Companies in distress need to pay attention to an important transformation agent

One of the biggest challenges that distressed companies need to overcome is the fact that they effectively have to rebuild their reputation from the ground up.

This will largely depend on the root cause of their distress. In the majority of cases, this root cause is mismanagement or financial irregularities. As we have seen with Steinhoff and South African Airways, this can cause a potentially very sticky wicket that neither team wants to navigate.

Reputational rebuilding is essential. Often, the new leadership has to deal with issues that were not of their making. While this is unfair, scaling this summit is a necessary exercise. In his autobiography, former Manchester United Manager – Sir Alex Ferguson – writes… sometimes defeats are the best outcomes. To react to adversity is a quality. Even at your lowest periods you are showing strength.

How do distressed companies go about this? What controls are built into the business turnaround plan that addresses the challenge of rebuilding trust? I recently read an article on the Harvard Business Review Website which discusses this in detail. The article was written by Tim Ryan who is the US chair and senior partner of PwC.

It’s time to galvanize around trust and transparency
The article points out that, to do so, tomorrow’s business leaders should set a clear strategy to build a culture of trust and transparency throughout the company. For example, one year ago, we at PwC took the important step in releasing our workforce demographics for the first time. We did it because diversity and inclusion are core to our purpose at PwC, and we wanted to apply greater rigor, accountability, and transparency into how we were continuing to drive our firm’s representation and culture of belonging.

We also did this to help foster trust. We want our stakeholders, including employees, as well as the broader community to know we are serious about DEI, and we are holding ourselves accountable to reaching our goals. While we are energized by the progress we’ve made, we recognize we have more work to do — and we remain committed to publicly sharing our progress through our Purpose Report.

To build trust, leaders need to communicate the “why” behind big decisions
The article adds that, when done effectively, taking a multi-stakeholder approach to building trust can create a positive feedback loop that can be a true force multiplier.

For example, at PwC, we recently went through a historic transformation that included a brand refresh and a bold new strategy that we call The New Equation. Any change of this magnitude was bound to result in some discomfort among our broad network of stakeholders, but, this time, how we addressed their potential concerns and questions was different. We communicated not just the “what” but the “why” to our broad group of stakeholders — not just clients and our employees, but also regulators, analysts, alumni, the business community, NGOs and NPOs, future talent, and so on.

Companies also need to be sure to tailor our communications to each stakeholder audience to foster a better understanding. This was very important to motivate each stakeholder audience to come along on the journey with us.

Leaders need to act with integrity, courage, and vulnerability
The article points out that when mistakes happen, as they inevitably will, leaders should make a sustained, transparent commitment to make things right.

For nearly 90 years, PWC has had the great privilege of tabulating the votes for the Academy Awards ceremony and identifying the winners. During the 2017 Oscars, one of our PwC partners mistakenly handed a presenter the wrong envelope. In the months that followed, we took swift action to understand how the mistake was made, and we worked closely with the Academy to design new protocols and safeguards to prevent the mistake from happening again. We did this because it was the right thing to do and wanted to regain trust with our client, our collective stakeholders.

Ryan believes that PWCs recent study is good news for business and society. Our business community has come a long way in building trust with consumers and putting greater social needs in line with the responsibility to grow revenue. While it’s a hill we are still climbing, we are capturing the opportunity to make positive, lasting change for our stakeholders and society-at-large — and that is a step in the right direction.

The role of BRPs
The hard skills of BRPs and turnaround professionals are to identify the root causes of a company’s distress and make recommendations to address these challenges.

While these are important skills to have, embracing the softer skills of the profession is also important. Your job, as a BRP and turnaround professional, is to get distressed companies and business leaders from point A to point B following the path of least resistance. The psychological side of distress is just as important as the company’s physical challenges.

Trust is the intangible tapestry that holds the company together. While it is built on mission, vision and values, it is also built on aspects such as integrity and honesty. The culture of corruption that is seemingly embedded into our politics is concerning and needs to be addressed. Leadership culture permeates from the top down. We will see a lot more companies embrace corruption if they feel that our political leaders can do so with impunity.

It is up to BRPs, as agents of change, to encourage a culture of honesty and integrity and to point out its importance in overcoming financial distress. 

Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is an Experienced Business Rescue Practitioner