By Tony Lane
I was recently contacted by a professional colleague asking me to meet with a director of a company facing some reasonably serious financial problems. The problems themselves were not insurmountable. The issues had been identified at a stage where there was still a range of options able to be deployed. Money was available to satisfy debts (or a goodly portion of them), and there was every possibility of the company recovering its profitability and continuing long into the future.
But there was a problem – there was still a very large elephant in the room (and it wasn’t me!). How had things become so bad?
Financial difficulties are almost always symptomatic of other underlying issues – emotional, mental, family – the list is long. Rarely is it the case that bills go unpaid through a simple decision not to pay. Scratching the surface often identifies contributors, if not the cause. The question constantly demanding the attention at initial conferences is ‘do you scratch and if so, how hard’?
Without the ability to identify, understand and address the drivers of financial difficulty, there is, some suggest, perhaps little to be gained from implementing a rescue package. In the long term, unaddressed underlying causes tend to manifest themselves in similar (read: repeat) symptoms. This is not always the case, but experience dictates it’s better to rely on better management than luck.
Clearly then, the efficacy of any restructuring arrangement (be it formal or informal) rests with addressing the causes of the financial dis-functionality. So much would appear obvious. However, gaining traction with those who direct and manage companies facing the spectre of insolvency can often be difficult – especially if the reluctance is rooted in corporate denial.
Corporate denial – the refusal to acknowledge the existence of the factors driving, in this case, financial distress – is in many cases deep-seated and based in irrationality. Such a position is also rarely overcome with logic. The most thoroughly reasoned rescue package, delivering the best possible outcome, is often rejected because an apparent inability to fathom the issues associated with the restructure. Issues such as shame, a sense of personal failure, isolation and a plethora of others often drive an inability to engage.
So, with those motherhood observations made, how best are these issues addressed? Is it simply fuelling the fire to acquiesce to the wants of the protagonist, rather than convince them to adopt the more financially ‘beneficial’ plan? Simply, no, and to suggest otherwise is hubris. In the writer’s view it is far better to achieve the result and treat the symptoms, than engage in (what may be fruitless) efforts to enforce a commercially pragmatic and financially expedient outcome.
For a corporate rescue to be truly successful, it must be owned by those ultimately responsible for its implementation. If the best outcome that can be comprehended and implemented is paying the debt in full, no matter what the financial risk, then so be it. No doubt the other stakeholders in the transaction would share that view. Once those ‘symptoms’ have been addressed, there may emerge room to explore the causes and thereby carefully and gradually set about a collaborative plan to address them, whilst also mitigating any increased risk the payment has generated.
Critical here is that the plan must be collaboratively designed and implemented. Disassociating the company’s director(s) from trusted advisors and replacing them with others perhaps more diligent, is many instances less beneficial that it might appear, particularly where there is an ability to have those advisors involved in the planning and implementation of business improvement. There is no shortage of those who might claim to be able to ‘do better’ or ‘go further’ than the existing advisors, but absent the traction to demonstrate those credentials, such claims are worthless. The incumbents often understand more than they are given credit for and have perhaps realised, long before the director, that the rot had set in. These players may be key to the resurrection of the struggling entity.
However, as true as it may be to suggest that the repetition of the same practices will yield the same outcomes, it is equally true that trying to force someone to sip from the cup of salvation when they are clearly un(der)prepared is potentially more pointless. There’s many a slip ‘twixt the cup and the lip.
In practice, the best manner in which to engage a corporate denier in financial distress is to reaffirm the benefits of solving the problem in a way that they can financially, emotionally and mentally manage. Appealing to the logical mind when all of the preceding markers are in a heightened state reveals a simple lack of understanding of the complexities associated with everyday life.
We’re not psychologists, in fact far from it, but being able to recognise that the issues cannot simply be resolved with a well-constructed and articulated vision for reconstruction places us in the best possible position to help our clients, and those for whom they advise and act.
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