BE YOUR OWN TURNAROUND MANAGER: A COMMON SENSE GUIDE TO MANAGING A BUSINESS CRISIS

Following is an excerpt from the case history presented at the beginning of Chapter One. This is an actual case history of a company with a serious problem that the author was hired to solve. Remember, this is only an excerpt (the problem actually)—the solution to the problem can be found in the book Be Your own Turnaround Manager: A Common Sense Guide to Managing a Business Crisis

Case History Number 1—Climate Controls, Inc.—A company that manufactures electronic and electro-mechanical temperature control devices.

Climate Controls, Inc. (CCI) had about 130 employees, and was approximately 15 years old at the time of the crisis. It was under its second group of owners, who had owned the company for several years. This owner group was composed of six people—one of whom, we’ll call him Arthur, owned 52% of the stock and held the position of President and Chairman of the Board. The other five owners held the remaining stock, but they did not hold any positions within the business. They did, however, each hold a seat on the Board of Directors.

This company’s crisis started when it began a consistent pattern of losing money. As a result, the Board of Directors eventually fired Arthur for nonperformance, although he was the majority shareholder. To overcome the majority shareholder issue, the board enlisted the salaried employees to sign a “letter of intent to resign”—a walkout—if Arthur contested his termination.

Upon being fired, Arthur immediately shot back with a legal notice calling for a special shareholders meeting for the purpose of replacing the Board of Directors. Before the shareholders meeting could be legally held, he tried to persuade the minority shareholders to either buy his stock or sell him theirs. The minority shareholders still assumed the threatened walkout by the salaried employees would back Arthur down. Consequently, all of Arthur’s efforts at finding a reasonable solution failed.

During this boardroom turmoil, the bank notified Arthur (now ex-President, but still majority shareholder) that if a turnaround plan was not presented within a few days, they would foreclose on their now past due loan and liquidate the company to recover as much of their loan as possible.

The special shareholders’ meeting was held the day after the bank presented its ultimatum. Arthur called the meeting to order, and since he had the majority vote, terminated the existing board members and elected himself, his wife, and a trusted friend to a new Board of Directors. The new board then immediately called a board meeting and re-elected Arthur as President.

After closing the board meeting, Arthur walked into the company's offices and accepted the resignation of every person who had signed the letter-of-intent to resign. Thus, every salaried person in the company “resigned,” except the receptionist (it was her first day on the job). This included the Vice-President/General Manager, all department managers, the entire engineering department, all plant supervisors, the field salesmen and the entire office staff—approximately 30 people total (so much for maintaining “core competence”). This left about 100 hourly workers standing around the manufacturing areas without any direction or supervision. They were not a part of the earlier threats to resign and therefore decided to stay—at least until the company closed down, or Arthur told them to leave.

The salaried employees did not leave peaceably. They attempted to take some of the accounting files and records out with them, and when Arthur tried to stop them, a struggle ensued in the parking lot. The police were called to restore order and take physical control of the company's financial records.

Eventually, the dissident employees left the company premises only to reconvene at a local tavern where they set up efforts to injure the company. Someone from the former Sales & Marketing Department called certain key customers and informed them that the company was shut down, that they would not receive their products, and therefore should place their orders with a competitor. At this point, of course, the customers were not aware of what was really happening.

At the same time, someone from the former Purchasing Department called key suppliers and told some of them to increase quantities on open purchase orders—knowing the company was on C.O.D. terms and would have to refuse the entire shipment when it arrived because CCI would not have enough cash to pay the C.O.D. In addition, they simply canceled other open purchase orders and told those suppliers that the company was shut down. These were the people the suppliers dealt with daily, and therefore, the suppliers had no idea that anything was amiss.

That night, some of the more experienced hourly employees, who had stayed in the plant during the salaried employee exodus, received phone calls threatening violence if they returned to work the next day. It was intimated that the building would be blown up or burned down. As a result, it was necessary to hire a 24-hour armed security service to guard the building and assure the safety of the remaining employees while at work.

At this point, CCI was a business without a future. Perhaps the logical thing would have been to shut the doors and liquidate the assets, or at least file for Chapter 11 bankruptcy protection. Yet, Arthur was a man with strong convictions, and he felt a deep obligation to his friends at the bank, to his customers and suppliers, and most of all to the 100 loyal production workers who stayed in the plant after all the salaried employees left. He also did not want to have to deal with the management constraints of the Bankruptcy Court.

Because Arthur was inexperienced in this kind of situation, he consulted frequently with his business associates and advisors during the entire period of turmoil. They assured him that with a lot of hard work and more than a small measure of luck, CCI might be saved. Because I was known to several of Arthur’s advisors, they recommended that I be hired as the turnaround manager with full hire and fire responsibility. The objective was to save the company.

This was the situation when I arrived to take over the company. To find out what happened, read Be Your Own Turnaround Manager: A Common Sense Guide to Managing a Business Crisis—available now at Amazon.com. There are 10 Case Histories in this book, all dealing with some form of business crisis.