Unexpectedly Intriguing!
April 5, 2006

In the world of business failures, the words "management turmoil" and "bankruptcy" are often found together (here's a Google search to prove it!) To be blunt, the failure of a CEO to address management turmoil within their business, or rather, their failure to effectively deal with any persistent and consuming conflicts between the senior executives of an organization is one of the key factors in determining whether or not a business will ultimately survive.

Examples abound of distressed companies whose path toward bankruptcy court was ensured through turmoil in its management ranks. The following short list was compiled by taking the list of the largest corporate bankruptcies in U.S. history, and reducing it to those companies who filed for bankruptcy last year (2005). The links point to news articles mentioning conflicts among each company's management team that coincided with their bankruptcies:

So, what's a good manager to do to turn a situation like this around at their company?

Turnaround specialist CFO Alternatives LP offers the following five-step program to save the distressed business:

  1. Stabilize cash flow and "stop the bleeding".
  2. Ascertain the current and future viability of the business through an intense one to two-week evaluation.
  3. Develop a clear understanding of the company’s situation and alternative courses of action.
  4. Determine if adequate management resources are available to implement the turnaround plan.
  5. Restructure the business consistent with the turnaround plan.

While all the steps are important, the fifth step is ultimately what decides the success or failure of a distressed company. We have, right now, several highly visible experiments that will make or break the careers of the managers who have been tasked with rehabilitating several major companies, which include Ford and General Motors. Both of these companies' poor performance in recent years has been characterized in part by management turmoil. We will find out soon enough if the current generation of management leaders will be successful in restructuring both companies enough to ensure their survival.

Update: Management turmoil rocks Political Calculations' favorite business analysis subject Air America Radio! Will the company's new leaders, the fourth generation in just two years, follow the five-step turnaround plan and save the business? Or is this just a light tap on AAR's acceleration pedal toward bankruptcy? Stay tuned!


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