Insights

Role of the CRO becoming embedded in Australian business


Michael Fingland

Executive Director

Australian business has been dealing with post-GFC fallout for more than four years, with no sign of tough conditions easing.

These market conditions will accelerate the already rapid growth of the most recent C-suite role in Australia: the Chief Restructuring Officer.

Forward-thinking companies in Australia are already actively incorporating CROs into their management teams.

At Vantage Performance, we have been embedding CROs for some time. And not just into troubled businesses – CROs are also guiding capital raising, post-merger integration, profit improvement and operational restructuring, and helping management deal with high growth.

Financiers, private equity and investors alike often expect a CRO to be engaged to assist in restructuring activities before they will agree to funding.

Placing an effective CRO in a business allows them to take charge of developing and implementing a restructure plan, leaving management (now insulated from the detailed reorganisation process) free to focus on the core business and day-to-day operations.

In Australia CROs are often inserted alongside the existing management team as an interim executive.

The other model, most commonly used in the US and Europe, is to appoint a CEO with CRO experience for a defined period of say 2 to 3 years.

So CROs can work with management or take on the CEO role, and companies need to decide early on in the appointment process which is the best option for their business.

A business might use a CRO if:

  • the board or managers are overwhelmed by crisis
  • cash flow is becoming tighter and there is increasing pressure to find a solution
  • management lacks the skill set to manage the challenges or stakeholders
  • bankers/financiers are losing confidence in management’s capability or plans
  • fresh ideas, support and energy are needed to identify and implement solutions.

A CRO has specialist knowledge in restructuring and turnaround situations. They can be of benefit whether it’s a short term cash crunch or a more fundamental issue within a business – from post-merger integration to acquisition, divesting major assets or risk mitigation when planning for rapid growth.

The CRO model offers a more hands-on approach compared to consulting services, and when the business situation has stabilised, the CRO can focus on training the management team to ensure that the solutions are sustained long after they are gone.

When in crisis, or even post-merger, many organisations get to a point where they are overwhelmed with the complexity of strategic and operational issues to deal with. They consume valuable time without results and management loses confidence, and the confidence of their key stakeholders.

The goal of the CRO is to restructure a distressed company’s balance sheet, provide an objective assessment and guide the implementation of the restructure.

This is an already established trend in the US and Europe, where a large percentage of turnarounds are done by internal CROs and their work has a higher success rate than turnarounds attempted by existing management.

The CRO’s primary objective is to work closely with the Board, CEO and management team, to initiate and coordinate restructuring actions and lead the management of stakeholders.

The scope of restructuring may include divesting, partial sale, partial closure, capital raising, cost reductions, refinancing and liaison with industry regulators, so that business value is recovered.

CROs work closely with management to redefine and work toward a core sustainable and profitable business. They minimise the risk of business collapse, rebuild business value, improve forecasting and cash management. By improving cash flow visibility, this enables management to be proactive rather than reactive.

They will take responsibility for developing and implementing restructuring plans, take a lead in negotiations with lenders and creditors, provide or coordinate expertise in the transition and play a key role in rebuilding or strengthening relationships with stakeholders (from company boards to equity holders, employees, customers and unions).

It has taken almost a decade for Australian businesses to start to be familiar with the concept of turnaround management.

Historically in Australia there have been few options available to companies in financial distress – the most common being a formal insolvency process, which often results in little or no benefit to the business and its stakeholders.

All senior managers should make themselves familiar with what a good CRO can offer – businesses should think about having this person on their management team in good times and in bad.

Michael Fingland, Executive Director of national business transformation and turnaround firm Vantage Performance, was awarded Australasian Turnaround Professional of the Year 2011 by the Turnaround Management Association, for his work with fast growth and troubled companies. 

This blog first appeared as a column by Michael Fingland in The CEO Magazine July 2012 edition.

 



Michael Fingland

Executive Director

My philosophy is that there is always a way to solve a crisis, as long as you’re engaged early enough.

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