LEADERSHIP CHANGES - ONE OF THE ESSENTIAL INGREDIENTS FOR ACHIEVING SUCCESSFUL TURNAROUND
Updated: Apr 28
NEW CHIEF EXECUTIVE
Inadequate senior management is frequently cited as the single most important cause of corporate decline, and therefore many, but not all, turnaround situations require a new CEO. Many Investors and turnaround practitioners argue that in almost every case a change of CEO is required for two reasons.
1. Since the CEO was the principal architect of the failure, it is very unlikely that s/he can form part of the solution.
2. A change of CEO has enormous symbolic importance: it sends a strong message to all stakeholders that something positive is being done to improve the firm's performance.
An alternative view is that the immediate removal of a CEO may not be in the best Interests of the company. It is a decision that may make stakeholders feel positive in the short term, but which they may come to regret at their leisure.
It is important to remember that many CEOs of troubled companies have a strong track record of prior success; today's villain was yesterday's hero. Furthermore, the CEO is often the person with the most knowledge and experience of the company and the industry - skills that may be vital to the recovery.
An existing CEO who is not in crisis denial, who understands the reality gap, is acutely aware of the causes of decline, and is determined to restore the company's fortunes is often a less risk choice than a new CEO.
A second important consideration is the type of CEO to appoint to a turnaround situation. The basic choice is between a candidate with substantial industry expertise but no prior turnaround experience, or the converse: an experienced turnaround manager or company doctor.
The appropriate choice will inevitably depend on the specific circumstance. On balance, however, we would tend to favour a candidate with previous turnaround experience rather than industry knowledge for most situations. A good company doctor is usually a highly effective general manager, and experience suggests that such people can usually work across most industries, except for the most specialized. A non-specialist is also more likely to challenge established industry norms.
A further consideration is whether one person can lead an organisation through the complete recovery process from crisis stabilization to restructuring and on to corporate renewal. The manager who is good at taking control, generating cash, downsizing and cutting costs is often no good at developing and implementing valuable market-driven strategies for the longer term.
The immediate task of the turnaround leader is to rebuild stakeholder confidence by re-establishing a sense of direction and purpose. The leader must move quickly to initiate the development of a rescue plan and communicate it to stakeholders. Finally, the leadership must be seen to be taking action quickly; it is essential to achieve some early wins.
OTHER SENIOR MANAGEMENT CHANGES
Apart from the change of CEO, many turnaround situations are characterized by other senior management changes. Again, views vary enormously among experienced company doctors. There are those who argue for wholesale change, It-respective of the competence and willingness to change of the incumbent management. Proponents argue that such action eliminates resistance to change, sends a strong message throughout the organisation, and is a necessary part of the shock therapy that troubled companies require.
The opposing view is that, as far as possible, the new CEO should work with existing management, with the proviso that the individuals are sufficiently competent and show a willingness to change. Irrespective of which approach is taken, most turnaround managers will introduce a new finance director because of the critical importance of strong financial management in a turnaround environment.
Turnaround managers rarely have the luxury of working with a world-class management team and workforce. However, large-scale management change is rarely an option in the early days because it is not easy to attract good managers to highly unstable situations. Consequently, one of the major leadership challenges for the turnaround manager is to deliver superior performance from a relatively weak team.
But the organisation does need to have sufficient human resources for the challenge ahead. Embarking on a turnaround with a team that lacks the basic expertise and experience required is a fool hardly exercise. The turnaround leader needs to conduct a rapid management skills audit at an early stage. The objective is to establish where the gaping holes exist and to consider ways off filling these skill gaps. At the very least, most organisations require effective financial, operations, sales and marketing management.
Most companies could have better internal communications, but in a turnaround situation a quantum leap is usually necessary. As the company has gone into decline, less and less information has been communicated, cynicism has increased and morale has declined. The turnaround manager and his/her top team have to develop external credibility very quickly if they are to harness the organisation's resources. They therefore have to decide what to communicate, how to communicate it, to whom and where. In doing this it is crucial that they all communicate the same message.
The turnaround leader needs to motivate the whole workforce at an early stage. The priority here is to prevent good people leaving and to start to mobilize the organisation for the challenge ahead. Particularly during the early stage of the recovery, the organisation will move through very turbulent times, and having a committed workforce is a key factor for success.
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