What are the key considerations that help select future leaders of distressed companies?

When BRPs are forced to change the management of a company that’s in distress (owing to the fact that mismanagement by the previous board was the root cause of the financial distress), they are faced with the tough task of replacing that board with leaders who are competent enough to steer the company out of troubled waters.

Why is this tough? In a disruptive business environment, only certain professionals have the skills to lead a company or manage a team effectively enough to address the company’s challenges. I recently read an article on the Harvard Business Review website that unpacks certain questions to help guide this decision.

Management Skills

What is the candidate’s leadership style? The article points out that the candidate’s leadership style derives from a mix of their strengths, personality, and values, which are coupled with their vision and goals. Those deciding to appoint a leader must reflect on each of these components and then determine who is the best candidate to fit the company’s objectives. Remember, a leader develops over time and will grow into their role. They will adapt your approach over time as they continue to learn and advance.

How will that leader enable team development? Understanding how to measure performance and assess gaps and growth opportunities within a team will be essential in a person’s role as a manager. Those appointing a leader must consider how the promotion may impact team structures and dynamics.

How will the new leader prioritise and delegate work effectively? The article adds that time management is one of the most important strengths that a leader needs to have. Senior leaders are often asked to support managers who are struggling to meet competing demands. Learning how to prioritise and delegate effectively will make or break the success of a professional as a  team leader.

Is the candidate a competent public speaker, and can they lead meetings? The communication style of leaders and managers is a crucial driver for how they assign work, drive engagement, and share information with multiple stakeholders. This is often done via meetings. Building trust with stakeholders needs to be driven by management and can only be effective if every interaction is delivered confidently.

How will a prospective leader deliver constructive feedback and resolve conflict? Providing guidance, addressing performance gaps, and solving problems are essential managerial responsibilities. Managers and leaders must consider issues they may have witnessed with coworkers regarding processes, projects, or interpersonal dynamics. What did they learn from what they observed? What skills will they need to manage performance and resolve conflict if the need arises?

Knowledge

These are just some of the critical issues that need to be considered. Other topics will be directly related to the business and the distress that the company is currently facing.

If the business is in financial distress because of mismanagement, the new leadership will have to provide shareholders, stakeholders and the public that they are competent enough to lead the company and that the issues that led to the financial distress are a thing of the past.

The second essential component relates to change management. A company’s disruptive forces will not end with a change in leadership. Distressed companies may need to change their operating models and change their cash management systems so that they can address their challenges effectively. This is often one of the biggest stumbling blocks in the execution of a business rescue plan, as humans are not naturally comfortable with significant change and the current pace at which they will need to adapt to these changes.

Interpersonal relationships extend beyond those that are directly within the sphere of a manager/leader’s influence. A competent leader needs to build strong relationships with stakeholders and shareholders to restore confidence in the business’s ability to remain profitable. The relationship between the new leadership and the BRPs will be critical as both parties need to be open to engagement around sensitive topics.

The final component that needs to be addressed is openness to change. While leaders and managers may not be comfortable with change, they must realise that it is essential to a company’s recovery. There was a reason that the company became financially distressed in the first place; if the company fails to move on from this, then the venture is doomed from the outset.

An important component

The selection of new leadership is one of the most important undertakings in the execution of a business rescue plan.

Decisions around core competencies need to be made based on evidence that is presented clearly and concisely. These engagements with shareholders provide insights into a business’s future success or if the business will become distressed in the future. It is as much about our ability to appropriately manage risk as it is about the ability of shareholders to accept this risk.

Moses Singo is a Partner at Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.