be the source for emerging from the crisis; is there a proper product/market matching; are there sufficient sources of cash to fuel the recovery; is existing management capable of leading the company? If the answers to these questions are "No", then the task could become one of a plan for orderly liquidation whose objective might be a fair settlement with the creditors while preserving as much of the personal assets of the owners as possible. The Recovery Process: What kind of plan is needed to reverse the losses, return to profitability and maximize the value of the business for the benefit of the client? After the fact-finding and analysis stages described above have been completed, the Specialist, working with all levels of management and counsel, leads the management team in the preparation of a comprehensive, detailed Recovery Plan. The Plan identifies and analyzes alternative courses of action and backs up its conclusions with detailed discussions and quantification of the company's strengths and weaknesses and describes and quantifies how each element of the business (manufacturing, marketing, customer service, finance, etc.) must interface. During this process, the Specialist can serve as liaison or intermediary with the outside constituencies and present bad news as a preamble to a Plan of Recovery. The Turnaround Specialist employs her own credibility and becomes an advocate of the Plan. How can you recognize when your client should speak with a Turnaround Specialist? The "Business" and The "Trouble." Perhaps the most difficult problem with a business in distress is that it involves two processes: the business and the trouble. Managing the abnormalities of distress is not only time consuming but also requires special skills. This is where the Turnaround Specialist brings his knowledge and unique experiences to the process. Inability of management to make decisions: Many managers, and even long time owners of businesses, tend to "freeze up" in a crisis. Though they may have been running the business for years, through prosperity and downturns, when a business threatening crisis confronts them, they are often unable to prioritize and make decisions; at times, a decision made last week is reversed this week. A Consultant or an Interim Manager? Many troubled businesses have a tendency to lean toward a consultant initially, unwilling to turn over the operations to a newcomer. Though existing management's initial assessment may be correct, the troubled business must be willing to accept that an Interim Manager may be just what the doctor ordered and what the patient needs to survive. Industry Expert or Generalist? Another issue in selecting a Specialist is whether to opt for an "expert" in the whole or a part of the business or a generalist. In many instances the last thing a troubled business needs is another industry expert. Often, there is sufficient knowledge within the company to provide that input. The generalist who has managed many businesses, especially those in crisis, brings this special expertise to the table. It is often this very expertise that is lacking in the company. However, the competent Specialist will recognize when expertise beyond his experience and training is necessary. Naturally, each case would be decided on its merits. In the case of a company in Chapter 11, engaging a Turnaround Specialist should be considered by any of the interested parties (Debtor, Secured or General Creditor, Stockholder, etc.). Engaging the Specialist should also be contemplated as an alternative to a court appointed Trustee. Since there are currently no special academic or state licensing requirements for a "Crisis Manager" or "Turnaround Manager", the selection process should involve in depth interviews and reference checking. Unfortunately, in today’s economic environment there are a number of people who are in between jobs and holding themselves out as Turnaround Specialists. This article should provide you with some insights as to what to look for in a Specialist. You should interview a number of candidates and check references where possible. How does counsel interface with the Specialist? What is often frustrating to counsel in these situations is the lack of timely and credible information. In addition, these situations have a tendency to deteriorate rapidly and/or take unexpected turns. Most frustrating, decisions tend not to be made. The Specialist is a businessperson dealing with the problems of the business. Once in place, the client is stabilized, everyone is on the same track and a clear, reliable picture of the situation emerges. Continuous and reliable data flows to counsel thereby enhancing the ability to negotiate and/or litigate the legal issues. In Summary: A Turnaround Specialist is a businessperson uniquely experienced in dealing with the business related problems of a company in distress. The distress can take the form of continuous losses over a period of time or a business threatening crisis. Where existing management may have lost its credibility with lenders, vendors, employees, etc., the Specialist brings his own credibility to the table thus restoring confidence in the ability of the company to recover. Where management may have lost its flexibility, the Specialist restores it. The Turnaround Specialist will stabilize a chaotic situation, assess the viability of a business and develop and implement a recovery plan. In a crisis, decisions tend not to be made; the functional departments of the company (i.e. production, sales, etc.) may be off on different tracks. The Specialist provides the leadership in setting and implementing goals and priorities to get everyone working in the same direction. The ability of counsel to function in
this environment is significantly enhanced with a Specialist in place. Counsel usually
recognizes problems before the management and should provide his distressed client with
the opportunity to speak with one or more Turnaround Specialists sooner rather than later. Contact Us / Experience / Services to Attorneys / First Page |