Fighting the Battle against Corporate Insolvencies and Crisis. |
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By: Christopher Earmis Posted: 2013-09-16 02:33:36 |
| Several studies have addressed the relevance of turnaround management. In Germany alone, the number of insolvencies grew from 22,344 companies in 1995 to 36,843 in 2005. These insolvencies cost Germany 168,000 jobs and about 22.8 billion Euro in outstanding debt. The trend decreased slightly in 2007 to 29,160 insolvencies, but the number of insolvencies increased again in 2008 and 2009 because of a declining economy.The Turnaround Management Society a not for profit organization of corporate restructuring professionals and turnaround management academics from all over the world developed under the supervision of Dr. In general there was no structured, controlled way to restructure a company until the ITMS was created. Although there has been much academic research on the causes and consequences of corporate restructuring - for example, documenting how restructuring affects companies' stock prices - much less is known about the practice of restructuring. The ITMS is based on essentially every book and article available on turnaround management.Only 38 percent of all companies that get into a turnaround situation actually make the turnaround, and only 22 per cent reach sustainable returns. The ITMS is intended to help increase this number by offering a structured and standardized turnaround process in addition to an analysis of which turnaround strategies and measures have actually led to successful turnarounds.Until the ITMS, few books were published that included real research behind successful turnaround strategies, so most of what transpires inside these companies is still a black box. The ITMS is based on over 150 case studies of successful turnarounds and will be extended farther in the future. Not even successful and experienced Turnaround Leaders can have the strategies employed in 150 successful cases and most available literature in his or her head when taking on the difficult and often seemingly impossible challenge of leading a sick company back to health.Although there has been much academic research on the causes and consequences of corporate restructuring—for example, documenting how restructuring affects companies stock prices — much less is known about the practice of restructuring. The International Turnaround Management Standard (ITMS) defines the practice of restructuring in a way that provides the Turnaround Leader with the necessary information at the time that he or she needs it, without his or her having to research the best possible strategies. The standard will tell the Turnaround Leader whom to inform at what time. This type of decision-making process will greatly contribute to the long-term success and stability of any turnaround action.Most extant turnaround studies have been done on the manufacturing industries. A few studies have drawn on a sample that presents an in-depth view of a particular industry or type of industry (other than the concentrated industry often found at mature industrial stages), but there are also major variations in the methods used to study the theory. The TMS Study that this standard is based on includes over 150 cases from all industries. The conclusion shows that managing the factors that make firms successful can reverse a decline. For example, successful companies are less resistant to change than unsuccessful companies are, they avoid big projects that become albatrosses, and they plan more.Existing research suggested that voluntary or preemptive restructuring can generate more value than restructuring done under the imminent threat of bankruptcy or a hostile takeover. However, not all companies perform restructuring before a crisis hits.Still, future research is needed to determine whether monitoring mechanisms 'e.g., executing compensation in the form of stock options linked to turnaround success, the use of external board members [as proposed in this standard], and the influence of large blocks of institutional shareholders actually curtail such managerial opportunism' (such as poison pills that serve only the short-term interest of top management) and whether they support or obstruct recovery through turnarounds. |
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