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  Eric Logan
Eric Logan '94

Back from the brink
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How to salvage the wreck
Besides a willingness to work in emotionally charged situations, restructurers also must be willing to accept varying definitions of success.

"People 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."

Even 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.

Among 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.

Another 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.

If there's one thing industry veterans agree on it's this: the sooner they get to work, the better.

Roger "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.

"Too often, by the time someone gets to us all that's left is liquidation," he says.

As an 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' future prospects.

"Why would somebody want to come in and rent in an economically depressed area?" he says. "They wouldn't."

But the news isn't always good.

Insiders 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.

Preparing 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 centers.

Kellogg 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 crisis.

"I 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 '94
Join the discussion online:
Share your corporate restructuring strategies, insights and experiences with your alumni peers.

"One of 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."

Pulvino's Corporate Restructuring teaches students to make companies stronger by examining, and retooling, all aspects of a balance sheet.

Although 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 economy strong.

"We're 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."

Restructuring 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.

"Every 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."

Another 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, companies.

Graduates also can apply the skills they learn to re-engineer their companies or even make their individual departments function more smoothly.

For those 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.

In addition, 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.

'I 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.

A veteran 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 Chapter 11.

"It's 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 unsecured creditors."

Facing 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.

Preserving 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."

"You 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."

Now CFO 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.

But he says he has no desire to revisit those dark days.

"I manage 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."

With 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.

Ruttenberg 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.

And Whyte, whose company has a performance improvement group, is another advocate of employing a turnaround professional before things go terribly wrong.

©2002 Kellogg School of Management, Northwestern University