from the brink
to salvage the wreck
Besides a willingness to work in emotionally charged situations,
restructurers also must be willing to accept varying definitions
ask me, 'If you liquidate a company, is that a success?'"
Whyte says. "Depending on the circumstances, it may be the
best you can do."
the most distressed companies have something salvageable,
Shein says, whether it's a brand name — think Schwinn and
Fannie Mae — a valuable piece of real estate, intellectual
property or production equipment. But the trick is sorting
out what has value and figuring out how to capitalize on it.
her personal success stories, Whyte counts nine months spent
advising Regal Cinemas on ways to deal with challenges for
the theater industry. Regal filed for a prepackaged bankruptcy,
closing unprofitable locations and finding new ways to go
head to head with competitors. Most employees kept their jobs,
and the company is now on solid ground.
highlight: When an automotive parts reseller couldn't be kept
intact, Whyte helped resell the company to five different
purchasers, including the last group of operations to the
company's managers, who kept it going for several years before
they sold it for a profit.
one thing industry veterans agree on it's this: the sooner
they get to work, the better.
"Biff" Ruttenberg '71, a certified turnaround professional
whose company, Atlas Partners, helps distressed companies
get the maximum return out of their real estate holdings,
says emotions often prevent managers from calling in turnaround
professionals sooner, when they could make more of an impact.
often, by the time someone gets to us all that's left is liquidation,"
example of the good he can do when called in early, Ruttenberg
cites the financially strapped Grand Rapids, Mich., chain
of grocery stores whose leases he helped renegotiate, saving
$1.75 million and setting the company on a much-improved financial
course. Ruttenberg explained to the landlords that closing
the grocery stores, which anchored area shopping centers,
would be disastrous for the local economy and the landlords'
would somebody want to come in and rent in an economically
depressed area?" he says. "They wouldn't."
news isn't always good.
use the term "Chapter 22" to highlight the tendency for already
weakened companies to slide into a serial bankruptcy — a
serious danger, Kellogg School experts say, if companies aren't
given enough time to reorganize or don't take the right approach
the first time around.
for turnaround leadership
Turnaround professionals often get their start when they successfully
lead a company through a difficult period. Ruttenberg, for
instance, learned the ropes buying and rehabbing old shopping
School classes such as Shein's Managing Turnarounds and Associate
Professor of Finance Todd Pulvino's Corporate Restructuring
also equip leaders with skills they can draw on in times of
manage every day like we are heading toward bankruptcy
and trying to avoid it. I manage cash like that.
I manage receivables and payables like that. I manage
the balance sheet harder than I ever thought I would.
I don't ever want to live through a bankruptcy again."
— Eric Logan
the things we teach at the Kellogg School is that very few
companies fall off a cliff," Shein says. "There is usually
some decline that's been going on, whether it's an emphasis
on the wrong products, an especially challenging competitor
or some kind of financial trouble. The company has been going
through a slide, though they might attribute it to market
forces or a stupid competitor. But the longer you fail to
take action, the more dangerous a decline becomes."
Corporate Restructuring teaches students to make companies
stronger by examining, and retooling, all aspects of a balance
his students typically first resist the notion that some companies
can't be saved, Pulvino says the reallocation of assets that
ensues when a company fails helps keep the country's overall
teaching students to be leaders of successful companies and
liquidation doesn't sound terribly successful," he says. "But
sometimes it's necessary to take resources that are being
used in an inefficient way and redirect them in a new way."
classes can be just as important for MBA students who don't
plan on careers in corporate repair. Shein argues that all
MBA students need to learn to identify and head off problems
before they become company-ending crises.
company in the world, bar none, has hiccups along the way,"
he says. "If you've been trained in turnarounds, you should
be able to deal with the problems."
benefit to restructuring classes: they train managers of healthy
companies to protect their firms in their roles as suppliers
and creditors in their dealings with other, potentially troubled,
also can apply the skills they learn to re-engineer their
companies or even make their individual departments function
who want to gain hands-on experience without a looming crisis,
Shein suggests establishing a record of hands-on improvement,
preferably when the stakes are relatively small. MBA graduates
can work to strengthen their individual departments or even
volunteer for a transfer to an underperforming group.
the Kellogg School will host an inaugural bankruptcy case
competition in November, with the goal of connecting students
interested in turnarounds with professionals in the field.
Students from top graduate business schools, including Kellogg,
University of Chicago, University of Michigan, Wharton and
Darden are set to participate.
don't ever want to live through a bankruptcy again'
Some who have led corporate restructurings, however, say they
are happier with their feet firmly planted on more solid ground.
of Frito-Lay, a food distribution company and an Internet
start-up, Eric Logan '94 joined Daisytech in 2002 as CFO for
the company's U.S. business. Logan knew of the company's troubles
when he accepted the position and thought his experience in
transportation and logistics might be enough to help salvage
it. But just months into his tenure, it appeared bankruptcy
was inevitable; the company had already veered too far off
course for Logan and others to correct the damage. With the
company already in financial distress, banks called in a $150
million loan, forcing the printer cartridge distributor into
the biggest learning curve I've ever had in six months," Logan
says. "I had to break down a $2 billion organization, save
jobs and preserve as much money as possible for secured and
a cash crunch, Daisytech lacked the capital to keep inventory
in stock and was on the verge of shutting down operations
and firing employees. Logan, who was soon named CFO for the
entire firm, alternately spent time brushing up on bankruptcy
law and battling in court to preserve the capital needed to
keep Daisytech's healthy businesses strong — and viable
for a sale.
as many jobs as possible was paramount in his mind, Logan
says, as he worked for months straight without a day off,
facing courtroom attacks on his credibility and a constant
stream of what he now calls "negative energy."
can argue whether an entity is sick and should be shut down,"
Logan says. "Ultimately, there were 500 people involved here
and 500 jobs. We were able to inject life into three businesses,
sell them and preserve those jobs."
for Plano, Texas-based Adams Golf Inc., Logan plans to draw
on his experience to teach a bankruptcy course he's proposed
to a local university. He also finds the experience has influenced
his style as a manager.
says he has no desire to revisit those dark days.
every day like we are heading toward bankruptcy and trying
to avoid it," he says. "I manage cash like that. I manage
receivables and payables like that. I manage the balance sheet
harder than I ever thought I would. I don't ever want to live
through a bankruptcy again."
the country on shaky economic ground for the past few years,
business boomed for those with skill in breathing new life
into ailing companies. But as the economy gains strength,
turnaround professionals like these Kellogg School graduates
envision new areas in which to apply their skills.
suggests that turnaround professionals can serve as corporate
inspectors for those purchasing businesses, providing an outsider
perspective to weigh in on the overall health of the business.
whose company has a performance improvement group, is another
advocate of employing a turnaround professional before things
go terribly wrong.