It is often said that the best CEO is the one who waits until the last possible moment to make a decision, thus ensuring that they have all available information and can make the best decision for the company based on that information.
But what happens when the CEO or management won't make that decision? What impact does that have on a restructuring?
I have seen restructuring examples where all parties agree that certain parts of the business need to be shut or sold off only to have the decision deferred, often on spurious grounds. Many years ago, I was involved in an acquisition where the sale of one of the businesses was agreed but, once the vendor's CEO had flown out of the country, the remaining management declared that they had no interest in selling the business. Quite a surprise. There was clear conflict between the CEO and his local management team and we had to wait until the CEO returned to finalise the acquisition.
In certain restructurings, you wonder how many losses the business must suffer before management take the necessary closure or downsizing steps. Is it misplaced optimism that trading will somehow miraculously turnaround? Is it a failure to recognise that the fundamentals of the business or the market it operates in have shifted? Is it the likely loss of face on the part of management if they admit failure and close the business? While the business remains open, it is easier to give the impression that it is operating normally although anyone privy to the financials knows the real story.
In some instances, the rationale for continuing to operate the business can be perplexing. I have seem examples where management proposes shutting part of the business but retaining all the employees without reallocating them to other business units. Retaining all employees would not remove the continuing financial burden of these costs on the business. Plans to change their remuneration structure to reduce costs would have constituted termination in some jurisdictions. While it is understandable that terminating long-term employees is a difficult step, retaining them on the payroll is likely to cause further harm to business finances.
Where there is a failure by management to make a decision, the most obvious solution is to escalate the issue to the ownership level. The shareholders can then impose their decision on management or replace management with those who will implement their decision. This becomes more complex if management has a shareholding in the business or, as is often the case in Asia, management are related to one or more of the major shareholders. In such cases, it will be difficult to have management replaced in order for the restructuring to proceed although I have seen examples where the relevant management are promoted out of the way to allow the restructuring to proceed.
If an impasse is encountered, it may only be possible to complete the restructuring up to a particular point with recommendations on further action. Ultimately, it is up to the relevant management and owners to make decisions regarding a restructuring. There is little further to be achieved if, for example, shareholders will not commit the appropriate level of funding for the business or will not agree to the necessary management changes to enable the restructuring to be completed.
PELEN
April 2018
© PELEN 2018
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