Reversing the Slide: A Strategic Guide to Turnarounds and Corporate Renewal

380 Pages·2011·1.49 MB·English

by  James B. Shein

Reversing the Slide
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Reversing
the Slide
A Strategic Guide to
Turnarounds and
Corporate Renewal
James B. Shein
Copyright © 2011 by John Wiley and Sons. All rights reserved.
Published by Jossey-Bass
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Library of Congress Cataloging-in-Publication Data
Shein, James B., 1942-
Reversing the slide : a strategic guide to turnarounds and corporate renewal / James B. Shein. —
1st ed.
p. cm.
Includes index.
ISBN 978-0-470-93324-4 (hardback), 978-1-118-00845-4 (ebk), 978-1-118-00846-1 (ebk),
978-1-118-00847-8 (ebk)
1. Corporate turnarounds—United States–Management. 2. Corporate turnarounds—
United States—Case studies. 3. Working capital—United States. 4. Strategic planning–
United States. I. Title.
HD58.8.S4798 2011
658.4'06—dc22
2010050247
Printed in the United States of America
fi rst edition
HB Printing 10 9 8 7 6 5 4 3 2 1
Contents
Introduction: Conditions and Causes of Distress ix
Box 1: Typical Covenants Tripped by Downturns xxviii
1 The Phases of Decline and Early Warning Signs 1
Box 2: The Effects of Financial Shenanigans 17
2 The Turnaround Tripod 29
3 Leadership in a Crisis 58
Box 3: Governance and Leadership Issues
in Family-Owned Businesses 80
4 Cash Not GAAP 93
5 Downsizing Is a Tool, Not a Goal 121
Box 4: Other Legal Issues in Announcing Layoffs 130
6 The Bankruptcy Process as Sword and Shield 152
Box 5: State Laws 156
Box 6: DIP Financing 159
Box 7: Committee Formation 162
Box 8: Plan Confi rmation 181
7 Managing International Turnarounds 203
8 Turnarounds at (Intentionally)
Nonprofi t Organizations 231
Box 9: Chapter 9 Bankruptcy 257
9 Turning Duds into Dreams 259
Box 10: Additional Issues in Valuing
Distressed Companies 278
v
vi Contents
Box 11: Fiduciary Duties of Directors in
M&A Transactions 300
10 A Different Fresh Start 306
Notes 313
Acknowledgments 325
About the Author 327
Index 329
Dedicated to my wonderful sons, Justin and Jered, for their
encouragement, their senses of humor, and for teaching me
what’s important in life

Introduction: Conditions
and Causes of Distress
Employees at Rhodes Plastics in Linden, New Jersey, trudged
through another dreary March day. The plant received its raw
materials and supplies at one end of the building, converted them
into sterile packaging for the food and drug industry, and shipped
them out the other end. The offi ce workers were the fi rst to reg-
ister shock and confusion when armed sheriff deputies stormed
in and ordered everyone out of the building.
“ You will take nothing, not even the family pictures on your
desks! ” one offi cer shouted. “ Not until the bank fi gures out who
owns what. ”
While locksmiths arrived to change all the locks, the plant
workers were ordered out and told to leave even their own tools
behind. Unbeknownst to everyone there, the company ’ s top offi -
cers had failed to convince the company ’ s lenders that they could
turn the company around. Unpaid suppliers and customers with
unfi lled orders would soon share in the employees’ shock.
Although your problems may not be as dramatic, chances are,
at some point in your career, you will participate in a turnaround.
No matter how profi table you have made your business, or how
recession - proof you consider your industry, you will fi nd yourself
dealing with a troubled company. Perhaps your own company will
need to reinvent itself to deal with new competitive realities, or
perhaps a valued customer will begin paying you later and later
due to its own internal distress. You may even serve on the board
of a nonprofi t organization that requires its own strategic, opera-
tional, and fi nancial initiatives to remain viable. Whatever the case
may be, you will — with near 100 percent certainty— be party to a
turnaround at some point in your professional career.
ix