Corporate Rehabilitation: Companies in Distress

By Herbert Sanciano

This is a guidebook for personal and corporate self-assessment. It was written with a market research approach in mind where many hard questions are asked amidst the different conditions that may have caused or is causing a company to be in distress with an imminent possibility of total bankruptcy.

This is a book that supports the author’s advocacy of creating jobs by creating great companies.

• Language: English
• Publisher: Anvil Publishing, Inc.
• Release date: Oct 3, 2017
• ISBN: 9789712730436

Book preview

CORPORATE

REHABILITATION

Companies in Distress

HERBERT M. SANCIANCO

Corporate Rehabilitation

Companies in Distress

Copyright to this digital editon © 2014 by

Herbert M. Sancianco

Anvil Publishing, Inc.

All rights reserved.

No part of this book may be reproduced in any form

or by any means without the written permission

of the copyright owners.

Published and exclusively distributed by

ANVIL PUBLISHING, INC.

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 ISBN 9789712730436 (e-book)

Book design by Aura Leah Miranda (cover) and Je J. Garrero (interior)

Version 1.0.1

TABLE OF CONTENTS

INTRODUCTION

Corporate rehabilitation is a tedious and time consuming process of fixing a financially distressed company regardless of its size or business model. A financially distressed company is a company in danger of closing shop or is already at the starting point of a commercial failure. There are many causes that may have created the troubles of a company so that it is no longer able to effectively conduct its business with its customers.

There are no perfect companies out there whose business performance is not occasionally threatened because of the way it is managed, how its work environment influences productivity, and how its functional departments operate to collectively endeavour to achieve the company’s business goals. There is always some kind of trouble that occurs, sometimes repeatedly over time.

Some of the red flags may be small or trivial, they may be glossed over as they are part of the daily grind with no serious implications to the company. Others that are deemed to be large in their scope and nature draws immediate attention as these can have a damaging financial effect that can either be foreseen or already being experienced.

There is the human factor that likewise plays a part in the problem. It may be the company owner who began as a dreamer of sorts and saw an opportunity to create a product that will make a lot of money. Over time, the vision and drive may be taking its emotional toll due to the many problems experienced and that now becomes the starting point of the corporate decay.

There is also the question of the employees and how they perceive the value of what they are doing and how they are readily giving their utmost best to achieve their work goals. Many are gung ho at the onset of their employment, but later on this drive also disintegrates because of work related frustrations where the individual may see the work as a dead-end job. The individual may also feel that he/she is not in a happy working environment.

It is akin to a cancer where one who is afflicted may not be aware of the ailment creeping in until a body function begins to fail and requires serious medical attention.

The medical attention that is needed may require a surgical procedure and chemotherapy treatment to wipe out the cancer cells. Cancer can be avoided if not prevented, by living a healthy lifestyle, as they say.

The work of corporate rehabilitation is similar to a medical treatment since it observes the same kind of protocol in mending a company with corporate cancer. The malady may emanate from one part of the organizational structure and causes a rippling effect to the entire company.

People like myself who do this work are fondly called Corporate Doctors.

After the landscape assessment is done, a list of remedial measures is proposed to the company owners or to a court of law if the company is already under litigation, for their approval to implement. Note that when a financially troubled company is in a legal tussle with the law, it is at the brink of bankruptcy where all its creditors are cashing in to get what is due them. The court appoints a receiver who is a qualified business management professional who will implement a court approved rehabilitation plan according to an acceptable or reasonable timeline.

A company that has not reached this level but recognizes that something is going wrong should be taking the initiative to identify the red flags or problem areas, figure out how they should be addressed and implement the remedial measures that it believes are the right moves to do and able to fund.

The work of rehabilitating a company can be accomplished in as early as six-months to as long as three-years. Much depends on what needs to be done to nurse a company back to financial health and continue on its way thereafter with a tail wind to push it forward.

Corporate rehabilitation may not be applicable for companies that are financially dead, particularly if all the elements that caused it to such a level does not show a glimmer of light for it to be fixed. The company owner should thus admit the failure (which is emotionally heartbreaking and mentally scarring), liquidate whatever remaining assets are there and somehow move on to start anew.

There are many great men in this world that did not reach their apex of success without going through a series of failures. Many of their autobiographies are stories that are worth reading and remembering.

This is a guidebook for personal and corporate self-assessment, hence, the title CORPORATE REHABILITATION Companies In Distress. It was written with a market research approach in mind where many hard questions are asked amidst the different conditions that may have caused or is causing a company to be in distress with an imminent possibility of total bankruptcy.

There are some true-to-life stories of companies that are featured here that typify stories of success or failure. In the case of the latter, their true identities are hidden and instead given another name.

The discussions here have the small to medium-sized business entrepreneur in mind, since many are afraid to seek outside help until it is too late. This is what I have learned over time in many of the consultancy calls that came my way.

This book is a compilation of my experiences and readings as a market researcher and business development expert. I have been a Corporate Doctor for the past 20 years.

This became a realization that came by accident one fine evening over several bottles of beer with great friends who I grew up with in my career, and where it really started in my family’s mom-and-pop snack foods manufacturing business while I was still a DYM (dating young man or former young man).

That family business died when my father passed away in the early 1990s after nearly 30 years in operation. It was actually in trouble three years before he passed away due to growing competition, outdated production technology, raw material supply shortages, weak financial liquidity, and overdue bank loans.

I had the ability to salvage it but could not do so as my mother did not want to open it up to private investment from outsiders and undertake the appropriate paradigm shift to re-launch it. Likewise, my siblings were basically not interested in continuing my father’s legacy and bring it to the next level.

My academic stint as a professor for Integrated Marketing Communications and Business Enterprise Development, and soft-skills trainer to many multinational companies provided me with more insights through my students and participants in our varied and animated classroom discussions. It does not get any better than that.

The book first tackles the company owner as this is a review of the owner as the inventor and visionary of the company. It then goes down the line to the other possible areas where business troubles may be taking place such as the shareholders, the employees, the product, the functional skills for marketing, sales, operations, human resource, finance and risk management. It also examines the company’s continued vision of where it wants to be, and whether that vision remains on track.

The book finally looks into how companies deal with risk that always leads to a crisis because these red flags can happen daily or are events unfolding without the company owners realizing it. Risks will include natural calamities, theft and security, industrial accidents, fire, labour unrest, financial mismanagement and/or marketplace disruptions.

A simple and practical score card is provided as the book’s last chapter where the reader can establish his/her own rating of the various situations that are highlighted so that the seriousness of a trouble spot to the entire company can be clearly established either as a minor or major concern.

I developed this score card out of the many formal and informal research work that I have conducted and learned from these many years for a product or company that wants to know how their people are performing in the marketplace trenches.

It may not be perfect, as some of its attributes may not apply to a certain type of business model. Nevertheless, one can get the drift of what the overall score will imply. It is a start nonetheless.

Hopefully, this book will help those who may be experiencing many of the identified issues to come to terms with the problems at hand and seek professional help in fixing what are broke. A company that is under a dark cloud needs to undertake drastic actions to urgently address the business decay that is developing, much like a growing cancer cell that will be life threatening.

Moreover, as this book was being written, the competitive business atmosphere in Asia is fiercely growing. Trade barriers between Asia-Pacific countries are rapidly coming down, which will in turn generate more cross-border business presence of companies that want to expand their business overseas due to the vast commercial opportunities that present themselves in those new markets.

Hence, this will be the true test of a company’s ability to survive in a more competitive selling environment, or be the market leader—perhaps the predator that will have the ability to devour the weaker competition, or be the trail blazer where others will follow.

Thank you for buying this book. It was a joy to write. I hope you will enjoy reading it and learn something new at the same time in your quest in becoming a very successful business person.

CHAPTER ONE

IS IT YOU TO BEGIN WITH?

If you think you may be the problem, read on

Otherwise, go to the next chapter…

Corporate decay sometimes starts from the top of the organization, that is, the owners themselves. This is regardless of whether the company is a young and small enterprise or relatively old, and either still small or now very large in its operational size.

Why would the owners be the one of or solely the source of the corporate decay?

Here are some of the causes (not necessarily in the order of importance):

Is it the age factor?

Is the state of health physical and/or psychological?

Professional competence – technical, leadership and management skills

Security of succession. Who takes over when the time comes?

Accepting what is changing in the business environment

Adapting to what is changing in the business conditions

Is it an ego issue at work?

Are the immediate family members and atmosphere affecting the will and drive to continue?

Do you still have that emotional drive to move the business forward?

Question # 1

Is It The Age Factor?

Are you still that spring chicken that you used to be today?

Your age may certainly be the first cause of problems for a company that is under an overhanging dark cloud.

A majority of companies are usually started by young to middle-aged people. Others are organized by retirees or by those soon to become one. Then there are other CEOs that inherit their company from their parents or were hired to run the company on behalf of the owners.

With age comes the question of one’s continued vision of the business, personal commitment, wisdom, attitude to succeed, skill set, professional maturity and guts to handle all the challenges that goes with the position.

By my reckoning over the years, the survival rate of 10 start-up companies looks something like this:

Companies who do not make it three years after they were born would have been those started by young people who were not prepared to be businessmen in the first place. This is despite the fact that they may have invented a wonderful and promising product or a timely and right place service that their educated talent turned into a commercial venture.

Likewise, some starting companies created by older aged individuals who may already have an adequate exposure in business management but may not perhaps have enough of the skill and experience to do the right things as business owners. They think they do which made them decide to blaze their own trail and seek out their fortune elsewhere from a cushy and good paying job. But if the company is not performing well and making money, then it is clear that there is still something lacking.

Well, the first three years will determine who will pass or fail in either case related to the age factor. Subsequently, time will determine the next group who will fall on the wayside.

Companies that continue to be micromanaged by its founder after the third year may not see tremendous growth or even a clear continuity as many are unable to evolve from a small company operational mentality that their owners refuse to change.

A company with a very long history in business should be running by itself with little supervision from its founders, particularly if it has grown tremendously over the years from a small shop, due to what may be the right management style that the founding owner applied. It should be more successful and dynamic as it is able to adapt to the ever changing business environment it operates in.

In cases like this and particularly if it has reached its 25th year anniversary, such entities are now tagged as business icons or legacy companies.

Only a few companies have been able operate for a century or more because their recipe for success is largely due to the founding owner’s ability to successfully pass on to their children, or a qualified corporate management team, the reins of power. Done right, the succession chain within the family circle and the corporate succession protocol should continue unbroken for years to come.

In ensuring that a transfer of power to the next generation is achieved without any controversy, the founding owners of those successful family owned brand names designated an overseer that will be the professional hand that guides the children as they phase in to lead and manage the company.

Very few founding owners are able to