Avoiding the Seven Deadly Sins of Turnaround Managers

By Miles R. Stover, President, Turnaround, Inc.

Turnarounds often fail for the "right reasons." There may be no existing core business, and the company does not deserve to be saved. Although no one enjoys seeing good people thrown out of their jobs, these cases leave little room for second-guessing. More troubling are the situations in which good people lose their jobs because a turnaround manager veers from the fundamentals and commits one or more of these seven deadly sins.

1. Taking charge slowly. The turnaround professional should not start off gently by holding meetings, visiting scores of locations and making plant tours, conferring and discussing the situation with too many people, reading reams of memos, or appointing numerous task forces.

A newly hired turnaround manager must take charge immediately. The turnaround manager was called in – probably later than he or she should have been – to clean up an ugly situation. Every hour, day or week that conditions are allowed to fester, the situation deteriorates.

2. Neglecting to act decisively and immediately. Many measures that must be taken are obvious. If there is a large dead animal on the front lawn, one doesn’t need to hire a consultant to analyze how and why the carcass got there. The same is true for an obviously dead division of a company. There’s no need to hire a consultant to find out why the division got to that point. The troops know about the obvious problems and are just waiting for someone to give the order. It’s up to the turnaround manager to do that.

It is a good idea to set up some initial guidelines for decisions that can be made on the different levels in the organization and let managers move on them right away. While a turnaround manager shouldn’t give them too much leeway – it can be helpful to give the managers some guidelines and have them report what they did to the turnaround manager after 5 p.m. every day.

This gives them a chance to show the turnaround professional how they think and how they become emotionally and physically involved in the turnaround effort. It also allows the turnaround manager to develop relationships with those who will do 99 percent of what must be done.

3. Not cutting deeply enough the first time. One 20 percent cut is better than four 5 percent cuts. Employees are better off knowing who made the A Team sooner rather than later. Some – the author included – even say that it is better to cut a little too deep and rebuild later if necessary.

The little-at-a-time technique might make a turnaround manager feel better, but that isn’t the purpose of the engagement. By moving too slowly, the company is likely to lose some employees that it would prefer to have on it’s A Team.

A turnaround manager who is having a hard time determining which employees should stay and which should go should try this procedure as a starting point. Senior managers should write at the top of a piece of paper the top 10 or 20 things that must be done every month in their departments. On the left side of the page they should write the names of the people in their departments. Then, they should check off the names of those who can accomplish these most important tasks.

These lists can help a turnaround manager identify people who are not necessarily needed and those who can accomplish several tasks. Although this process won’t answer all of the questions concerning which employees stay and which leave, it gives a turnaround manager a logical place to start in making these decisions. The process also identifies the critical operational ite3ms that must be addressed.

4. Not acknowledging that the income statement has absolutely nothing to do with the cash-flow statement. A turnaround manager is darn lucky if enough cash is available to pull off a turnaround. Having net income would be nice, but it means just about nothing initially. Cash is king.

The turnaround manager signs all checks initially, so it shouldn’t take more than two or three days to learn about the controls or the lack of them, who does things on the spur of the moment, who plans, and who is reactive, as opposed to proactive. This check signing practice can be changed after the turnaround manager sees disbursement requests, gets a sense of what is happening, and feels more in control. This exercise also makes the turnaround professional’s daily review of the cash-flow statement and requests for funds more meaningful.

5. Failing to spread and share the pain and problems. To win the loyalty of those who do the day-to-day work, a turnaround manager should cut out the limos, first-class airfare, fancy lunches, and clubs for a troubled company’s executives. If sparing an expense from the budget ax sends the wrong signal, the expense should be slashed.

A turnaround manager who cuts front office costs will see a multiplier erect with the troops. Will the executives who lose the perks complain? If so, they provide the turnaround manager with a great hint on perhaps who should not be on the team. Such perk cutting actually helps bring the total team together.

Although the opportunity to do so depends on the nature of a business, a turnaround manager should show up in blue jeans to help complete an inventory on a Saturday morning. Such a manager might be amazed at what he or she learns and the tremendous amount of loyalty such a gesture inspires in the troops. A turnaround professional needs them, and they should know that the manager knows that.

6. Withholding the truth and bad news. Most people want to know the bad news as soon as possible so they can deal with it, and those who work in the office and on the shop floor are no different. No one should learn the bad news from the newspaper. The team should hear about it first and in full detail. Employees should also be told about what might happen in the future.

Every hour, day, or week that conditions are allowed to fester, the situation deteriorates.

A turnaround manager shouldn’t worry too much about people reading the Wall Street Journal who care only about their investments. While these shareholders are important, a more pressing concern should be the people who are working hard to turn the situation around.

7. Not communicating clearly and constantly to all stakeholders. Salaried employees, hourly employees, wholesalers, customers, unions, suppliers, bankers, stockholders, trade press, and the mainstream press all need to know what is happening and what may happen. Communications is not a bad or a silly word. Next to cash, it is probably the most important ingredient in a successful turnaround.

A new turnaround manager must continue to run the business while deciding what else must be done immediately and what can wait. But whatever plans the turnaround manager lays out must be achieved by hardworking, scared people who do not want to fail and who do not want the turnaround manager to fail.

These people have known for months or years that management wasn’t managing. The turnaround manager should be especially mindful not to come onto the scene and act exactly like the managers who got the company into the trouble that it’s in – that is a very avoidable sin.

Miles R. Stover is President of Turnaround, Inc. and has more than two decades of experience in a variety of industries and in various capacities. He has held senior-level positions, such as CEO, COO, CFO, president, general manager, executive vice president, and vice president of manufacturing, at companies ranging from startups to Fortune 100 organizations, domestically and internationally.

During his time at Johnson Controls, Inc., where he served as vice president and general manager, and CFO, the company received the U.S. Senate Award for Productivity, given annually to a company that exhibits the most efficient operations and the highest level of quality control programs in a manufacturing environment.

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