Usually, restructuring is associated with both financial restructuring and reorganising operations because a business is no longer viable. It may be that it is experiencing cash flow problems and heading for or deemed to be insolvent.
The wise business will act as early as possible once problems are identified and may call in a restructuring and turnaround adviser who will conduct a deep and thorough review covering its processes, products or services, its accounts and forecasts and its business model before suggesting a strategy that will allow it to continue trading and recover its position.
This may involve closing loss-making product or service lines, outsourcing some processes, renegotiating terms with suppliers, possibly reducing the workforce or the hours worked and, in some instances, changing the business model. The financial restructuring may involve rescheduling debts and in extreme cases using a formal process like a CVA (Company Voluntary Arrangement).
Who are the stakeholders in business restructuring?
Stakeholders are people and organisations whose interests are affected by the restructuring, or those who can influence them.
They therefore include a wide community including banks, creditors, credit insurers, directors, employees, owners (shareholders), landlords, new investors, suppliers, unions, and arguably customers. In some instances, the government, public and press might also be regarded as stakeholders, as is the case when the company is a large employer or a critical service provider.
For a restructuring to be successful the response and support of these people and organisations is likely to be critical to both approval of proposals and future success.
Directors need to speak with a united voice and be transparent with everyone if they are to get the trust of stakeholders for their proposals. They also need to find a balance between humility, taking responsibility for past failings, while at the same time providing leadership and direction for the proposed changes. If the company is facing insolvency as directors also need to subordinate their own self interests in favour of those of creditors and the company.
Rescheduling debts normally needs the approval of each and every creditor although a minority of dissenting or ransom creditors can be bound by using a CVA.
More important is to ensure ongoing supplies and support will be necessary. This support includes employees who might be poached or look for alternative employment, suppliers who might be wary of extending further credit, trade insurers, asset-based lenders who finance critical equipment, even customers who can take their business elsewhere.
The support of employees should not be taken for granted. While they may be fearful of losing their jobs and may be asked to accept some alterations to their remuneration, hours of work or the work they do, negotiating this can be fraught with complications since you will not want to demotivate them in the process. Notwithstanding the potential loss of morale and survivors’ guilt felt by those who keep their jobs when others are made redundant, employment legislation needs to be observed if costly tribunals are to be avoided. This is where employees’ union(s) or representatives can be useful and should be brought into the discussions as early as possible. Employees’ co-operation and support can make all the difference to success or failure.
The critical argument that should enlist the support of all stakeholders is that it is in their interests to support the business through the process of restructuring, however uncomfortable it might be in the short term.
The justification is likely to be survival, recovery and eventual growth of the business for the benefit of everyone in the medium and long term.