Phase 1: An assessment of the business status, requiring a detailed “as-is” analysis of the company.
Phase 2: The development of a business case to address the key issues identified during the business status assessment.
Phase 3: Consultation with and approval of various stakeholders who are impacted on by the business case.
Phase 4: Employee consultation and feedback as well as compliance with regulatory processes.
Phase 5: Business case approval and implementation.
Phase 6: Post business case implementation review.
As part of ensuring that the restructuring process achieves its desired outcome, it is important to apply a thorough process of risk management throughout the various phases of restructuring. I am by no means a restructuring risk expert, but I list a few that I refer to as “common sense” risks that should be taken into account as part of any restructuring process:
- The restructuring business case
The restructuring business case or operational plan provides the basis or core reason for why company restructuring is required. A strong business case must clearly outline the key factors that instigate the restructure, for example financial, operational or environmental indicators, as well as the required deliverables with defined time frames in which to establish the new restructured entity. The business case is the most important document. It is the company’s point of referral for its decision to restructure. Stakeholders will also scrutinise and challenge this document/plan meticulously. Due to the dynamic nature of certain industries, the business assumptions made at the drafting of the business case should continuously be compared to the actual findings as the restructuring process progresses. The following real risks are often a direct outcome of poor restructuring business cases:
- the reasons for the restructuring process are unclear;
- key assumptions (whether qualitative or quantitative) regarding the envisaged state post restructuring are unclear or remain dynamic. This shortfall will prevent the company from measuring whether the restructuring process achieved a change in performance; and
- the lack of a proper post implementation review process; in other words, a “post mortem” to assess whether the results as set out in the business case were actually achieved.
- The restructuring team
The restructuring team will serve as the “nerve centre” in terms of leading the restructuring process. A key requirement is for the team to execute cross-functionality. As a minimum, representatives from the financial, human resources, operations, change management, legal, communications and risk management should form part of the restructuring team. Other key requirements for the restructuring team are the following:
- an appropriate mandate must be established with clear responsibilities;
- their functionality should follow that of a project management office to ensure that all restructuring deliverables are appropriately managed;
- this team should also communicate to ensure that the various stakeholders receive regular and appropriate information on restructuring progress; and
- the team directs and takes full responsibility for the change management process. This process is critical; many companies fail to implement this aspect.
Typical risks associated with the restructuring team are the following:
- an unclear mandate and limited authority in terms of what their deliverables are, as well as a lack of proper cross-functionality;
- poor or a lack of change management expertise to ensure that the “softer” important issues are addressed;
- unclear or a lack of governance processes or structure to monitor the execution of the restructuring business case.
- Impacted stakeholders
A thorough analysis of which stakeholders will be impacted by the restructuring process in terms of their independent objectives and how their objectives may result in risks to your restructuring process is essential. Needless to say, a proper communication plan that considers to whom, what (taking into account language needs in the South African context) and how often the company will communicate to the impacted stakeholders is indispensable. Often a poor communication plan results in the failure of the restructuring process and companies experiencing a significant “pushback” to restructuring. Below is a list of stakeholders who are typically impacted on by restructuring.
- Share owners, shareholders or financiers: Although this group of stakeholders is often the starting point for the need to restructure, it is important to continuously update them on progress regarding the “restructure business case/plan” deliverables. Company boards represent shareholders/share owners; however, the cycle of being updated may not always be timely enough; even worse, the actual restructuring process may be hampered by the conflicting approaches of the board and company executive management. This is often the reason why independent parties are appointed to lead the restructuring process; however, this process also presents its own challenges.
- Suppliers: Suppliers may have long-term commercial agreements with companies. A lack of appropriate analysis may result in significant legal recourse or even increased costs, requiring a change in contractual terms from a restructuring perspective. Another more serious scenario might include suppliers stopping their services to the company due to the pending restructuring, thus placing the company’s core operating activities at significant risk.
- Customers: When companies engage with key customers about their intention to restructure, their concerns are often that a company will not be able to deliver a service or product at the same cost, quality or frequency. In addition, during the restructuring process, highly competitive industry competitors often tend to engage a rival company’s customers to promote their alternative product or service. Ongoing engagement with customers is therefore critical, as well as preventing any negative deviation with regard to customer service levels.
- Competitors: In competitive markets, competitors are always investigating mechanisms and opportunities to increase their market shares. Often the process of restructuring is seen as a potential weakness in the company’s armour. In industries where market forces impact on all participants, it is important to finalise the restructuring process within the set timelines and objectives. This often signifies a competitive advantage. In other sectors where restructuring is driven by internal or external forces, it is important that companies keep a keen eye on competitor activities while they restructure, as their actions will affect the process.
- Regulators and Government requirements: In the South African context, regulatory authorities and certain applicable government agencies play a significant role in influencing the restructuring process. It is essential to consult them timely and inform them on an ongoing basis about the process. Failure to consistently do this or to not comply with their requirements will be detrimental to the restructuring process.
- Employees: Often companies erroneously assume that unions represent all company employees. This wrongful assumption often results in a significant gap in communications and creates a negative workplace environment filled with “corridor rumours”. A large proportion of company employees, as well as middle to senior management not associated with unions, rely solely on company communication. Unfortunately companies often fail this employee segment as their communication process is not robust enough in terms of quality and frequency when it comes to restructuring updates. This is a key contributor to employees (often the most talented ones) leaving the company. Restructuring is never a pain-free process, especially for the affected employees. Companies should always apply the necessary care and sensitivity in communicating to employees as well as in providing appropriate support mechanisms.
- Communities or interested/affected parties: Due to the internal nature of restructuring, this group of stakeholders are overlooked more often than not in terms of consultation and communication. In terms of reputational risk, this group is also the most vocal in terms of publicly raising their concerns. Companies should always ensure that they establish sound communication platforms with clear, ongoing engagement with these stakeholders, as they can harm a company’s reputation and affect the restructuring process.
- Unions: The emergence of labour unions as the most powerful stakeholder to potentially impact the restructuring process cannot over emphasised. Various companies across various industries have felt the brunt of unions as a result of their lack of transparency and/or poor consultative processes. It is important that companies provide a “clear state of affairs” and that the need to restructure is indeed imperative in terms of organisational sustainability. While this is easier said than done, this aspect is often the reason why organisations’ restructuring efforts fail.
Restructuring is a complex process and numerous companies have not been able to achieve the envisaged outcome. The process is never easy due to the nature and sensitivity thereof; however, managing the highlighted risks can go a long way in terms of ensuring that companies successfully implement this exercise.
Authors:
Brendan Maseti (Group Risk Manager – Lonmin Platinum)
Lester Jacobs (Remuneration & Benefits Manager – Lonmin Platinum)
