Required Skill Sets for a
Workout CEO
Suzanne Hopgood
Suzanne M. Hopgood is President of the Hopgood Group,LLC

This article was first published in the July 2003 issue of Director's Monthly, the montly publication of the NACD

She is on the Board of Directors of Del Global Technologies Corp., Inc. (DGTC) and is also Chair of the Audit Committee.

Ms. Hopgood is the former CEO of Houlihan's Restaurant Group and the former CEO and Chairman of Furr's/Bishop's, Inc.(FRG)

 Typically when I am hired to stabilize troubled companies, much has happened to impact the ability of the company to prosper and compete. The issues I face frequently start with default of debt covenants, usually monetary defaults, which means the company not only lacks adequate funds to pay its debt, but it may not have enough money to continue operations. This is usually the last step in a long series of management failures, which finally resulted in the debt default. Along the way, the company has typically lost its key talent and has experienced a high level of turnover in key positions. That turnover then frequently results in customers not being well served, confusion or total lack of interest in following prescribed corporate policies and procedures, which then leads to violations in labor, discrimination, and harassment laws, which then generates expensive litigation. Also, the cash handling procedures have been impacted by turnover and lack of follow-up and follow through. The end result of this breakdown is typically a significant amount of theft, both at the Point of Sale and at the corporate accounting/wire transfer area. In other words, the lenders are distressed, the customer is not being served, the employees are unhappy, and the vendors are concerned - tightening their contract terms just at the time when the company can't afford to pay sooner. The last, and most devastating, is the employee culture, which has frequently changed to one of theft, which is pervasive throughout the organization.

The skills needed to deal with all of this going on at once are:

    1 . Focus. It's important to understand how serious the issues are, what problems truly are "life threatening" to the company, and establish short-term objectives to measure all "problems" against. There will be 100 problems/day uncovered. Only the "life threatening" ones can be dealt with immediately. All problems need to fall in one of three buckets:

      A. "Life threatening". Needs to be dealt with immediately because it can put the company out of business, either in the short or long term. There are usually two or three of these a day.

      B. Represents the company's future opportunity for success. That opportunity needs to be protected so the workout doesn't destroy the company's ability to be successful in the future.

      C. Needs to be addressed at some point in the future. Neither "life threatening" nor an opportunity. Action step: Put on a list of future issues and ignore.

    2. Ability to make decisions quickly with little or no information, AND understand that some of those will be wrong. The worst thing you can do, however, is not take immediate and decisive action. Spending too much time analyzing whether to use the bilge pump or assign a team to use water buckets on a sinking ship will result in the worst outcome.

    3. Developing a talented team:
    The most important part of the job is to identify the existing talent in the organization. Frequently, seasoned leaders have left, so you are looking for a team of very talented younger people who need direction. They have boundless energy, an unlimited desire to learn, and are grateful to be in a position of responsibility beyond where they would have been in a successful company. Building a team quickly is critical. Team leaders don't always come from the expected areas. The IT guy, for instance may have the best intuitive financial talent in the company. He may then become your most trusted financial analyst. It is always fascinating to see how people either rise to the occasion or sit in their offices waiting for the latest storm to blow over.

    4. Keeping an eye glued to cash flows and financial reports. It is remarkably easy to run out of money in a troubled company. If bank statements have not been balanced for a period of time, not unusual in this situation, there is no way of knowing what commitments are outstanding. Customer-promised rebates serve to reduce revenue and frequently represent a significant percentage of deductions. If these are because of customer dissatisfaction, that's an indication of "customer dissatisfaction" and how it's being addressed. Recognizing that most businesses have a "season", reviewing the last several months' cash flows may be meaningless. If November and December represent a high "buying" season for customers, cash flow in January may reflect low sales and high expenses as the expenses of those high sales times are paid. Using November and December to project January cash flows will result in dramatically incorrect information. Developing a reliable cash flow model as soon as possible is a necessity.

    5. Relying on someone in the accounting and internal audit departments to secure the existing cash, so that it comes from the point of sale to the home office and into the bank, is critical. This is actually the first step in returning to "normal".

    6. Developing a 3-month, 6-month, 1-year, and 3-year plan is essential for lenders, shareholders, employees, and vendors so everyone knows what needs to be done for the company to return to normal.

    7. If the company truly is out of cash, understanding bankruptcy law and having a bankruptcy counsel on board early on is critical, since there are personal liabilities associated with FICA, some state sales taxes, and some creditor claims.

    8. During all of this, a high level of communication is necessary with employees, shareholders, vendors, and lenders. A regular communication vehicle needs to be established with each so they know they will hear from you regularly with continuous updates.

Workouts depend on a high level of integrity, honesty, and being totally forthright with vendors, employees, lenders, and shareholders. They need to know how serious the situation is and what you propose to do to improve it and over what period of time. The most important part of a workout is gaining the trust of those who are involved.
The Hopgood Group On-Line
Copyright 2003