Turnarounds and The Turnaround Management Association

April 2, 2009

In my January 20th post, “Distressed Investing Conference #1,”  I wrote, “…the Turnaround Management Association today might more appropriately be called the ‘Restructuring Management Association’ because so much of the educational content focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies.”

In the most recent issue of The Journal of Corporate Renewal, in an article, “We are on a dangerous course,” David C. Finkbiner, CTP raised exactly the same issue AND pointed out the ethical conflicts inherent in situations in which “turnaround” experts get a piece of the action for selling companies.

In describing recent Turnaround Management Association panels, he said, among other things,

  1. For most companies, Chapter 11 is not the best solution.
  2. Few turnaround professionals are actually doing turnarounds because too many structure their fee arrangements to provide higher compensation for selling a company than for turning it around.
  3. As a result, many companies that could have been turned around have been sold for less than the value would have been realized had a turnaround occurred.

In response to my email to David saying that I wholeheartedly agreed with his article,  he wrote that he had been hearing from “real turnaround people” all over the country–people who actually do TURNAROUNDS–who feel the same way.

I encourage you to read his thoughtful article.

4 Responses to “Turnarounds and The Turnaround Management Association”

  1. April 12, 2009

    Your comment “…focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies” is quite interesting. It seems that we have a President with his Turnaround Advisors who most hardily agree with you. While it took them many years to get in their current situation, Chrysler has 30 days, GM about 60 days to avoid Chapter 11. Encourage selling off asets (to Fiat). Break-up the product lines and either liquidate or sell off the pieces. No point in really fixing them….

  2. April 18, 2009

    Transactions vs. fix them – you are dead right in one case in the recent news. Witness Carl Icahn taking a big position in MGM Mirage with the goal of forcing a restructured bankruptcy. Equity investors, Kerkorian et al and employees (50,000) will end up with little or nothing. Sadly, Icahn is not really an investor. He simply likes to jump in and force a change that makes him a short term gain, usually to the detriment and/or a distraction, of management who might be attempting to make necessary changes needed for the company’s survival or improved growth.
    Polaroid’s demise presents another side. In a typical bankruptcy auction, Lynn / Tilton ( Patriarch Partners) has the high bid, but the winner, selected by the creditors, who will keep 25% of the business, choose HIlco and Gordon brothers, because they have a better track record of regenerating value in the brand.

  3. April 18, 2009

    I would add to your emphasis on “Customer Satisfaction” by pointing out that many companies, such as United Airlines, that try to make customer service part of their value add, miss a critical factor. Unhappy employees will never provide consistent customer satisfaction. Interesting that SWA can pay a lower wage, work their employees harder,yet keep them happy. What is the result? More satisfied customers and more profits.
    How do they do it? They are part of the team, their ideas are listened to, they are encouraged to have fun. In short they are energized to make SWA the best in the business.

  4. May 12, 2009

    Renee makes very good points re turnaround vs. liquidating, and also that chapter 11s are not the way to go. Don’t forget, however, about the state court remedy of receiverships in the right situation. They are usually less expensive than 11s, lower visibility, and a receivership can help enhance value if selling the company as a going concern.

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