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7 keys to managing stakeholders

Companies in trouble often suffer from poor relationships with key stakeholders. Stakeholders include investors, lenders, suppliers, customers, management, employees and government regulators.  Some of these stakeholders are mission critical, and others are less important – the power and influence of each category of stakeholder varies with the situation.   Most will be aware that the company is in perilous shape – especially key managers and employees – and will be worried about their exposure to risk if the business goes in the tank.

A history of poor business practices, inadequate communication or “stonewalling,” promises that have not been kept, and unpleasant surprises – all erode their confidence in the business and its current management team.  A key issue is that each stakeholder group will have its own “agenda,” along with different objectives and priorities.  A turnaround plan must address rebuilding stakeholder confidence and reconciling these differing agendas:

Investors and lenders. Rebuilding confidence begins with open communication about the company’s true financial position. That is central to determining their willingness to cooperate in and support a turnaround plan, compared to other options such as a sale or liquidation.  Equity investors and lenders, particularly banks, call for deft handling and close contact.   It is likely that negotiating “breathing room” with lenders will be essential to keeping the business afloat.  During the early stages of a turnaround, regular communication on the short-term cash position and performance against revenue and expense targets will keep lenders “in the loop.”

Management and staff.  Typically, as companies decline, less and less information has been communicated, often out of fear that key people will jump ship. As a result, however, cynicism and morale plummets. Often an “us vs. them” situation develops, along with internal finger-pointing and blame games.  The key here is to orchestrate a quantum leap in terms of open communication about the situation, and to motivate the employees for the challenging times ahead. You have to decide what to communicate, how to communicate it, and when.  An important priority is to prevent good people from leaving, and to identify any critical gaps in talent that need to be filled. That’s why most turnaround professionals recommend conducting a quick audit of management skills early on. Part of this effort aims to identify those key individuals who “get” what you are trying to accomplish, show a willingness to change and will commit to helping.

Key suppliers. Support from downstream supply-chain vendors and other trade creditors can be critical to the success of a turnaround effort. Suppliers have to believe that it is in their best interest to continue to supply the business and to leave credit lines in place.  Dealing with suppliers can be time consuming. One approach is to rank them according to their importance and manage the relationship accordingly, investing time as necessary to engage suppliers at a senior level.  This can pay handsome dividends, as suppliers may be a source of investment capital.

Customers. As the life blood of any business, customers are essential, and reassuring them needs to have a high priority. In many turnarounds, the company may already have good relations with customers, so that continuous reassurance from the current customer-facing personnel is all that is required to keep them in place.  In other situations – especially involving major accounts – it may be best for a turnaround leader to take an active role in key account management.

At IBM, for example, Lou Gerstner took an active role when he implemented “Operation Bear Hug” to restore customer trust. Each member of senior management was tasked to visit five or six large IBM customers over a three-month period.  The goal: To listen, to show that IBM cared, and to implement holding actions where appropriate. After each Bear Hug visit, Gerstner received a two-page summary report. “Bear Hug became a first step in IBM’s culture change…people realized that I really did read every one of those reports, there was great improvement in action and responsiveness,” Gerstner says.

Keeping good customers is essential, and so is losing unprofitable ones.  Refocusing the business usually involves cutting out unprofitable product or service lines a quickly as possible.  Another alternative, especially common in service based businesses, is to grade customers as A’s, B’s, C’s or D’s based on profitability and quality.  In this example, “A” customers rank at the top because they are top-quality, show strong potential for future growth, pay their bills on time and value the services provided.  A “B” customer may show slightly less growth potential but with some effort can upgrade to an “A.” Those customers who are at the C- or D-level may be more trouble than they are worth. Perhaps they are “high-maintenance” customers, slow payers or simply drain away too much of everyone’s energy.   The idea is to “fire” the D’s and even some C’s, so as to devote more time to acquiring and serving the A’s and B’s in the market.

Union Workers. In most cases, union leadership will recognize the harsh reality of companies that are in trouble.  However, obtaining their support for fundamental changes in work rules, pay rates or benefit packages can still be difficult. One need only look at the bankruptcy and workout of General Motors for a recent real-world example.  Last-minute union concessions and a government bailout were all that kept GM afloat.

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