All Leaders Are Not  Created Equal:  To Save the Company -  Change the Leadership Style

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All Leaders Are Not Created Equal: To Save the Company - Change the Leadership Style         Text  By John M. Collard     Director's Monthly    SECTIONS: Different Needs for Different Companies The Turnaround Specialist The Process Keep Business Moving Contrasting Leadership Styles About the Author Conclusion Article Text    PDF Version

All Leaders Are Not Created Equal:
To Save the Company - Change the Leadership Style

John M. Collard
Chairman
Strategic Management Partners, Inc.
Annapolis, Maryland

Crisis and transition demand change - the first true step toward recovery.
 

DIRECTOR SUMMARY  What makes a good leader in a healthy company? What about a company in crisis? The two styles are different in focus, decision making, authority, and people. Understanding and managing these differences can help directors recruit the right talent to lead a company through good times and bad.

 

In a time of crisis and transition, who can handle the crisis management role within the company? This is a predicament. At such a turning point, clear thinking must prevail and a special set of skills must be applied.

If there is a qualified leader within the company, then delegate the job of turnaround to that person, and provide proper support.  If there is not a qualified leader in the company - and there usually isn't - don't hesitate to go outside the company to locate a professional for this job.  The answer is often found in the form of a turnaround specialist.

Different Needs

This suggests a two-part strategy, an interim executive to manage the transition period, followed by a well-qualified permanent leader to step in when the time comes.

A troubled company is like a patient in critical condition, decisive steps must be taken to make something happen.  The first goal in an absolute crisis is to stabilize and buy time.  After steadying the vital signs, take a reading on where things stand - which is normally still.  Look for changes in ratios and trends to determine what is - or more important - what is not going on in the business.

Let's put the leadership roles into perspective.  Requirements differ between those for healthy, growing companies and those for firms in troubled or transition situations.  Compare the differences in our chart to follow.

• Healthy company.  In the stable or growth scenario, there is time for structured growth and building the organization. In a healthy company, management focuses on long-term objectives, coaching, and team building. A manager in a stable environment should be known among shareholders and employees for consistency in decision-making. With the luxury of time, the occasional mistake generally will not do lasting harm.

• Turnaround situation.  In the initial crisis and subsequent turnaround situation, time is an enemy. The focus is different. In a financially distressed company, the lack of time requires action. As the company's problems compound and cash flow evaporates, it becomes critical for management to act quickly and decisively.  Management must focus on short-term survival.  A manager in a troubled company must be able to shift gears to deal with daily crises that inevitably occur.  Troubled companies have primarily one goal - to survive and get well.  If the symptoms persist with no cure, the patient can die.

Shortcomings

When a company is faced with these types of shortcomings in its internal talent pool, it is time to look to a specialist to orchestrate the change needed to save the company.

The Turnaround Specialist

Be assured there are countless cases where existing management agreed to work with a turnaround consultant only to placate the board.  There is no substitute for qualified leaders with decision-making authority.

When hiring a turnaround specialist:

• check the person's references
• review proposals versus what can realistically be accomplished
• require engagement agreements, and
• hire an individual, not the firm - personal chemistry with the managers is critical.

The Process

• Is the business viable?
• What is the purpose of the business?
• Should it be saved? Why? Are those reasons valid?
• Is there a core business that can be the source for the emerging business?
• Are there sufficient cash resources to fuel the recovery?
• Which existing managers are capable of leading parts of the company?

The fact-finding must proceed as quickly as possible so that a realistic assessment of the current state of the company can be prepared.  The specialist's first priority will be to manage cash flow - to stop the hemorrhage.  Analysis of sales and profit centers, and asset utilization should indicate where the real problems - not the symptoms - are located.  Next, a business plan outlining and suggesting possible courses of action - or cures - will be prepared.

Following this diagnostic stage, the transition can begin towards a turnaround.  Once the course of action is chosen, implementation and monitoring can occur.  The specialist should remain involved at least until the business is stabilized, and preferably until the transformation is complete and a new leader is found.
 

Keep Business Moving

Volume in (revenue/sales).  Look at where and how revenue is generated.  Is it from existing customers and contracts or new business?  Most important, keep it  coming in.

Volume out (throughput/production).  Look at getting the product or service "out the door."  How else can you bill for it?

Authority and Talent

Remember that the good managers may have deserted the ship long ago, leaving behind the second string.  The good leader will know how to exploit the talents of these employees and bring them up to a new level to save the company.

In a troubled situation, the decision-maker must get directly involved.  It is hard to worry about the long-term future when there may not be one.  The leader is pressed closer to the immediacy of the day-to-day operations.  If you want action, request a decision or make one.

In a stable situation there is time to develop talent.  But at a troubled firm, you must exploit the talents of those who can perform and recruit the talent that is lacking.  It means building a permanent management team that can bring the company back to health - and adds value to the company.
 

Communication

What message are you sending?  Remember, what is not said is often more destructive than what is.  Unnatural actions or behavior, such as "closed door meetings," will most certainly set off the rumor mill.  People need to know or they're left to their own imaginations - and that is always worse.

Equally vital, level with people - then get the stay versus go decision.  To address the issues in a forthright manner is no guarantee that you will keep everyone, or that everyone will believe what has been said.  But to not communicate what is going on is a lack of leadership, so don't be surprised when employees don't do what you want them to.
 

Financial Support

If the leaders who were in power while the company's position was allowed to deteriorate are still there, why should the lender believe that they would now be instrumental in correcting the situation?

To make matters worse, in the eyes of management, the lender can be viewed as an enemy instead of a key part of the turnaround equation.  With all the suspicion that can surround a troubled company, it is important that trust be re-established with the bank.  Credibility with lenders is mandatory to success - and to keeping that cash flow at the bank.  Since the bank holds the trump card, the institution must feel comfortable working with the turnaround leader.  It means laying everything out on the table to keep the situation honest - and honoring commitments made to the lender.
 

Conclusion

The ability to deal with change at a rapid pace is essential.  This is why a seasoned practitioner can be the answer to a successful turnaround plan, they've "been there, done that."  The existing leadership is often "out of its element" as it enters this untrodden ground of trouble.  And when people haven't had to manage in this environment before, the odds are that they will at the very least, have a difficult time.

Turnaround leaders didn't start out as such - they were often managers that worked their way up the corporate ladder through hard work and (hopefully] fair play to build a solid management reputation.  They have also developed a set of skills to handle problem solving, getting results with minimal resources, (tight) cash flow management, and negotiating and dealing with bankers, investors, and creditors.  The stakeholders will usually work with a turnaround leader - if he or she is credible.

The turnaround specialist must possess the skills to deal with a financially troubled company and have the ability to make the tough decisions needed during a recovery. Specialists are hired for their management ability - the ability to bring order out of chaos, marshal resources, and maximize value from those diverse resources.  If the company requires special expertise, then the specialist will attract that expertise.  Remember, experience in dealing with crises and change may be more important than industry experience.
 
 

Finally, a good turnaround specialist will develop a permanent management team within the company to preserve value, instead of hiring a large team of outsiders who, when they leave, take that value with them.  The specialist should work themselves out of a job to be most effective, while leaving the company with the ability to grow and prosper as a stand-alone going concern.
 

Reprinted with permission. Director's Monthly, National Association of Corporate Directors, 1999. Copyright 1999, Strategic Management Partners, Inc. 410-263-9100

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