By Lawrence Gardner, President, Lawrence Gardner Associates

Sometimes the simplest things make the biggest differences. Lawrence Gardner explains why the most successful turnarounds are built on strong leadership and outlines the specific aspects of leadership that must be displayed to replicate such results.

Lawrence Gardner
President
Lawrence Gardner Associates

As an experienced turnaround consultant, I am often asked, “What makes for a successful company turnaround?” We know the all-too-familiar responses, including adequate liquidity, a strong market niche, building excellent vendor relationships, honesty by ownership and management with lenders and employees, a realistic (non-overreaching) strategic plan and clearly defined action steps to implement. But overall, the answer can be boiled down to one key ingredient: strong leadership.

When I reflect back on the many successful turnaround consulting engagements of my career, I can identify certain aspects of effective leadership that were critical in executing for the best outcome and not just securing adequate financing and/or avoiding a bankruptcy filing. Here is a list of the most important ones:

Communicating Clarity, Trust And Honesty At All Times

In turnaround situations, lenders, suppliers and customers have likely been misled to some degree by existing management in an effort to “keep the gears continually spinning.” The reality in these situations is that things are not going well, but those same lenders,suppliers and customers may be willing to work with the company provided they are presented with a well-constructed turnaround plan.

Getting Into the Proverbial Trenches, Especially During Challenging Times

There is nothing more important than getting one’s hands dirty when necessary to understand what is really happening and to identify dynamic, real issues facing a company. Too often, lenders and CEOs concentrate on analytics, normally by utilizing spreadsheets, and do not put nearly enough enough devotion toward determining if the company has enough requisite leadership skills to actually effectuate the turnaround process.

Restoring Accountability and Implementing Recommended Action Steps

Coming into a turnaround situation as a hired consultant with existing management in place is a totally different scenario, implementation-wise, than being a court approved debtor-in-possession or a court appointed receiver or Chapter 11 trustee. Ferreting out the existing qualified and motivated team managers, regardless of titles, is essential at the outset to instill accountability and time frames for executing the turnaround plan and getting employees “on the same page.”

Understanding Accountability Starkly Differs from Blaming The Prior Management Team

It is common for existing senior management/ ownership to be in a total state of denial, causing them to look for scapegoats, such as the company’s lender requiring the retention of a qualified turnaround consultant and execution of a forbearance agreement as a condition to continue lending, or the sales team facing unreasonable demands and unrealistic profit goals. A new CEO must take ownership of implementing the difficult tasks required to reverse a failing company.

Instilling Renewed Team Motivation

Improving damaged morale is critical and must override any previously “Pollyanna”-type attitude that told staff not to worry and that with more sales, everything would be OK. Getting a “buy-in” commitment from the financial staff, CPA and lender for constructing realistic, attainable proforma projections and assumptions is critical. While the owner(s) of a company in turnaround may know the business better, they may not be making good decisions to avoid alienating key partners such as lenders, vendors and CPAs. Getting the support of this group is crucial and may require the patient building of trust among the turnaround consultant, the finance staff and the owners. It is additionally important to get shareholders fully on board with the turnaround plan, which is typically one of the most challenging tasks for a turnaround expert. However, it is crucial because if you do not have 100% buy-in, the process will not be as successful
as it would be otherwise. Lastly, in the event the president or CEO of the company needs to be replaced, it is important to strive to add a responsible, action-oriented management team to support the new leader.

Reaching Consensus and Clarity for Near-Term Strategic Goals

These goals need to be tactically implemented, often under significant time pressure. For example, restoring improved operating cash flow is paramount and often requires transparency with key vendors in order to avoid COD or CIA terms.

Identifying Strengths and Weaknesses of Team Members Early in The Process

This will help ensure accountability and the implementation of difficult action steps. It can also help build passionate commitment so that team members step up to face and conquer unforeseen challenges, leading to a successful turnaround.

Being Intuitive During the Turnaround Process Instead of Totally Dependent on Performance Metrics

Listening and using common sense at the beginning of an engagement until tangible data is available is important. This means you must accurately interpret “signs and signals” in addition to understanding the metrics. It is also important to be willing to adapt or change direction even when recommended action steps are not 100% embraced.

Demonstrating A Capacity to Show Humility

This can often gain credibility and respect with employees, but if overtly challenged, it can slow down required change management within critically short time frames due to serious cash-flow deficiencies.

Clarifying The Company’s Mission and Management’s Vision

The mission or vision you communicate must be for how the company will thrive more than merely survive in the face of a changing international economy, including disciplined initiatives such as preparing for a different market niche or direction. The more exciting and passionate the communicated vision, the more energized employees will be to support it. It is also important to understand the company’s purpose to create the “why” behind the mission and vision.

Leading By Example

Be thoughtful, be consistent with conviction, avoid flip-flopping on decisions and merely “paying lip service” to needed changes. This goes hand-in-hand with getting in the trenches and getting one’s hands dirty. Effective leadership in a turnaround situation requires specific skills, including some that can be learned on the job, as each turnaround depends on a consultant’s ability to adapt and understand a company’s specific industry and its unique ownership/management team. The qualities listed in this article should be brought to the table to help engineer timely and effective turnarounds. •