YOUR AWARD-WINNING SUPPLEMENT
The René Carayol column
Successful business turnaround requires a deft touch | Page 2
Reviving the zombie firms Expert calls for the lending deadlock to be broken | Page 3
BUSINESS TURNAROUND & TRANSFORMATION | September 2014
BUSINESS TURNAROUND
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Leadership is a state of mind, not a set of characteristics
If you want to save a company, you have to fall in love with what you are doing, says business analyst William Kendall Page 7
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Business Turnaround & Transformation
Opening shots René Carayol
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RECENTLY had the special opportunity of interviewing one of the UK’s premier turnaround business leaders, Allan Leighton, in front of a packed house at the Mayfair Hotel in London. There were many great moments, and a standout quote: “Companies don’t die – people kill them”. This took me back to my time at Marks & Spencer during the 80s and early 90s. Its clothing business had a phenomenal market share with a formula that hadn’t changed for years, and had yet to stall. The forceful and outspoken chief executive was Rick Greenbury, his impulsiveness tempered by the calm, thoughtful chairman, Lord Raynor. Rick was a brilliant merchant, but his ego couldn’t resist a good scrap. When the City challenged his boast that M&S’s profits could hit a billion pounds, he just couldn’t back down and eventually trashed the business in delivering the billion pounds of profit in 1998. While making them the second most profitable retailer in the world after Wal-Mart, the business is still shaking from his single-minded assault, as he burned everything that made it special in order to deliver that billion pounds. Perhaps the suicidal move was when Rick became both chairman and chief executive when Lord Raynor retired, lacking any check or balance on his gung-ho and autocratic behaviour. History
THE ESSENTIALS
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Trying to radically move away from what has made you great requires a deft touch tells us that leadership transitions are vital moments in terms of continued growth or completing a turnaround. Hindsight tells us that the transitions at Tesco, BlackBerry and Nokia were all botched. Nokia tried to move away from low-cost consumer handsets to become a key competitor to the smartphone giants Samsung and Apple. By wanting to be all things to all men the brand has blown up in their faces. BlackBerry tried to do the absolute opposite. Going from the safe and secure handset of choice for all business people to, again, trying to take on the smartphone giants Apple and Samsung, has left them with a near-death experience. Trying to radically move away from what has made you great requires a deft touch, otherwise the baby may be thrown out with the bath water. A few years ago, I had the mixed pleasure of
interviewing Lou Gerstner, the former CEO of IBM. He was on the speaking circuit, sharing secrets from his bestselling book on corporate turnarounds, Teaching The Elephant To Dance. He was as hard as nails and as blunt as one could be, but he was also clarity personified. Gerstner had a simple and clear objective that he never lost sight of – save the company. It took him nine years, but IBM’s share price rose eightfold and its market value increased by $150billion. The trick was to move from hardware to software, with a mantra that everyone in the organisation understood: “Selling services, rather than shifting boxes.” Gerstner’s successor was Sam Palmisano. He had spent more than 30 years at IBM and was very different to his predecessor. The clever trick that IBM pulled was to move Gerstner, the first ever outsider to lead IBM, to the position of chairman, and help bed in the insider, Palmisano. Gerstner was memorably quoted when responding to a question “What was his vision for the company?”, responding: “The last thing IBM needs now is a vision.” A quick glance at the transitions at M&S sees CEOs coming in, CEOs departing, and the new leader feeling they have to start from scratch. Despite the disruptions, M&S still has a near-11 per cent share of the UK clothing business – unbelievably high in these ultra-competitive times. Perhaps the real issue for the likes of M&S is that they have become national treasures, much like Barclays and British Airways. They retain incredible loyalty, but also attract unbelievable criticism. While people may well kill companies, people can also save them.
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Business Turnaround & Transformation
Zombie companies: investment needed to spark revival By Joanne Frearson ZOMBIE companies which struggle to pay their debts, existing by only paying off the interest on their loans are considered to be a drag on the economy. Last year, research from financial health monitoring specialists Company Watch showed there were more than 227,000 zombie companies in the UK, an increase of 108 per cent from five years ago before the recession took hold, when there were 109,000 zombie firms. But there is hope yet for the corporate walk ing dead. Business turnaround is possible for zombie companies if investors are willing to inject the money necessary to make them come alive. Amin Amiri, principal at a2e Venture Catalysts, says: “In a lot of cases, companies are zombies because they can’t have access to appropriate finance. Even if they get an order, they cannot fund it.” According to Amiri, demand is supressed, and there has been a death of appropriate capital for companies – especially small and mid-market ones. He says: “Lending to small and midmarket businesses by the big banks has continuously gone down in the past six or seven
years. The real issue is a structural one, in the sense that we only have four big banks in the UK and they dominate the lending to the small and medium-sized businesses. “There is no competition. There are a lot of smaller players that provide lending, but if you add them all up it is less than 4 or 5 per cent of the total lending.” Amiri has been helping to save zombie companies by investing in them even if it means putting his own money in. He says: “That is what I found with container holding firm Eldapoint – I had to put money in personally. If there was nobody to put money in we could not take the orders. “Eldapoint was a zombie because it was part of a portfolio of a private equity firm, which they were trying to close. There was no appetite for them to invest. The business was making losses or breaking even. It would not grow and it would not go down. It was not bad enough to kill and it was not good enough to invest in. The private equity firm wanted to move it on.” Amiri saw potential in Eldapoint. He says: “It is based in Liverpool, and this city is going to be one of the biggest
Amin Amiri turned around shipping firm Eldapoint, thanks largely to its location in a resurgent Liverpool
ports in Europe next year. To me this was gold because once Liverpool 2 opens, there will be more shipping liners coming to the city. “Eldapoint owned six or seven acres of prime container space in Liverpool. If we put up the housing rates for keeping the containers by 10 per cent we could generate about £1million of profit.” Amiri also split Eldapoint’s manufacturing division from
its container section with a view to selling it later as a separate division, and is seeing the firm emerge from its zombie status. He says: “We paid nearly £4.5million for it and it had made no profit in the year we bought it. [The following year] it made £100,000 and we are hoping the year to March 2015 it will make about £800,000.” It seems that, with a little bit of love zombie companies can return to life.
New credentials for turnaround profession THE EUROPEAN Association of Certified Turnaround Professionals (EACTP) is developing the first Europe-wide accreditat ion prog ram me for a ll turnaround professionals. Jan Adriaanse, professor of turnaround management in the Business Studies department at Leiden University is helping to develop the programme. Adriaanse says:
“It is very important for turnaround management practitioners over Europe to understand that their profession needs to have this type of programme, to help enhance the reputation of what they do and the skills involved. “It is difficult to know who is good and reliable to work with. If there is an established programme with an exam and
practitioners who are certified and assessed it gives much more reassurance to people. “There is also an EU recommendation that member states move quickly to have a pre-insolvency consensual turnaround process in their law to facilitate business recovery before insolvency, so having such a qualification will be a real benefit for practitioners working in this area.”
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Turnaround skills seen as greater asset AN AILING brand can be protected through turnaround skills, says Christine Elliot, chief executive at the Institute for Turnaround (IFT). She says: “Great brands have been protec ted because turnaround professionals were brought in at the right point. Turnaround skills are being used muc h more as a management tool.” Another trend she is seeing is along the governance trail. She says: “At IFT we require all our members to be accredited. The accreditation does not simply mean having exams which all our people do anyway. It means proving you have the credentials to do the job.” She believes the companies that are embracing governance as opposed to waiting to be regulated are those that are gaining a competitive edge. Turnaround is about adding value to a business. She says: “It is about using those specialist skills to boost the potential of a business and help them grow and do various other things.” Elliot believes it is important to recognise that there are different ways of achieving turnaround. It is crucial in distressed situations to give businesses every opportunity to grow, rather than close them immediately.
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Business Turnaround & Transformation
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Turnaround in a nutshell SMEs lead the way to restructuring our economy INDUSTRY VIEW
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dmit it, you looked at this article’s title and – unless you’re a practitioner in turnaround – are going to turn the page or stop reading. You expect a homily about coping with adversity in business and quite frankly, you wouldn’t want to be in the same room with companies “in trouble”. That’s a perfectly understandable reaction, given some interpretations of the “t-word”. Instead, let’s talk about people, because they, in a nutshell, are what true turnaround is about. In 2013, there were 4.9 million businesses in the UK; more than 99 per cent small or medium-sized businesses employing up to 249 people. Calling these companies SMEs somehow diminishes their economic and social importance, relative to the charmed circle of publicly quoted companies. It is the people who run these SME companies – and the people working in them – who have a major stake and role in bringing about the sustained economic recovery, and one that can benefit the majority of people in the UK.
Recessionary hangover Some features of our recessionary hangover concern policymakers such as the Bank of England and sufficiently to restrain any sudden or material hike in interest rates. First, there are changed employment patterns, as there are more in work but on short-term contacts or working part time. There is a large, puzzling shortfall in productivity, which underpins estimates of the economy’s ability to grow without generating too much inflation. Some analysts attribute the lack of real growth in wages to the UK’s low productivity. Low wages mean less discretionary spending and more hardship. Overall, British workers now produce about a fifth less for every hour worked than any other leading G7 nation. There is also the inequality between regional share and the City and the London faster bounce back from 2008. As sharp as the northsouth divide is the relative fiscal and financial treatment of SMEs and tradeable stocks. IFT research has shown that even back in 2012, large companies thought lending conditions were improving. Smaller ones faced steeper fees, shorter term lengths
and higher interest rates. Then there’s reward in proportion to value. The average FTSE 100 chief executive’s pay increased from £4.1million to £4.7million in 2013, said a July report from the non-partisan High Pay Centre. With executive pay in FTSE companies almost 180 times more than the average worker’s, is it really any wonder big business has failed to re-establish trust in the wake of recession? In the face of a rapidly widening inequality gap, in which the “squeezed middle” has become the disaffected new working class, are we kidding ourselves that this situation is sustainable? The High Pay Centre says: “A maximum pay ratio would recognise the important principle that all workers should share in a company’s success and that gaps between those at the top and low and middle earners cannot just get wider and wider.”
Ignorance inhibits growth SMEs have the potential to change this unappealing economic and social landscape. According to the FT, “the biggest bar to growth remains ignorance”. A recent study of 300 SMEs, commissioned by Money & Co. claimed UK SMEs had an annual unmet need for finance of £4.3bn. Whether for growing or turning around companies, it’s never an issue for FTSE businesses. But SMEs have found it especially tough to get access to affordable capital and a level playing field on which to invest. Yet the SME survivors, who have ducked, dived and adapted through the lean years, are well placed to deliver the economic boost and inclusivity we need in the UK. SMEs are culturally significant too. Of SME employers, according to The Department for Business, Innovation and Skills (BIS), 19 per cent were led by women in 2012, five points up on 2010. A further 23 per cent of SME employers were equally led by men and women, meaning that 42 per cent were part-led by women. In other words, it is a more balanced mix of talents, often reflecting family ownership.
SMEs boost the wider economy SMEs are geographically essential to spreading the benefits of growth and prosperity. It is clear that they could do so faster and less riskily by harnessing the skills and experience of accredited turnaround professionals. Turnaround is like an advanced driving test of business, and it’s only a success if it’s sustainable. Parachuting in for six months, while a company is in crisis to do a financial fix should not be the end-game, because at best it creates a
watershed moment during which turnaround can be completed. A short, sharp turnaround can fix a company so it survives – but for how long? Insolvency has long been recognised as value-destructive, and the jobs it creates are not necessarily long term. So how will latent but stagnating value be reclaimed? True turnaround is, in IFT’s definition, “the sustainable return to viability of an underperforming organisation”. Underperforming could just as easily be an organisation needing to scale up, or grasp the opportunity of internationalising, or integrating an acquisition, or adapting to new distribution channels and technologies. It’s a step-change that needs to be executed at speed and with simplicity and focus.
Accreditation counts At the Institute for Turnaround (IFT) we have always been committed to insisting that our members prove their credentials to do this stretching work, not only by virtue of paper-based qualifications, but by an assessment of performance across 40 core competencies. There are three independently validated case studies, the testimony of two appropriate sponsors who reference the applicant’s longer career, and a testing interview that justifies our application process as being described as robust, transparent and consistent. You cannot just join IFT by paying a subscription, you have to prove worthy of the brand. After all, you wouldn’t entrust your company’s brand to an unproven quantity. Year-on-year, each member is required to complete an annual declaration and to satisfy the institute that relevant Continuing Professional Development (CPD) has been completed. IFT established the world’s first Practising Certificate for Turnaround Professionals and this carries extra requirement in terms of CPD, professional indemnity insurance, independent auditing and so on. There are benefits too, for the turnaround professionals who use the transformative aspects of their skills. Diversifying their application away from only stressed and distressed situations, broadens their options at different times in the economy’s and companies’ existence. Academic Dr Andy Bass and I believe that a portfolio of engagements at various phases in the business lifecycle increases
the impact of the work the accredited practitioners are doing because: • You transfer learning and experience • You work in a broader range of sectors and facilitate cross-pollination of ideas • You are likely to empower management in a way you cannot when you are the focus of a single deep engagement
Business is people Those in the turnaround community are uniquely placed to lead the necessary shift in British business: the exciting thought is that it’s a perspective-only shift. The skills of turnaround professionals can add great value in a broad range of phases, and it can be personally and professionally rewarding for accredited professionals to apply them more broadly. Ensuring the survival of an enterprise is a crucial goal if it is potentially viable. However, open up your thinking and get ahead of the competition by getting the right turnaround practitioner alongside. He or she should have the knowledge and experience to make your company go further and help it to thrive. Ultimately, UK plc is not going to recover through financial restructurings alone. We need people to focus, operate and grow real businesses. The only way to drive sustainable turnaround is by winning hearts and minds and by changing behaviours and culture. That is why regulators in the financial services sector are so fixated on principles-based regulation – because rulebooks document obstacles that can be navigated around, whereas principles deal with high-level behaviours, cultural norms and standards. Turnaround, from whatever starting position, sets out a road map towards better business and economic success. In a nutshell, turnaround is about one thing: people. So let’s hear it for specially magnificent enterprises, the SMEs that can enrich the UK economically, socially and culturally. The savvy ones know that with turnaround knowledge and resources, they can do it faster, cheaper and smarter. Christine Elliott (left) is the chief executive for the Institute for Turnaround +44 20 3102 7710 www.instituteforturnaround.com
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By Joanne Frearson
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ORD Adebowale has a big, friendly smile on his face as he greets me in his office. His humanistic approach to management and leading change in business is evident. He tells me people like to be managed by someone who is human. His background when it comes to managing organisational change is impressive. In 2013, he won the Institute for Turnaround (IFT) Foundation Award for his work in the third sector. Under his leadership at social care enterprise Turning Point, where he is chief executive, annual turnover has increased threefold. He attributes changes at Turning Point not to himself, but to having an amazing team. “The people I work with now are great,” he enthuses. Lord Adebowale says his colleagues at Turning Point are people who “I would choose to play with if I were at school in the playground. They are great to work with. We have done a good enough job to date, and there is lots more to do here.” According to Lord Adebowale, there is no distinction when it comes to turning around and changing a private company or a charity. It is about putting the services and clients first. He says: “When I wake up in the morning and I am at Turning Point, I am legally obliged to improve the lives of our clients. On the way to do that, it would be a good idea if I was legal, safe and able to grow the company. “If I worked for some private equity company, I would wake up in the morning and be legally obliged to improve short-term or long-term shareholder value and on the way to doing that it would be a good idea if we were legal, safe and growing the firm. “Organisations change for all kinds of reasons – to increase profit margin, market share, mergers and acquisitions… ultimately, the changes at work are all driven by a thorough understanding of the dynamics that occur between groups of people.”
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UCH of the change work Lord Adebowale has undertaken is helping leaders to understand the different groups and dynamics that there are in an organisation. He says: “Turnaround is a change exercise, and you have to understand not everyone is in the same place as the leadership.” Although there will be some people who will be excited about the change, he says, “unfortunately most people are in the middle, while there is another group of people who are mourning the past”. The leader has to take everyone with them. But no matter whether a person wants to go along with the change or not, it is important not to brutalise people. When this happens, he says, “the people remaining look at it and think, what kind of an
Leaders need to be realistic about what they can achieve organisation is this? What will happen to me if I say, wait, hang on? All things will be lost. “People should be treated well in either circumstance, because what can sometimes kill a culture is people watch how people who dissent are treated. People generally like to be led by other human beings. It just helps. You have got to be human, which is hard to do sometimes because the more power you have, the more it can weaken your humanity.” Lord Adebowale is fascinated by organisations and leadership and how it works in different
settings. Besides his role as chief executive of Turning Point he also sits in the House of Lords as a crossbench peer, advising the government on mental health and learning disability issues. He believes it is important to distribute leadership throughout the business which, though counter-intuitive in the Western model of leadership, he feels is necessary. He says: “Our culture here is to encourage people to take on not just management roles, which are the understanding and distribution of resource, but to understand their role as
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individuals on what I call the leadership state of mind. Leadership is a state of mind and not a set of characteristics – understanding who you are and where you are, and the impact that has on you and the people that you lead, is crucial. That is easier said than done. “Leaders need to be realistic about what they can and can’t achieve. Things that are very difficult to do – they have got to be prepared to walk away from things if they are not working. They have got to understand when to say no. “They have got to have mechanisms, what I call a line of sight to what is happening on the front. As far as change is concerned, never discount the need for help.” Lord Adebowale is inspired by the people he works with. For him, it is about being human and wanting to improve the human condition. He says: “I consider it a huge privilege for someone to trust us at that point [when they are low] in their lives, and everybody whether they are rich, poor or powerful will come to that point. And at that point I hope they will receive a service from someone who they can trust and for whom that person considers it a privilege to have that opportunity. I am inspired by the people that I work with.” Turning around an organisation can be incredibly difficult and challenging. Lord Adebowale has dedicated his career to understand how the different dynamics within a firm work. When a company takes on a hu ma n ist ic approac h to ma nag i ng turnaround, real change can happen.
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Protective Transforming business fortunes measures to take today INDUSTRY VIEW
Tony Groom K2 Partners
Tyrone Courtman Cooper Parry
www.k2-partners.com tony.groom@k2partners.com
www.pkfcooperparry.com tyronec @cooperparry.com
Ward off market uncertainties even in times of growth INDUSTRY VIEW
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Justin Stephenson Jeffrey Green Russell
David Hole Galen Partners
www.jgrweb.com cjs@jgrlaw.co.uk
www.galenpartners.co.uk davidhole @galenpartners.co.uk
Neil Chesterton The MacDonald Partnership
David Bryan Bryan, Mansell & Tilley
www.tmp.co.uk neil_chesterton@tmp.co.uk
www.bmandt.eu dbryan@bmandt.eu
ransforming a business is not about restructuring the balance sheet to make it look solvent, it is about fundamentally changing its prospects. The best way for management teams to transform the fortunes of a business is to use independent advisers who can tell them how it is and what they need to do in order to grow. Tony Groom, chief executive at K2 Business Partners, says: “As advisers our focus is on saving the company by transforming its fortunes and achieving growth, not an insolvency appointment which tends to be preferred by the insolvency profession. “We have a pivotal role to play transforming the prospects of a business future that finds itself short of cash. There are a lot of overinvested companies that, if properly advised, could grow.” Guidance from independent advisers is crucial to avoid conflicts of interest. Tyrone Courtman, partner and head of restructuring at PKF Cooper Parry says: “Whoever the stakeholders are imposing on the business, it is critical for the directors to recognise the need to take their own independent advice. Whoever is introduced by key stakeholders, typically the bank, may find themselves conflicted. This is likely if the imposed advisors are a bank-approved firm. In such circumstances, to whom do you think the advisors’ loyalties are likely to lie?“ One possible way to secure a proposed advisors’ independence is to get them to confirm that they won’t accept an appointment as Administrator.
Justin Stephenson, director at Jeffrey Green Russell, says: “We don’t adopt a one-size-fits-all approach – we look at every option. Pre-packs are one of many tools that should be considered by an adviser. It should not be considered at the exclusion of all others. I am very happy to use pre-packs in the right circumstances. What I am not happy with is when they are used in every circumstance.” Advisers also have access to funding. David Hole, partner at Galen Partners, says: “We have loads of money looking for a home and funders asking for an introduction to clients. The challenge for business owners is to make their proposition more compelling than everyone else when they might not be looking too pretty. “The lender market has both debt and equity liquidity, but being lender and investment-ready is the key.” A Company Voluntary Arrangement (CVA) can also be used. Neil Chesterton, director at The MacDonald Partnership, says: “The CVA remains a flexible and effective rescue tool, and is best used in conjunction with fresh funding. CVA also allows a breathing space to stabilise and properly structure the business in its transformation.” Successful transformations have the support of all its employees. A consensual turnaround, says David Bryan, principal at Bryan, Mansell & Tilley, “creates the opportunity to negotiate win-win deals with all stakeholders to preserve value in the business, and also confidentiality. It is a way of saving the company without everyone else knowing and without creating adverse publicity.”
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espite improving economic growth, a number of corporates are facing tough trading conditions. Risks arising from future interest rate rises and a strong pound, in addition to fallout from world events such as the impact from recent EU trade sanctions on Russia, indicate that there are number of reasons for corporates to remain cautious in their outlook and ensure appropriate contingency plans are in place. Favourable borrowing terms have helped corporates lower borrowing costs and made incremental leverage more manageable. However, many corporates are at risk of overreaching themselves, and whether refinancing or transacting, business plans must be subjected to rigorous stress testing. We are witnessing increasing levels of bond issuances across Europe and for corporates; bond financing has two principal advantages – a bullet repayment profile and therefore lower levels of debt service and a higher degree of covenant flexibility. The combination of these factors can give rise to significantly higher refinancing risks (when perhaps debt markets will be less favourable) and increased liquidity risk. Finance directors need to appropriately manage refinancing risk from the outset by optimising cash generation opportunities and earnings potential. The importance of streamlining excess working capital should not be overlooked, particularly when the corporate agenda is focused towards growth, whereby inefficiencies in a company’s cash conversion cycle can often be overlooked – attributed instead to a necessary by-product of funding growth. In turn, more cautious behaviour stemming from inherent uncertainties in the broader economy leads to lower orders being made, delays to investment and a consequent impact on cash cycles. Now feels like a good time for finance directors to take stock and make sure internal processes such as working capital management, business planning techniques and funding structures are not only enabling companies to be best positioned to take advantage of recovery in the economy, but also protect against downside risk. Simon Granger is Senior MD at FTI Consulting LLP +44 (0)20 3727 1209 simon.granger@fticonsulting.com
Stay calm and take advice from the professionals INDUSTRY VIEW It has never been more important for directors to understand the personal claims that can be pursued against them if their company goes into liquidation or administration. Liabilities such as claims on personal guarantees are obvious, although other claims may arise as a result of company management. A common example is where a liquidator pursues directors for losses incurred when the company continued to trade after it ought to have been clear that liquidation was inevitable. Directors are also running into difficulties with HMRC pursuing claims for unpaid NI, on the basis that HMRC has suffered a loss resulting from the director’s neglect. However, disqualification proceedings continue to present the highest threat. For many years they were reserved for directors involved in multiple insolvencies or in serious cases of dishonesty or mismanagement. Cases are now being pursued against directors with first-time business failures, often on the sole grounds that trade creditors have been paid while tax liabilities have been not. Disqualification orders prevent individuals from acting as directors or being directly or indirectly involved in the management of limited companies. This can have serious consequences for a company director, as the minimum period of disqualification is two years. Take and follow professional advice as soon as you identify an issue, as these problems can be avoided. Beware, though – the insolvency practitioner who you might consult with will not be providing you with personal advice on your position as a director. Mark Lund is a solicitor and licenced insolvency practitioner at Turner Parkinson 0161 833 1212 www.tp.co.uk
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Try to fall in love with what you do
The big interview William Kendall
By Joanne Frearson
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RANSFORMINGacompany can be a bit like falling in love. William Kendall, the entrepreneur who helped revitalise organic chocolate firm Green & Black’s and New Covent Garden Soup Company, has a philosophy – if he can fall in love with a product, then it is likely his customers will as well. “Before I have even got involved I have fallen in love with the idea,” he tells me down a crackly phone line. “Then you try and work out all the bits that are working and the bits that aren’t.” Kendall fell in love with Green & Black’s because “chocolate is a bit like wine,” he says. “There is a huge expertise in producing the raw material in chocolate. It can mean the difference between having a good or a bad product. I love that side of it. I love businesses with stories as I like telling stories.” For Green & Black’s, it was about creating a brand that would make people think they had “discovered chocolate for the first time and to share this secret with their friends”. Kendall’s transformation of Green & Black’s was impressive. When he acquired a stake in 1999 it was only turning over “a couple of million pounds and losing quite a lot of money”. But after six yearsthe business was turning over £30million to £50million. The firm was sold to Cadbury in 2005. New Covent Garden Soup Company, Kendall’s first business venture, has a similar success story. He became involved around 1990, saying that when he first took over “we turned over £2million and then amazingly we lost £2million”. But eight years later, the fortunes of the company changed. It was making a turnover of about £20million when Kendall decided to sell up in 1998. He was drawn to New Covent Garden Soup Company because of his habit of making soup for his friends at the time. “I was in my mid-20s and we had a farm in the country,” says Kendall. “I was having lots of friends to
stay and I used to produce gallons of soup. “I realised the versatility of it all and that people wanted home-made, quality soup. It appealed to me and my generation – we wanted really good-quality food made with good ingredients. We did not want over-processed food, which was what was available at the time. There weren’t any [decent] ready meals being produced.” But a company that has great ideas and stories also needs a good financial system in place in order for it to really be transformed. “Usually in the businesses I have been involved in, the numbers have not been very good,” he says. “There is normally a very detailed financial plan from the entrepreneur which says we are going to achieve this, and then there is someone who is collating the numbers. “But normally the systems [they have in place] are not brilliant and people are relying on flawed information. Running any business with flawed numbers is very difficult.” In the early days of New Covent Garden Soup Company, Kendall says he worked with a “brilliant” commercial finance director. “He is just one of those people who likes to analyse figures,” he says. “He likes to find out, he is like a pathologist, he probes and probes and probes. He tends to be quite doubting and when the sales director says we have a wonderful new concept, you need someone to come along and say, are we selling it at a profit? It is not about having a beautiful system. It is about having a system that tells you what is going on in real time. “Not only does it have to reveal that information, it also has to reveal it in a way that other people, the non-financially literate or semi-financially literate can
understand. What you want are the people out there who are selling, marketing and producing to understand the dynamics of the business. “You want the people developing new products to understand that if they don’t develop them with the right margin, it is a complete waste of everyone’s time. They need to know if they go below a certain price they are damaging the business that they are working for. “Information needs to be obtained quickly and accurately – if it takes you weeks or days or months to find out what went on yesterday then it is useless.” Kendall believes fixing one problem can often reveal another series of problems. He says: “Getting a business to work is about getting a thousand things right. You try to fix the big problems first, but you do not necessarily get that much payback from them because they end up revealing another set of problems. “There is no such thing as success straight away. My advice to anyone starting out is to make sure you have got enough money, to make sure you have got enough petrol in the tank. If you think you have enough petrol in the tank, double it, as it is never enough.” Presently, Kendall is working with his Covent Garden/Green & Black’s team at drinks business Cawston Press, which produces a low-sugar fruit juice product. He says: “We are just in the building mode. The great thing about the drinks and food industry is that once you get to a certain level it is much easier to grow. There is a growing number of people who don’t want too much sugar in their drinks – we should all be drinking more water, but we do not always want to. We are trying to provide a solution for that. “We have a great bunch of people working there, luckily, who have some experience of doing it before. We just want to grow it. We have lots of export markets opening up. This could be a £25-50million business.”
CHOCOHOLIC: William Kendall, left, revitalised the New Covent Garden Soup Company and took over ailing chocolatiers Green & Black’s – both went on to become multimillionpound success stories
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Business Reporter 路 September 2014
Business Turnaround & Transformation
ExpertInsight
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A better way to rescue struggling businesses INDUSTRY VIEW
E
ver since the 1986 Insolvency Act ushered in the modern era for corporate recovery and personal insolvency, creditors and other stakeholders have been subjected to a procedural regime impenetrable to the outsider, suffused with opacity and having little regard to the burden of costs on an already insolvent estate. For too long, insolvency practitioners have charged fees based on what seem to outsiders like stratospheric hourly rates and have been subject to little effective accountability, especially in smaller cases, or those where a high-street bank is not owed money. They have provided strictly limited information in compliance with undemanding legal requirements, leaving interested parties largely in the
dark. They have preferred to opt for formal procedures such as administration or liquidation, which deliver near-absolute control to the IP. The result is a deep-seated public mistrust of the profession and its actions, good or otherwise. After a series of high profile retail failures which highlighted miniscule returns for unsecured creditors and huge fees earned by IPs, the government has finally acted, consulting on far-reaching changes to the UK insolvency regime. Before this threat to the old order emerged, some insolvency firms had grasped the reality that formal procedures destroy value, concluding instead that consensual work-outs should always be the first choice provided that experts are involved sufficiently early. These cutting-edge firms are pioneering a new world of transparency, keeping those concerned informed
on progress far more extensively than the law requires. Most of all, they seek to give stakeholders as much certainty on costs as possible by quoting and agreeing fixed fees at the outset. A brave and uncomfortable new world perhaps, but this is the future for restructuring and insolvency professionals and a far fairer process for those on the receiving end of their expertise. Steve Parker (left) is a partner at Opus Restructuring steve.parker@opusllp.com www.opusllp.com