MDC 2012: The turnaround specialist

Posted on 15 Nov 2012

Do you know, or have you worked for, a business that failed but could have had a future?

When you come to a conference you expect to learn something powerful.

Keynote speaker Brian Davidson explains what you will learn from him at the MDC 2012.

Brian Davidson, chairman of Crown Paints, says more vulnerable companies can be saved

Do you know a business that went under that could have been saved? Brian Davidson does.

The driving force behind the turnaround of companies including coach builder Plaxton and Crown Paints, Mr Davidson has been at the sharp end when management and banks want to pull the plug.

Accountancy group PwC reports that from Q3 2010 to Q3 2012 there were 3,993 manufacturing insolvencies in the UK. While this year saw this rate fall over 2011, Davidson says the harshness of the 2008 financial crisis has bred a mindset in many firms.

A distressed business specialist, he says that low interest rates and deferred decisions by financial institutions to deal with companies that are in severe trouble has led them to keeping these companies afloat in a state of perpetual inertia.

“All well and good, but they are not then able to function properly as they are not adequately capitalised and are simply “kicking the can” along the road,” he says.

These companies can be in any sector, manufacturing or otherwise, but they have certain common denominators. Management is the big one.

“In most cases there is a lack of management focus and a lack of will to implement a strategy,” he says. “They should consider the needs of all the stakeholders – that’s management, shareholders but importantly staff – and the needs and potential of the business not next week but in five years time when deciding its immediate future.”

Also he says many such firms do not have a plan or a way out which they can credibly take to their lenders.  “From a lender perspective the banks do not want to become embroiled in management decisions and hence are happy to let things drift on until the real threat of administration looms.”

Plaxton, a famous engineering firm now owned by Alexander Dennis and the biggest employer in Scarborough, could have gone bust with the loss of 400 jobs. “I am not pleading a saintly duty here, but there is a strong social context to the work we do,” he adds, referring to his turnaround consultancy Roogreen Ventures. “It’s a little like missionary work, there’s a stewardship factor.”

That’s especially true, Davidson says, when others are urging you to let the axe fall.

“Throughout the recession, with such a hiatus in orders, some companies and banks have got into this rut of ‘kicking the can the road’, a zombie-like state where the business is neither going forwards nor dying,” he says. “

He accepts that many companies have been hamstrung by the recession with few perceived options.

Davidson contends there is a third way for zombie, or near zombie, companies. That is to initiate a proper strategy, a plan for change in the business to confront the issues which are restricting profitability and cash generation.

“This may seem like pushing water uphill when the company has large debts, but the banks can be receptive to this and a financial restructuring can be effected, so long as a credible plan is in place.”

The big issue however is management, as many firms and managers have not realised the fundamental economic shift taking place and that this is the new norm.

“The heady days of 2007 are not the benchmark.  Consequently, do not hope things will be better.  Adjust your plans for today and the new tomorrow,” he says.

The difficulty when management cannot see or find a way forward in such distressed circumstances, is that usually its management which requires to be changed. Lending institutions are not good at effecting this, however in the interests of the business it often has to happen.”

He adds that so often, “Vested interests almost always defer this until the last possible moment and often it is too late.”

At The Manufacturer Directors’ Conference 2012, Brian will talk about his experiences of rescuing Plaxton and Crown Paints and helping other companies. He will contend that management is the key towards bringing together a credible restructuring plan which will enable financial restructuring and with it the ability of the business to be properly capitalised. He will discuss the importance of including staff as big stakeholders in a turnaround, and about the value of his 11-years at BAE Systems as a strong foundation for how engineering businesses should be run.

Brian Davidson is chairman of Crown Paints and co-founder of turnaround specialists RooGreen