Published in: 2008
Steve Miller is an American business leader who during his career successfully specialized in turnaround cases and took large companies such as Chrysler, Bethlehem Steel and Delphi Corporation back from messy Chapter 11s. The book is a biography in which Miller describes what he learned from his “career in Chapter 11”. In 2018, at the age of 76, Steve Miller left the role of CEO of International Automotive Components.
CHAPTER 11 IS A PROCESS, NOT A SOLUTION. Chapter 11 can buy the board time and give the company the opportunity to re-emerge with a more appropriate capital structure. But a restructuring does not revive companies doomed to fail. Prolonged processes make the business suffer as there is no time to focus on customer care and business development. A chapter 11 process can be compared to some children fighting for an ice cream at the same time as it melts – if they fight for too long, there is no value left once they get along.
“I’m always at the scene of a fire. Half the world thinks I’m a fireman and the other half thinks I’m an arsonist.”
CREDITORS HAVE TWO CHOICES. Each reconstruction results in that the creditors have two choices. Either they continue to fund the business and thus give it time to recover. Or they decide that enough is enough and liquidate the company and divide the cake between them. This at a time when the company value is probably the lowest in a very long time.
“Your choice”, I concluded, “is to feed this horse so that it can run again, or kill it and divide up the meat”.
CRISISES MAKES QUICK MOVES POSSIBLE. The first question a board in a crisis company should ask themselves is whether they have the right management in place. It is not certain that a previously successful CEO is the right person to lead the company through the restructuring. In a crisis, there is no time for lengthy analyzes, debates or bureaucratic processes. Leaders must make quick decisions based on the available decision materials. During times of crisis, leaders are also free to try creative solutions when there is no time for the usual methods.
THE CUSTOMER IS CRUCIAL. Suppliers, investors, and lenders are forced to accept that the reconstruction is likely to cost them money. However, what is crucial for a successful reorganization are the company’s customers. If customers continue to shop after the company has been restructured, it can survive. The board and company management should listen to the customers, they know more about what is wrong with the company than anyone else. And if the customers survive, a stronger company often rises from the reconstruction.
DIFFERENT TYPES OF ASSETS. In a reconstruction, it can be an advantage to sit on a niche asset base that has few alternative uses. An office building in San Francisco or Montreal is worth about as much whether it is owned by an international real estate giant or by a local landlord. A large, especially equipped car factory in Detroit, on the other hand, has few alternative uses – it can hardly be sold. This provides a much better negotiating position against creditors.
LISTEN TO YOUR PEOPLE. Consult all employees, from the boiler room to the managers on the top floor. Ask everyone to send emails and then reply to them in person. If the employees proudly wear hats and shirts with the company logo, morale is good. If no one wants to be identified with the company when they go to the mall, you have problems. Then try to identify the hidden talent in the workforce. Often, potential has been hidden by poor leadership or a weak organization. If these are now in a crisis situation given the opportunity and responsibility, they can develop into new stars.
KEEP TRACK OF THE GENEREAL ECONOMY. When you see dark clouds on the horizon, you can be sure that the storm has already passed someone else. Structural problems usually sweep slowly through the business world and first affect weak sectors but eventually reach the stronger ones. When you get the first signals of a dark cloud in the sky, it is time to prepare. When the storm comes, it knocks out those who have not prepared.
ACKNOWLEDGE MISTAKES AND SHOW WEAKNESS. In business, leaders rarely admit mistakes or show weakness. In Chapter 11, however, it can be beneficial. The only thing a leader can offer creditors is often their integrity – there is no money. This increases the chances of ultimately landing in a solution that benefits all parties.