What are the Necessary Traits of a Successful "Turnaround CEO" ?

I took this question from a TMA forum at Linked In posted by Frank Feather, and my response is also posted there.

1) A good listener. My assumption is the CEO is coming from the outside, and perhaps even outside of the specific industry. It is not fair to assume that a) all members of existing management contributed to the failures, and certainly b) none of them know anything about the business otherwise why would they have failed.

The incoming CEO must learn many things quickly about the new company. Who are the key customers, what are the critical factors for success, what are some of the internal views about how the company fell from grace. Most importantly, the incoming CEO must learn the people. Who has his head on straight, who can get his head on straight with a little guidance, and who is hopeless?

These decisions cannot be made if the incoming CEO acts like he already knows it all before walking in. With the wrong attitude, he will get no cooperation.

2) Understand the numbers. I have found companies typically did not get into trouble because of manufacturing failures, engineering problems, and a bad contract here or there. Yes, these contribute, but every company has its share of these. Good companies have the cushion to overcome a setback on occasion.

Companies get into trouble because they don't focus on cash flow. They don't focus on the balance sheet. They don't understand how decisions made each day by the many managers with authority will affect the bottom line.

I do not suggest that the incoming CEO must be a finance guy, but he must understand how business decisions will affect the firm financially. He must understand which levers he should push to quickly start building a financial cushion for the company.

3) Focus. The ability to identify the high leverage items quickly. The incoming CEO cannot fix everything at once. Neither he nor management will have the bandwidth. What must be fixed early that provides the most relief to cash flow with the shortest time to implement? What must be fixed early to stop decisions that will only add new problems to the old?

4) Be aggressive on expectations. Once the high leverage items are identified be aggressive about implementing solutions. Ensure teams are focused on fixing and solving the causes of the failures. Get some quick wins. This builds the team up - remember they have been getting torn down for quite some time during the downfall.

5) Patience. This seems counter to 4) above. But both must work together. Remember the staff already had a full-time job before you walked in the door. You are requiring them to work on things that they weren't working on before. As they see that you are driving them to some key wins, and as they see results, 4) and 5) will be highly complementary.

6) Empathy. Demonstrate that you understand the importance of the success of the company to them. The turnaround CEO will be seen as here today, gone tomorrow. Failure, while perhaps a setback for the CEO's reputation, is not as damaging to the CEO as it will be for the employees whose livelihood is dependant on the success of the company long-term. Many employees have a lifetime invested (or hope to invest) in the company. Show them you understand this.

What do Controllers "Control"?

A consistent downfall I have seen is the idea, defended by many in the organization, that the controller is actually controlling something. Finance defends this idea because it makes them feel powerful. Other management defends this idea because it relieves them of great responsibility.

Certainly, if properly executing his duties, the controller will implement systems that help accomplish much of what his title proclaims. Absent such systems, he is basically left having to sign a check for some agreement made some time ago by some other member of management. I do not intend to go into the appropriate procedural systems, these can be explained by most controllers, even the ones not doing their job.

But to really be in control requires having a management team at all levels that are complete businessman. Every day, employees are making decisions that are binding the company to future payments. These happen whether or not anyone else is looking.

How to create such a management team? Create complete entrepreneurs. Do they understand cash? Do they understand the customer? Do they understand quality? Do they understand how the decisions they are responsible for making every day affect the outcomes for the company?

I go back to some earlier posts:

http://anthem-llc.blogspot.com/2010/04/communicate.html

http://anthem-llc.blogspot.com/2010/03/four-oclock-meeting.html

Communicate, train, teach. This takes the investment of time by the entire team. However look at the payoff. Every manager acts like a complete businessman. They think about the impact of their decisions on cash, quality, and the customer. By the time a document gets to the controller’s desk for approval or payment, most if not all questions have been answered, and the project has already been scrubbed and re-scrubbed to ensure good assumptions driving a good outcome.

With this, the controller’s job becomes much easier. And, he can truly say he is in control.

Adding New Customers or Products

For a company failing to grow the top line, or seeing margins reduced on the bottom line, one solution is certainly to develop new customers and products. This can be done in a systematic way, in a way that is likely to yield better results, or it can be done in a hap-hazard manner in which there are almost no noticeable improvements.

It should be obvious as to the approach I have seen when coming in to troubled situations.

Often, with good intentions, individual sales-people and engineers are all working toward some new "thing" -- gaining a new customer, developing a new application, identifying a new product -- without any real direction or focus. There is little if any analysis done regarding the company's strengths and weaknesses in the new area relative to the competitors. There is little analysis regarding the size of the potential market. By gut feeling, someone decided it was a good thing to work on, and so the go-ahead was given.

However, an alternative is one where such possibilities are reviewed systematically, with some idea of the competition, of the customer's willingness toward adapting a new innovation, of the likelihood of achieving a successful implementation. Simple questions can be developed and answered that will give some indication as to the relative merits of one opportunity vs. another.

Any company, no matter the size, has limited resources. No company can afford to chase every dream. Therefore -- in every company -- someone or some group of "someones" must decide on where and how to spend resources. This can bring its own dangers -- a bureaucracy is introduced, or decisions are made by a group of executives too far removed from the knowledge of technology and customer. These are real dangers.

However, this doesn't change the fact that someone or a group of someones is responsible to decide. To do so, there must be a process. The process can be ad-hoc -- "let's wait to ask the boss on a Wednesday afternoon right before he goes golfing -- he is always in a hurry and usually will say yes quickly in order to get out the door." Or it can be systemic.

For example, what is the product, who are the customers, what is the potential size of the opportunity, do we have the technology or is it otherwise related to our existing capabilities? These questions can all be asked and answered quite easily. With such answers, opportunities can be assessed as to the likelihood of success and thereafter to the value for the firm.

As to the risk of stagnation, or bureaucracy taking over -- shame on management if this happens. It is not so difficult to ensure that the right number and type of people are involved in the decision making process. It is also not so difficult to identify the sales and technical people who have earned the opportunity for much more leeway and freedom from the process if they feel that they have a good idea. Give such performers a discretionary budget to spend how and where they see such an opportunity. It doesn't take much money to fund such internal entrepreneurs.

But, certainly, you must put some process around this. This must be managed. It is a certain way to lose focus, and a certain way to spend resources on opportunities that either a) don't fit in the direction of where the company wants to go, or b) have little or no likelihood of success -- technically or commercially.

Non-controllable Costs

One consistent theme in each company I have gone into is the idea of non-controllable costs. "Well, property taxes are not controllable." "We can't do anything about IT." "Energy rates are going to be whatever they are." Such statements come out at all levels of the organization -- even top management.

Consider this for a minute. Executive management is admitting that they are willingly spending money that they cannot do anything about. Is this a sign of a team that is on the top of their game? Would someone dare make such a statement to their spouse regarding the household budget?

Certainly some costs might be easier to manage than others. Some costs are approved "above my pay grade." Every cost can be controlled. Every cost has drivers. Every cost has opportunities for improvement.

Every line item of cost can have an owner, if management wants to manage. The owner can learn the drivers of the cost. The owner can understand the factors that affect the cost. The owner can take action to improve the cost and manage this action through the organization.

This attitude of non-controllable cost is a disease. It is a disease of laziness. It is a disease of complacency. When you hear such statements, know that management is inadvertently admitting that they are not qualified to manage.

When challenged with this, most will come around. "Yes, we actually can do something, but X, or Y, or Z must happen, or so and so must get involved, or...." With this start, you can now begin taking steps to focus on every item, on every project, on every cost -- even the difficult ones. This is the first step toward getting management's mind around change -- a change in attitude toward the future of the company.

Profit Margin

Understanding how a firm defines "profit margin" often tells a lot about how the firm is managed and the potential long term viability of the firm. I have seen many types of margin used -- some I could not explain if my life depended on it.

Gross margin, net margin, contribution margin, variable margin, EBIT margin, EBITDA margin, etc. I am sure I am missing many other options. The ones I typically focus on are EBITDA, and to a lessor extent EBIT. I find these most conducive to the philosophy of focusing on cash and creating a return on investment.

What I would like to spend some time on are the problem "margins" -- the ones I find being used in companies that have gone south and have helped contribute to going south, companies that "somehow" can't seem to find any profit: contribution margin and variable margin.

What these have in common is a conscious choice to ignore some cost -- everyone's favorite to ignore, G&A; next on the list, fixed overhead, etc. The justifications include the desire to win a program that is marginal financially (in fact, to price below fully burdened cost), or the desire to focus on operations but not support, or a desire to look at costs that management can "control."

All of these reasons are just excuses to not manage costs. Every time a program or project is priced below cost, the company is introducing a new competitor to the market -- and one that the company can never beat...that new competitor is itself, but always a lighter version.

A desire to ignore G&A is exactly what is convenient for the guys in the office. This way the lack of discipline in corporate is not made visible, and in fact the message is sent that this cost is not very important or not anyone's business.

Setting aside fixed costs and looking at variable margin implies that recovering machinery, equipment, and building expenses is not necessary. Or that somehow parts will spontaneously appear from nowhere.

The most stunning is the idea of focusing on costs that management can "control." It is impossible to have any item of cost that someone in management is not responsible for. And whoever is responsible for it must be held accountable to manage it. This one always amazes me, and I have heard it too many times. Management actually stands up and "admits" that they cannot control some portion of cost. If this is true, what use is management?

The bad message is reinforced -- not all cost is important. As if some dollars being spent are less important than others, or have less impact to the bottom line. Management is taught that there are some costs worth worrying about, and some that are unimportant -- or beyond their pay grade.

Such a practice creates a crutch, and a self-reinforcing one. The company develops a culture of dependence on subsidy, as if some benevolent father is covering part of the tuition bill.

Whenever I come across such a situation -- contribution margin, variable margin, etc., I ask which costs are being excluded. At a minimum, it is G&A. I then ask the management if they are agreeing that on such programs they are willing to give up that portion of their own compensation -- after all, what they are suggesting is some portion of their own personal costs will not be born by the company but subsidized by the shareholder.

Even this could be acceptable if the practice was managed strategically relative to opportunities -- with offsetting higher expectations on other opportunities. However, what I have found is that the line has continuously moved, until every program, every opportunity is looked at on less than full cost. In some ways, this is inevitable -- once dependence sets in, it is difficult to create the discipline needed to keep this in control.

Do not allow someone in accounting to convince you that the company can grow itself into profit by selling product at a loss. Don't allow the taste of this drug to seep in. Once it does, it will be difficult to keep it contained -- in fact, it will consume you.

Communicate

One regular theme I have found when coming into a turnaround situation is the lack of communication between the top two or three people in management with the rest of the organization. "They never ask our opinion." "They don't understand the customer the way I do." "I have given many good ideas and nothing has been done."

It seems obvious in its face, but should be said: the wisdom in the organization is priceless, and any two or three people in the organization will know more on a given subject than the leadership will.

The best ways I have found to deal with this is to talk and listen. This can be done one-on-one, it can be done in meetings. I know meetings can be a taboo -- very bureaucratic and cumbersome, some would say. I would like to offer a different view.

It was my practice to set up meetings on various topics. I have previously discussed the four o'clock meeting. I would have meetings on business engagement, new customers / products, innovation, and others. I would ensure a very broad participation -- much broader than required for the specific agenda. I did this for a couple of reasons: 1) I wanted a wide range of opinions on a given subject (especially from people "outside" of the direct line of knowledge), 2) I wanted everyone to benefit from each other's knowledge, and 3) I wanted an opportunity to be able to convey my way of thinking through a subject to the entire team.

At first, I would get many complaints: " we have too many meetings, these meetings last too long, why do you let people talk on and on?" I would remind them of the earlier complaints -- management never listened to me, nobody asked what I thought, etc. I would ask them how they expected me to listen to them if we didn't have some forum to communicate. Or how could we properly question and discuss some new course without a brad array of opinions. Finally, as we are all affected by any such decisions, shouldn't more of us be in the discussion?

I am not sure my arguments won anyone over, however I believe time certainly did. After some time I would get comments from even the most vocal skeptics saying that they now see the benefits of such a process, that it helps bring the team together, that it makes everyone feel like they have a say, etc.

For me, I get the benefit of learning a lot about a new company, seeing management in action as to how they think and communicate, and conveying my sense to the group. I believe it is a win-win for everyone.

The Four O'Clock Meeting

Coming into a company that has gone through a long bankruptcy or a slow death march toward the same requires bringing in some new energy and a new focus. For this, I have found no more effective tool than the four o'clock meeting.

There are many items that need specific, focused attention. Management may not have focused on these things for some time due to the stresses of bankruptcy, etc. Cash collections, customer business engagement processes, strategic procurement, etc. Whatever the list (and you must have a list), these items need special attention and are not in the normal day-to-day focus of the management. And they already have a full-time day job.

So 3-4 days per week, I would hold a four o'clock meeting. This meeting would focus specifically on these items that require change from past practices. The agenda would be published in advance such that everyone could be prepared. Not every item would be covered daily, but each item would be discussed once per week or at most every other week. It is held at the end of the business day to set a tone that this is the time for management to focus on longer term requirements -- not part of the day-to-day. It also can turn into a good time for the team to unwind and bond. There are many stresses they went through in bankruptcy and in a sale process. They are under pressure from the new ownership. It is a great opportunity to build the team.

It is also a good teaching opportunity. For example, if one item regards cash flow: instead of this being a discussion between the treasurer and CFO, it is now a discussion for all of management. Isn't that where it belongs? Or if the topic is sales strategy: shouldn't operations understand the thinking and dialogue on customer related decisions? Apart from the fact that this shared knowledge will help each member of management perform better each day, there is also a strong benefit of exposure to all business issues, thus better developing complete business managers.

It also allows for management to have a say in the future of the business -- a complaint often raised, when only one or two top executives might make decisions as if they were dictators.

Altogether, I have found this to be one of the most productive and useful methods to achieve lasting change and success -- and as a side benefit, a great teaching tool and team-building opportunity.

The Cash on the Balance Sheet

The balance sheet is often overlooked. What I have found in struggling companies is that -- at best -- there was some management focus on the P&L (even this is rarely so). It is certainly so that most people focus on the income statement and the levers that can change this far more so than the balance sheet. Ignoring the balance sheet, or giving it only passing attention, is a mistake that a) disallows opportunities for one time cash generation, and b) contributes to the possibility of future failure.

In virtually every turnaround situation I have encountered, the balance sheet was a source of funds -- and at the beginning of the process, by far the most important source of funds. One can often recover 50% or greater of the purchase price of the company within 6 - 18 months by working on making the balance sheet more efficient.

There are countless opportunities: inventories, receivables, payables, unused assets, life insurance policies, joint ventures or sideline businesses, and others. Each one of these is an avenue to collect cash to pay down acquisition debt, and is also an area for focus to improve ongoing operations.

The process is quite straightforward. Go through the balance sheet line by line, and in this go through the details behind every item. Consider the opportunities:

1) Inventory: how many days of inventory is the company carrying? Using competitive data or even internal plant-by-plant best-in-class benchmarks, where are the outliers?
2) Payables: during bankruptcy, many suppliers demand cash on delivery or cash in advance. Develop strategies to change this, and certainly if possible as a win-win.
3) Idle facilities: they only cost money the longer you keep them.
4) Life insurance policies: this sounded strange to me until we once were able to use these as a funding source to cover a significant percentage of the purchase price of the company.
5) Side businesses: don't be surprised if a company that has found its way into bankruptcy also found ways to invest in businesses that have nothing to do with the core operations.
6) Receivables: ensure that customers are paying on time.

Assign people to each of these. Meet with them regularly. Monitor and track the results and hold them accountable. By showing them it is important to you, it will become important to them.

There was a time that it was hard for me to imagine that a company headed toward insolvency would not have found ways to unlock this cash -- certainly religion is found when survival is at stake, or so I thought. Equally as amazing is that these sources are not found during the period in bankruptcy. Creditors certainly would love to get paid back more of their due. After a time, I stopped being amazed.

Additionally, many of these opportunities can be used for an ongoing efficiency focus. For example, beyond cost structure -- and maybe the most important item to improve the cost structure of an operation -- inventory reduction and efficiency will contribute to the efficiency of the P&L. Additionally, an ongoing emphasis on receivables will help ensure that customer quality is taken into account when planning new sales initiatives.

I have seen the balance sheet overlooked countless times -- before going bankrupt, during bankruptcy, and very often by new management teams after emerging from bankruptcy. I cannot overemphasize the importance of this focus -- for immediately recovering some portion of the purchase price and for the long term financial health of the company, a focus on the balance sheet is as important and in some ways more important than a focus on the P&L.

Business Engagement

This will be the first of what I expect will be many posts on this subject. What do I mean by business engagement? In the big picture, to me it means everything from market and customer analysis through pricing and ultimately contractual terms and conditions. Identifying where and how the company wants to sell products, the products it wants to sell, how it will sell these, and how it will price them.

However, for today, I will focus on pricing. I do this because, in an intensive turnaround, the bigger strategic questions of market analysis, customers, etc., are not the first priority. Right now, the company is pricing product for sale. Right now, the company is agreeing to contractual terms and conditions. Right now, little if anything can be done about orders already booked but something can be done about those in process and to be booked. Right now is not the time to figure out if the company has the right long term strategic focus.

Coming out of bankruptcy, the company likely already has a hole in the order book. It already has customers that are leery of the company's future and certainly leery of the new ownership group. The customer base may already be upset about having to support the company through the bankruptcy period. So, right now is not the time to add to the concerns of the customer base about potential changes in long term strategic issues.

However, ensuring that new orders are booked that will enhance profitability should be an immediate concern. This will likely require a changed signature of the company in its face to the customer. This is already enough of a change to deal with, without introducing questions of longer term significance.

Certainly, communicate with your customers. Let them know where you are and your intentions. These intentions can certainly include the idea that you will take some time to develop long term plans that fit the company's and the customer's expectations and needs. My experience is that customers will allow for this time and will work with the company and new ownership -- especially if they already have provided support through a bankruptcy.

The immediate focus internally regarding business engagement should be pricing and contractual terms. Understand the company's practices today. Understand the models, formulas, templates -- if they have any. Unfortunately, I have found that the extent of involvement in this subject doesn't extend beyond the sales office -- little support from finance or legal. Little involvement from engineering that will develop the product or from operations that must deliver it. Little idea of the validity of the cost structures that will be employed to achieve success -- and no dialogue with operations and engineering to communicate where the cost must be in order to win a project or secure a sale.

Generally, what is lacking is a process and communication toward a common understanding and objective; involvement from all aspects of the organization that will have the responsibility to deliver; assurance that the cost structures are built with discipline. This discipline can include the identification of challenges that must be met in order to achieve targets. But without discipline in the process, how can one be sure of the required challenges?

I am not suggesting that the company, as the supplier, can dictate terms and prices to a customer that is buying in a competitive market. What I am suggesting is that the facts must be unearthed and open to the entire organization such that the organization is fully aware of where it is and the challenges that lie in front of it. Every obligation of the company should be taken with a clear understanding of what is required to succeed in fulfilling the obligation. This can only be done with well-grounded facts and data, and open dialogue among all constituents. I am also suggesting that bad deals must be recognized as such, and if the company cannot find ways to turn these into a good opportunity then the company must have the discipline to say no.

It is virtually certain, when I come into a new situation, that the entire business engagement process is contained on a salesman's desk. Yes, he will say it is coordinated with finance and operations, but when pressed, it turns out the cost data is five years old, or operations was asked for input only three iterations ago -- and the salesman didn't go back when the initial numbers were too high.

Pricing and contractual terms, along with a focus on cash, is one of the first areas that must be wrestled to the ground. Stop making the hole deeper by disallowing more bad projects and bad sales into the funnel.

The Most Most Important Report

Several years ago I interviewed for the position of CEO of an international manufacturing firm. This firm had just come out of bankruptcy -- manufacturing and a turnaround, a perfect combination for me.

I was asked "which chart or report would you say is the most important one for the CEO to focus on?" Even before answering, I knew right then I probably wouldn't get the job.

Cash. The most important report is a daily cash report. This is certainly true for a turnaround company, and likely true for any company that wants to avoid becoming a turnaround company. How much cash and debt does the company have? Is this getting better or worse? Is it following plan? Are my people educated in understanding what makes this move? Do they understand how their actions every day will effect this report?

Very few people will understand this until they live it. They will instead say...on time deliveries, quality performance, inventory turns, new orders, etc. All of these are important. However, unless actions taken in these various disciplines result in improving cash, are the managers really taking the best action?

Publish the report daily. Distribute it widely. Everyone with the authority for expenditures and commitments of company resources should see it and understand it. They should learn how their actions every day will impact this chart.

Make it a discipline to forecast cash. Ensure that all organizations that have authority to commit and spend resources take ownership of their part of the forecast. Drive the forecast to a daily forecast in the near term.

There are many objections to these ideas. It is best that you break free of these.

For example:

1) This is a very short sighted view -- how would you ever invest? If the only focus is cash, the company will make very short term investment and spending decisions.

Nothing is written that says that the numbers could only go one way. If the company has plans to make investments, the numbers could go the "wrong" way for a time. However, such investments come with forecasts and eventually these forecasts must turn positive, else why invest?

2) This is a job for Treasury. Our sales people, purchasing managers, plant managers, etc., have other things to worry about besides cash and forecasting cash.

It is a fallacy that Treasury controls cash (like it is a fallacy that controllers "control" spending or anything else, but a topic for another day) Rest assured they will worry about those things anyway -- it is what they do, it is in their blood. Cash is the lifeblood of the organization. In the end, with it you have every option available to you, without it you have none. Knowing in advance where you are headed with cash allows for planning that most organizations do not consider. And training all management to understand their impact on this inherently makes better the chances that the company will avoid liquidity and funding problems in the future. What is wrong with having a company full of complete businessmen and businesswomen?

3) We can't share this widely, it is a company secret.

You trust your management with the very existence of the organization -- every day they take actions that bind the company. But somehow they cannot be trusted with this information? How will people work on something if they don't have information about what they are working on? Train them educate them -- their increase in knowledge on this subject will only strengthen the organization's financial condition.

In every instance where I have come into a troubled company -- and the many where we have conducted due diligence but not taken the deal -- among a few others, there was this consistent theme: only someone in finance knew this stuff...maybe. In fact, the most engaged didn't even track cash and debt, only availability. Tracking availability is for the dying company and is understandable in bankrupt companies. But when asked if they tracked cash or debt before they knew they were in trouble, the answer invariably was no.

Cash forces management to look not just at some form of earnings (with all of the inherent "bookkeeping" problems in this measure) but also the balance sheet. Many companies lose track of the balance sheet because they are only focused on operating earnings or some other earnings measure.

Have no fear, plant managers will still deliver parts, sales people will book new orders, engineers will still develop new product -- and these can still be measured. In the meantime, training them on cash, and instilling the daily discipline of focus, will ensure that you have countless cohorts watching the financial condition of your firm.

Regarding the job interview I referenced at the beginning of this post: I didn't get the job. I don't know why, but I know they didn't like the answer about the most important report.

And the company went back into bankruptcy two years later.

We Are All In This Together

In many organizations, the rules seem "different" for the boss. It is easy to become cynical in an organization where the rules seem inappropriately different for different levels of employees. The issue is not one of perfect equality, but relatively equal treatment. For example, no one expects that the CEO and the accounting clerk earn the same pay. However, it seems reasonable to most that the fruits of success and the costs of poor results somehow are more evenly distributed.

This idea can effect many areas: compensation, staffing, layoffs, benefits, etc. For now, I will focus on compensation, and one specific item of compensation -- the annual bonus. There are many issues I have found with most bonus plans that render them completely ineffectual at motivating the intended behaviour -- they are too complex, the formulas can be manipulated, the end of the year comes and no one is quite sure if they will get a bonus and if so how much it will be, at the beginning of the year the employees recognize how hopeless it is to reach the targets so the plan is not an incentive. Over time I will likely address each of these shortcomings.
For now I would like to address the idea that bonus plans should be developed that affect all employees proportionately.

What do I mean by this?

1) A bonus plan should affect all employees -- that is, to the maximum extent possible, all employees should be covered. Yes, I understand union issues, international labor regulations and other factors can hinder this. However, it doesn't preclude the objective -- and that plans should be set and tracked toward achieving this objective.

2) Maximize the opportunity to group people into logical units -- by factory, business unit, etc., where performance can be well measured and understood and that there is some commonality of work product. A group of the total organization is probably too high, and by individual is certainly too low.

3) Avoid individual metrics and performance criteria for purposes of earning a bonus. These are always too much trouble to administer. I have seen too many times where almost every employee has achieved 90%+ of their objectives and earned a great bonus while the company is losing money and the value is deteriorating. Individual metrics and objectives should be used for individual performance measurement that results in raises, promotions...or severance.

4) Either all covered employees should receive a bonus, or none do. This should apply from the CEO on down the line. The idea is that if the organization is having success, then everyone should share in it. If the organization is failing, everyone should feel the pain.

This does not mean that everyone in the end receives the same bonus -- the percent of bonus to salary can certainly be different (and likely higher) the higher one goes on the organization chart. However, it does mean that the formula for bonus determination is common, and it does mean that the performance of the group means much more than the performance of the individual.

Yes, you might ask -- why should we pay a poor performer a bonus? I would ask why are you keeping a poor performer on staff? If they are good enough to be employed, then they are part of the team and should share proportionately in the success.

You might ask -- why should I limit the upside to a good contributor by the average performance of the group? I have seen this handled a couple of different ways: with an additional bonus to the exceptional performance, or conversely, nothing extra -- thereby emphasizing the "team" concept. I cannot strongly choose one over the other as I have seen both handled well.

There are many details to consider in such a plan, and cannot be answered in a blanket manner. These details and answers depend greatly on the circumstances of the company and the leadership style of the CEO. However most critical is to instill a belief in the entire organization based on fact -- that is the CEO and the top executives will not treat themselves well when the rest of the company is suffering. That the fruits of good performance will be shared, as will the pain of poor results.

When such a system is implemented, clearly communicated, and managed well it can go farther to bringing a team together than any other tool available -- and certainly safer and more effective than jumping off a cliff onto a canvas held by your Human Resources director or other such "team building" activities.

Welcome

I have spent the better part of my career in turnaround management. Over the last 13 years, I have been an officer and / or director in several privately held companies. These companies have ranged in size from $200 million in revenue to over $2.5 billion. All but one of these were acquired out of bankruptcy (or near bankruptcy) and all successfully turned around, with profitable results for the owner. In all of these acquisitions, there was not a single instance of a failed turnaround.

I have held several different roles in these situations -- President, Chief Operating Officer, Chief Financial Officer, Chairman of the Board, Chairman of the Compensation Committee. I have also been on the Audit Committee of the Board, and have served on five different boards. Additionally, for four years I was Chairman of the Supervisory Board of a German company -- a wonderful and unique experience. As you might expect, in some cases I played an instrumental role with day-to-day responsibilities, while in one or two I was merely along for the ride...well, maybe providing some guidance.

My intent for this blog is to document and convey some of the tools that I have used in these endeavors. I will not claim that these tools and processes are for everyone, and I have no intent to debate what does or doesn't work -- management is very personal, and style and approach greatly depends on the business leader and the circumstance. What I do know is what I have found to be important for me, and that these have worked for me.

Additionally I will certainly never claim that I solely developed or implemented these. I have had the good blessing to work with many wonderful and capable people, and the story would not have been possible without the hard work and dedication of many wonderful coworkers. In the end, these relationships have been the best thing to come out of my work.