Don’t Forget About Culture
In my 30-year career, I have had the opportunity to work with hundreds of companies in financial distress. I have worked my craft in both large and small organizations across a wide range of industries. We were always called in late to the game, when management and operations were generally in disarray. Typically, the reasons the company was in distress became apparent within a few hours.
So we would open our playbook, and go to work with a three-step process:
We took a deep dive to understand what happened and why. Then we drafted a plan and forecasted as if nothing changed. That strategy allowed us to attempt to understand the moving parts that were setting their trajectories.
We developed a strategy and set of measurable objectives for recovery. Those key performance indicators almost always included a plan to eliminate all discretionary spending, sharp reductions in payroll, aggressive moves to reduce inventories and convert it to cash, pullbacks on capital projects, and cutbacks in advertising dollars.
We coordinated with vendors to stretch payables (even further than they already were), reviewed their accounts receivable collections, and communicated with the lender(s) to reduce or eliminate principal payments in the short term.
These three steps have been a staple of our evaluation process with distressed companies over the last 30 years. However, 10 years ago, I realized something I’d been missing. I never paid attention to one critical part of a restructure plan — the company’s culture.
I used to say, “Culture doesn’t matter when you cannot make payroll,” but I could not have been more wrong. We cannot just put culture in a spreadsheet and model the recovery scenarios. The reality is that we cannot fully help a company recover without quickly resetting the shared set of values, goals, attitudes and practices that define their company culture. This reset process all starts with trust.
Once we establish trust from the top-down at a company, we can conduct our difficult work with the same three-step process as always. Only now, we can ensure the company will maintain our critical best practices for years to come.
That is why when I lead our restructure engagements now, I remind our team: don’t forget about culture.
