Description
In this detailed explanation regarding chief restructuring officer in a turnaround process.
TMA Romania Charter Launching Seminar
14 March 2012
Gary Sutton “The six-month fix”
The Chief Restructuring Officer is not expected to be the
nice guy…
“If you’re the CEO of a struggling business, let’s hope we never
meet. I’m a turnaround guy. When I arrive, you leave, and profits
return…
…You’re probably smarter than me, undoubtedly know your
industry better, and may be a superior leader. But I’ve fixed more
businesses. I don’t cling to unrealistic hopes or hesitate to change
things…getting results before those nasty creditors padlock your
doors.”
? I. Who Requires the Services of a
CRO
? Entry Trigger
? Symptoms
? II. What is the Role of a CRO?
? III. When and Why is a CRO
Needed?
? IV. CRO Scope of Work
? V. Selecting a CRO
? VI. Practical Aspects
? VII The Model We are Developing in
Romania
• Stakeholders (Lenders or Investors)
• Distressed Companies (less likely to initiate the request)
Since companies are generally reluctant to hire a CRO, the appointment will often be made as per the instruction
of stakeholders.
Such assignments can be tricky: For instance, if the CRO’s mission is to strengthen the existing management
team the outcome will most likely turn out to be positive, despite a potentially difficult initial rapport. If,
however, the CRO’s arrival implies board and senior management changes, internal acceptance (within the
Company) may prove challenging.
Entry
Triggers
Lack of
Liquidity
Black
holes/forensic
issues
Concerns over
management
abilities Going
Concern
Issue
Refinancing
Problems
•Symptoms ? Great strategy – no real turnaround plan.
? Long term vision, short term problems.
? Holding out for profit, running out of cash.
? Weak operating cash flow
? Failure to address key stakeholder concerns
? Overly optimistic recovery plans.
A Chief Restructuring Officer may be defined as...
? ...a Board level executive responsible for developing and carrying out a turnaround strategy,
usually working alongside other Board members who continue to manage day?to?day
operations.
OR, more simply...
? ...an Executive who can bring additional skills essential to helping an ailing business to
safety.
“The most important weapon at the CRO’s disposal is the ability to communicate exactly what has
gone wrong with a given company and win a consensus on what can be done to put it right.”
•Winning board support may be a big hurdle, but the
immediate prize for the other directors is that they are free
to get on with the nuts and bolts of running the company,
such as winning clients, negotiating with suppliers, and
talking to investors, while the CRO
takes charge of the corporate recovery plan.
? In a situation of distress the Management most probably lacks the trust
of stakeholders and some necessary skills to run the business.
? A restructuring process requires special restructuring skills.
In a crisis, the current Board may not have the right skills and resources to develop and
implement the recovery plan that will carry the company out of trouble and run the business
at the same time. They also probably lack some of the necessary skills for a proper day?to?
day management of the business.
Also, the existing management may not have the support and confidence of stakeholders.
It’s unlikely that the administration board has the time to turn the company around. And
whilst consultants and advisers can help the management define a strategy, with managers
pre?occupied with day?to?day operations, there is often a big gap between coming up with
ideas and implementing them.
More often than not, a financial crisis overlaps with the risk of insolvency and finds
stakeholders requiring additional information and imposing additional constraints as a
prerequisite to a restructuring of existing debt or for providing new funds, or funds to fight
the effects of the crisis. Additionally, they seek comfort in knowing that the restructuring
plan agreed is executed as planned, overseen by somebody of trust, and that changes are
triggered when required; such activities cannot be properly fulfilled by the existing board
that normally lacks such skills and experience.
? Out of Court Situation
Restoring confidence among
company’s stakeholders
• The stakeholder?
management connection is
an all too overlooked aspect
of running a successful
business. In times of
downturn, stakeholders
naturally begin to press for
results and, without the
certainty that their
investment is properly
managed, breakdowns in
confidence can jeopardize
an otherwise good
business. The services of a
CRO can help alleviate
stakeholder mistrust of
their management.
Objective view over the
company’s situation
• It is not far?fetched to
surmise that
management, especially
one that has been with a
company for years, tends
to be biased towards
overemphasizing a
company’s good aspects
and leaving aside the
company’s bad aspects.
Under the steering of an
outside independent
professional, however,
such concerns can be put
to rest.
Willingness/ability to
implement difficult
restructuring decisions
• Again, incumbent
managers often have a
hard time seeing, or
wanting to see, the
improvements that can
be made in the way the
company is ran. In a way,
acknowledging that there
are improvements to be
made is like admitting to
their own
mismanagement of the
business. An outsider,
such as an independent
CRO, can not only spot
what needs adjusting,
but also perform the
adjustments.
Professional
independent
management
• In court situations is
a very difficult period
for any business. It is
therefore imperative
to give your business
the best chance of
success by choosing
a competent and
qualified individual
to steer the business
through.
More realistic
reorganization plans
hence easier to be
voted
• As stated before,
incumbent
management tends
to provide overly
optimistic forecasts.
In most cases, such
forecasts have little
credibility, which
increases the
chances that the
reorganization plan
gets voted down and
that the creditors
proceed to
dismantling the
company.
Focus on the solution
maximizing the results
for all stakeholders
• An independent and
competent
professional is the
best option to ensure
uniform treatment
and optimal
solutions to all of the
stakeholders.
Objectivity increases
the chances that
stakeholders rally
behind a
reorganization plan
and that the court
outcome is positive.
Increased probability
for obtaining
additional financial
support
•A feasible and realistic
plan to put the
company back on
track is the only fail?
safe way to bring
creditor approval and
increase the chances
that the cash?strapped
business gets a breath
of fresh air by means
of financial support;
after all no
stakeholder wants to
sell a company in bits
if there is a realistic
chance to get the
business going again.
? In Court Situation
? Challenges Ahead
Limited resources locally
available (for now)
• As with any new
endeavor that is yet to
become established the
challenge is to locate or
develop those resources
that can get it going and
maximize its potential.
In our case, of course,
the main resource is the
human capital, or those
individuals that are
talented and qualified
enough to be successful
at turning a business
around.
Lack of track record of
such practice on the local
market
• The adage “people fear
what they do not
understand” applies
here as well. Without a
clear understanding and
examples of successful
turnarounds, the
majority of local
businesses will, for now,
steer clear of handing
over the business to an
outsider, no matter how
well qualified.
Entrepreneurial stage of
the local market
• The local market is still
at a stage where most
business owners are too
keen on preserving their
status as managers of
the business. Most will
not permit third party
interference in their
business, despite the
fact that it may be the
only way to salvage it.
However, we expect this
to change as the local
business environment
develops.
? Some of the main issues to be addressed by a CRO
Filling critical
leadership
positions
Fallback
planning
Starting and
speeding up
the
turnaround
process
Motivating
employees
Managing
communications
with the Board,
management
and lenders
Helping
ensure a
timely flow
of
information
and analysis
Creating and
implementing
a practical plan
for
restructuring
the business
In addition, Restructuring teams
(comprised of consultants and the CRO)
may perform other activities like:
•Facilitating refinancing agreements;
•Assessing market opportunities and
strategic options;
•Valuing and managing disposals;
•Assessing organizational structures and
evaluating management capabilities;
•Identifying and implementing
operational improvements;
•Ensuring tax effectiveness.
? A Chief Restructuring Officer should do even more...
...like dealing with the pressing issues facing the
organization and making tough decisions in order to help
stabilise the business, manage solvency issues and
improve stability from day one.
They should work closely with the various stakeholders in
the business – management, shareholders, lenders,
employees and regulators – and will help bring an
objective approach to the situation. This will help support
decision making that balances the needs of different
stakeholders, whilst focusing on restoring the value of the
business.
CROs have the special skills to step confidently into a
variety of key positions focusing primarily on recovery,
allowing the existing management team to concentrate
on running the business.
• Specialist or Generalist?
• Individual, Team or Combination of the two?
Do they have a sufficiently strong track record in
corporate restructuring/ crisis management?
Do they understand your industry and the local
and national business environment?
Will they have the personal authority, leadership
qualities and the support to turn the company
around and regain confidence of stakeholders?
? What about when you fail to identify the right individual
quickly?
? …if you do, the chances to successfully restructure the business will decrease rapidly,
while the likelihood that your next best opportunity is less than optimal will increase.
Commitment
Quickly
Identify
To turn a company around you need committed individuals who have
acted as decision makers at the highest levels of management and have
the experience of taking firms through periods of crisis. Pressure to
change management can often be avoided by bringing in a supplementary
crisis team for a short period.
Teams performing CRO role
When a team works with clients on restructuring a business,
such as when a Restructuring Advisory provides these services,
some members of that team have skills and experience specific
to given sectors, while others have skills and experience well
suited for a successful turnaround/restructuring.
• Appoint CRO in the Board of Directors or maintain a more advisory role?
• What skills and appointment conditions are vital to the CRO selection
process?
Some skills and appointment conditions…
Very much situation?
dependent.
(i.e. are some management
competencies missing? Is
the stakeholder’s
management one of the
biggest challenges? Is the
strategic realignment and
business model redesign
core for success?)
Readily available for the
job in a reasonably short
time frame.
(as stated before, in times
of economic/business
model downturn, time is of
the essence!)
Turnaround capabilities
and experience.
(it goes without saying that
leading an engagement in
such a sensitive yet crucial
endeavor requires not only
special abilities but also the
benefit of previous similar
ventures)
? TMA will serve as a platform where like?minded,
business?driven, talented and qualified individuals can
implement and expand the concept of turnaround
management in Romania.
? TMA is uniquely placed to support CRO activities:
? Global resources and networking;
? International recognition;
? Wealth of advisory skills and expertise;
? Ability to network with independents
? Competence to bring together teams of qualified
executives under CRO engagements;
? Executive restructuring capacity;
? Most of all, we believe that TMA has the potential to
instill an entirely new mindset in Romania, whereby local
entrepreneurs, the cornerstone of a prosperous economy,
can benefit from the expertise of gifted professionals and
give their businesses the best chance to thrive.
•How TMA aims to benefit the local business environment
Presentation by
Speranta Munteanu, Partner, KPMG Romania
doc_792085434.pdf
In this detailed explanation regarding chief restructuring officer in a turnaround process.
TMA Romania Charter Launching Seminar
14 March 2012
Gary Sutton “The six-month fix”
The Chief Restructuring Officer is not expected to be the
nice guy…
“If you’re the CEO of a struggling business, let’s hope we never
meet. I’m a turnaround guy. When I arrive, you leave, and profits
return…
…You’re probably smarter than me, undoubtedly know your
industry better, and may be a superior leader. But I’ve fixed more
businesses. I don’t cling to unrealistic hopes or hesitate to change
things…getting results before those nasty creditors padlock your
doors.”
? I. Who Requires the Services of a
CRO
? Entry Trigger
? Symptoms
? II. What is the Role of a CRO?
? III. When and Why is a CRO
Needed?
? IV. CRO Scope of Work
? V. Selecting a CRO
? VI. Practical Aspects
? VII The Model We are Developing in
Romania
• Stakeholders (Lenders or Investors)
• Distressed Companies (less likely to initiate the request)
Since companies are generally reluctant to hire a CRO, the appointment will often be made as per the instruction
of stakeholders.
Such assignments can be tricky: For instance, if the CRO’s mission is to strengthen the existing management
team the outcome will most likely turn out to be positive, despite a potentially difficult initial rapport. If,
however, the CRO’s arrival implies board and senior management changes, internal acceptance (within the
Company) may prove challenging.
Entry
Triggers
Lack of
Liquidity
Black
holes/forensic
issues
Concerns over
management
abilities Going
Concern
Issue
Refinancing
Problems
•Symptoms ? Great strategy – no real turnaround plan.
? Long term vision, short term problems.
? Holding out for profit, running out of cash.
? Weak operating cash flow
? Failure to address key stakeholder concerns
? Overly optimistic recovery plans.
A Chief Restructuring Officer may be defined as...
? ...a Board level executive responsible for developing and carrying out a turnaround strategy,
usually working alongside other Board members who continue to manage day?to?day
operations.
OR, more simply...
? ...an Executive who can bring additional skills essential to helping an ailing business to
safety.
“The most important weapon at the CRO’s disposal is the ability to communicate exactly what has
gone wrong with a given company and win a consensus on what can be done to put it right.”
•Winning board support may be a big hurdle, but the
immediate prize for the other directors is that they are free
to get on with the nuts and bolts of running the company,
such as winning clients, negotiating with suppliers, and
talking to investors, while the CRO
takes charge of the corporate recovery plan.
? In a situation of distress the Management most probably lacks the trust
of stakeholders and some necessary skills to run the business.
? A restructuring process requires special restructuring skills.
In a crisis, the current Board may not have the right skills and resources to develop and
implement the recovery plan that will carry the company out of trouble and run the business
at the same time. They also probably lack some of the necessary skills for a proper day?to?
day management of the business.
Also, the existing management may not have the support and confidence of stakeholders.
It’s unlikely that the administration board has the time to turn the company around. And
whilst consultants and advisers can help the management define a strategy, with managers
pre?occupied with day?to?day operations, there is often a big gap between coming up with
ideas and implementing them.
More often than not, a financial crisis overlaps with the risk of insolvency and finds
stakeholders requiring additional information and imposing additional constraints as a
prerequisite to a restructuring of existing debt or for providing new funds, or funds to fight
the effects of the crisis. Additionally, they seek comfort in knowing that the restructuring
plan agreed is executed as planned, overseen by somebody of trust, and that changes are
triggered when required; such activities cannot be properly fulfilled by the existing board
that normally lacks such skills and experience.
? Out of Court Situation
Restoring confidence among
company’s stakeholders
• The stakeholder?
management connection is
an all too overlooked aspect
of running a successful
business. In times of
downturn, stakeholders
naturally begin to press for
results and, without the
certainty that their
investment is properly
managed, breakdowns in
confidence can jeopardize
an otherwise good
business. The services of a
CRO can help alleviate
stakeholder mistrust of
their management.
Objective view over the
company’s situation
• It is not far?fetched to
surmise that
management, especially
one that has been with a
company for years, tends
to be biased towards
overemphasizing a
company’s good aspects
and leaving aside the
company’s bad aspects.
Under the steering of an
outside independent
professional, however,
such concerns can be put
to rest.
Willingness/ability to
implement difficult
restructuring decisions
• Again, incumbent
managers often have a
hard time seeing, or
wanting to see, the
improvements that can
be made in the way the
company is ran. In a way,
acknowledging that there
are improvements to be
made is like admitting to
their own
mismanagement of the
business. An outsider,
such as an independent
CRO, can not only spot
what needs adjusting,
but also perform the
adjustments.
Professional
independent
management
• In court situations is
a very difficult period
for any business. It is
therefore imperative
to give your business
the best chance of
success by choosing
a competent and
qualified individual
to steer the business
through.
More realistic
reorganization plans
hence easier to be
voted
• As stated before,
incumbent
management tends
to provide overly
optimistic forecasts.
In most cases, such
forecasts have little
credibility, which
increases the
chances that the
reorganization plan
gets voted down and
that the creditors
proceed to
dismantling the
company.
Focus on the solution
maximizing the results
for all stakeholders
• An independent and
competent
professional is the
best option to ensure
uniform treatment
and optimal
solutions to all of the
stakeholders.
Objectivity increases
the chances that
stakeholders rally
behind a
reorganization plan
and that the court
outcome is positive.
Increased probability
for obtaining
additional financial
support
•A feasible and realistic
plan to put the
company back on
track is the only fail?
safe way to bring
creditor approval and
increase the chances
that the cash?strapped
business gets a breath
of fresh air by means
of financial support;
after all no
stakeholder wants to
sell a company in bits
if there is a realistic
chance to get the
business going again.
? In Court Situation
? Challenges Ahead
Limited resources locally
available (for now)
• As with any new
endeavor that is yet to
become established the
challenge is to locate or
develop those resources
that can get it going and
maximize its potential.
In our case, of course,
the main resource is the
human capital, or those
individuals that are
talented and qualified
enough to be successful
at turning a business
around.
Lack of track record of
such practice on the local
market
• The adage “people fear
what they do not
understand” applies
here as well. Without a
clear understanding and
examples of successful
turnarounds, the
majority of local
businesses will, for now,
steer clear of handing
over the business to an
outsider, no matter how
well qualified.
Entrepreneurial stage of
the local market
• The local market is still
at a stage where most
business owners are too
keen on preserving their
status as managers of
the business. Most will
not permit third party
interference in their
business, despite the
fact that it may be the
only way to salvage it.
However, we expect this
to change as the local
business environment
develops.
? Some of the main issues to be addressed by a CRO
Filling critical
leadership
positions
Fallback
planning
Starting and
speeding up
the
turnaround
process
Motivating
employees
Managing
communications
with the Board,
management
and lenders
Helping
ensure a
timely flow
of
information
and analysis
Creating and
implementing
a practical plan
for
restructuring
the business
In addition, Restructuring teams
(comprised of consultants and the CRO)
may perform other activities like:
•Facilitating refinancing agreements;
•Assessing market opportunities and
strategic options;
•Valuing and managing disposals;
•Assessing organizational structures and
evaluating management capabilities;
•Identifying and implementing
operational improvements;
•Ensuring tax effectiveness.
? A Chief Restructuring Officer should do even more...
...like dealing with the pressing issues facing the
organization and making tough decisions in order to help
stabilise the business, manage solvency issues and
improve stability from day one.
They should work closely with the various stakeholders in
the business – management, shareholders, lenders,
employees and regulators – and will help bring an
objective approach to the situation. This will help support
decision making that balances the needs of different
stakeholders, whilst focusing on restoring the value of the
business.
CROs have the special skills to step confidently into a
variety of key positions focusing primarily on recovery,
allowing the existing management team to concentrate
on running the business.
• Specialist or Generalist?
• Individual, Team or Combination of the two?
Do they have a sufficiently strong track record in
corporate restructuring/ crisis management?
Do they understand your industry and the local
and national business environment?
Will they have the personal authority, leadership
qualities and the support to turn the company
around and regain confidence of stakeholders?
? What about when you fail to identify the right individual
quickly?
? …if you do, the chances to successfully restructure the business will decrease rapidly,
while the likelihood that your next best opportunity is less than optimal will increase.
Commitment
Quickly
Identify
To turn a company around you need committed individuals who have
acted as decision makers at the highest levels of management and have
the experience of taking firms through periods of crisis. Pressure to
change management can often be avoided by bringing in a supplementary
crisis team for a short period.
Teams performing CRO role
When a team works with clients on restructuring a business,
such as when a Restructuring Advisory provides these services,
some members of that team have skills and experience specific
to given sectors, while others have skills and experience well
suited for a successful turnaround/restructuring.
• Appoint CRO in the Board of Directors or maintain a more advisory role?
• What skills and appointment conditions are vital to the CRO selection
process?
Some skills and appointment conditions…
Very much situation?
dependent.
(i.e. are some management
competencies missing? Is
the stakeholder’s
management one of the
biggest challenges? Is the
strategic realignment and
business model redesign
core for success?)
Readily available for the
job in a reasonably short
time frame.
(as stated before, in times
of economic/business
model downturn, time is of
the essence!)
Turnaround capabilities
and experience.
(it goes without saying that
leading an engagement in
such a sensitive yet crucial
endeavor requires not only
special abilities but also the
benefit of previous similar
ventures)
? TMA will serve as a platform where like?minded,
business?driven, talented and qualified individuals can
implement and expand the concept of turnaround
management in Romania.
? TMA is uniquely placed to support CRO activities:
? Global resources and networking;
? International recognition;
? Wealth of advisory skills and expertise;
? Ability to network with independents
? Competence to bring together teams of qualified
executives under CRO engagements;
? Executive restructuring capacity;
? Most of all, we believe that TMA has the potential to
instill an entirely new mindset in Romania, whereby local
entrepreneurs, the cornerstone of a prosperous economy,
can benefit from the expertise of gifted professionals and
give their businesses the best chance to thrive.
•How TMA aims to benefit the local business environment
Presentation by
Speranta Munteanu, Partner, KPMG Romania
doc_792085434.pdf