New board level role of Chief Restructuring Officer
New board level role of Chief Restructuring Officer created by recession
But supply of known Chief Restructuring Officers limited to 100
The recession has forced an increasing number of companies to create a new board level role, the Chief Restructuring Officer, says Interim Partners, the leading provider of interim managers.
As more companies approach the limits of their banking covenants they are appointing this new type of interim manager who have the specialist skills to quickly bring their companies finances under control and to keep the banks onside.
Interim Partners says that the role of Chief Restructuring Officer (CRO) comes with the level of authority to undertake a rapid programme of cost cutting and with the diplomatic skills to lead negotiations with companies' multiple funders.
James Harley-Booth, Head of Private Equity of Interim Partners, comments: In the UK this role has been created by the credit crunch and the number of CRO placements we have made really started to pick up post Lehman Brothers. In the last recession and even up to the start of the credit crunch this role would have led by a turnaround officer but banks are now demanding that this job function has much more authority, power and independence from the CEO.
The attitude of banks in this recession is quite different to the last recession. Banks are now far keener to see a company work through their problems. The banks know that in almost all cases they will get a better payback by helping companies get back to profitability than from pushing the company into insolvency proceedings. But if they are going to continue lending to that company or even increase lending they want a board level executive in place that will deliver on the companys side of the bargain and that is rapid cost cutting and down payment of debt.
CROs are usually appointed to companies with a turnover from 30 million up to 1 billion.
Interim Partners says that banks will ask for a CRO to be appointed as a less disruptive measure than asking for a change of Finance Director or CEO.
Says James Harley-Booth: Banks take the view that most CEOs of companies that have been hit by the credit crunch are more than capable of running those companies under normal conditions but what banks ask us to find is someone who has the experience of getting a company through these abnormal times.
In a restructuring there is an incredible amount of complex heavy lifting that needs to be done in just a three to six month period which is why CROs are interim positions. They will depart when the company is back on an even keel.
According to Interim Partners, as well as leading a challenging cost cutting programme a CRO will also act as the vital bridge between the company and its lenders. A good CRO will need to win the trust of both the banks and of the rest of the companys management team. Interim Partners explains that although CROs are usually appointed by the bank they also have a responsibility to the company and their decisions must be in the best interests of the company.
Explains James Harley-Booth: A CRO has to create a plan that will deliver a win-win scenario for the lenders and the company. An effective CRO will help ensure that negotiations between the lenders and the company far less adversarial.
Another difference between this recession and the last is the sheer number of parties that the company may have to negotiate with. Lending is more widely syndicated amongst a bigger group of banks than it used to be and often debt can be passed into the hands of hedge funds or distressed debt investors. So the CRO has to have excellent stakeholder management skills in what could otherwise end up as a hostile and confrontational environment.
The company can have a maze of interested parties who all need reassurance that the cost cutting plans remain on course, that the company is performing well and that they arent just throwing good money after bad.
Add to that the natural tensions that arise between the lead or relationship bank and the other lenders in the syndicate and you can understand why the necessary negotiating skills are in such short supply.
Supply of known Chief Restructuring Officers limited to 100
Interim Partners says that the only downside of the boom in demand for CROs is that there are currently only around 100 CROs who have undertaken the role before.
Says James: We expect that as the summer ends and banks grapple with more problem loans that demand will far exceed supply.
At the moment we are going through a process of identifying former CEOs, FDs and other executives who have the right skills and have worked through a major debt restructuring who have not previously been on the radar.
He adds: This is very different from a traditional non-executive role. The CRO will really drill down into the business and look at its cost base and borrowing levels in extreme detail. It is also far more senior a role than a turnaround consultant who will normally report into the CEO or FD.