Transportation companies – small and large – get into trouble for many reasons, all rooted in human weakness and shared, in varying degrees, among direct management, major shareholders, directors, auditors, and brokers. Even suppliers and clients get entangled in the failures.

To protect their loans, banks sometimes initiate outside reviews of their troubled accounts. A quick impartial appraisal of the company is needed at the outset. Some situations are terminal with the only solution being receivership and eventually bankruptcy. Others may benefit from a one-time financial restructuring to wipe out a past major error. Another option is to conduct an “operational turnaround”.

The term “turnaround” implies the need for a full court press to remove or reverse entrenched practices that are leading to the eventual failure of a company. This is hard work, typically the two steps forward – one-step backward kind. It will normally require the skills of an outside turnaround specialist. Turnarounds have the following ingredients and principles, which, if applied properly, will greatly, increase the odds of success.

The Turnaround Specialist

He is a generalist with good conceptualizing abilities. He will set and understand shifting priorities, weigh risks and be unafraid to make quick decisions. He should accept nothing, be unpredictable, question everything and work from basics. Having people skills, being a good listener, and being tough but consistent and fair also helps.

At the Start

There should be a written contract setting out compensation, the nature of control and the longer-term strategy for the company. Owners must relinquish significant control.

Using the operations appraisal, the specialist must assess and set priorities across all functional areas. Preliminary monthly budgets and cash flows will become the base for communication with owners.

Realistic time frames for deliverables and a formal reporting/meeting system should be agreed upon.

Staffing Issues

In most situations, management has contributed to the company’s difficulties and therefore they are not necessarily the best people to oversee the solution. Further, almost all staff will open up to an outsider but will hold things back from owners and their peers.

Since human resources will be scarce, weak in-place managers may have to be groomed and supported by rigid guidance to perform better. Eventually, most successful turnarounds will necessitate some senior management changes.

Over time, the specialist should relinquish control, function by function, to the management team.

A tough environment may cause some staff to avoid making decisions – he should be “out on the floor” with employees or with suppliers and clients as often as is practical.

The specialist should regularly cycle through staff in each functional area since they will have different views as to who or what causes problems, who isn’t co-operating, etc.

General Rules

Whatever is done or expected should be visible, through weekly tick lists or written instructions recorded as minutes of meetings. Verbal communication is prone to misunderstanding.

A base of sound information must be established – not hearsay. Subjective and qualitative information should be collected first hand.

Meetings should not be conducted without clearly stated purposes or closed without arriving at conclusions. There should be a system of controls to assure that follow up occurs.

Everything is interrelated so success will come in small increments. Home-run solutions are not likely.

The concentration should be on short-term improvements but without sacrificing the longer term.

Working within the financial reporting systems that are in place, i.e. perfecting the systems won’t save the company. Existing systems should be complemented with temporary operating and financial schedules, flag exceptions and progress. Efficiency reports will serve as a base upon which to make operating decisions.

Relevant successes and failures should be shared with all employees. Short-term monetary or non-monetary incentive schemes can boost motivation.

Rigid systems or autocratic management styles lead to compartmentalization (e.g. “not my job”) and take incentives and ingenuity away from employees. All solutions should bring in a measure of trust and attempt to re-humanize and personalize the company.

For owners and senior management, a first line of defense is to stay close to one’s employees who often have much more to contribute when they are respected. Also, outside input through regular check ups almost always flags problems in formative stages.

Mark Borkowski is President of Toronto based Mercantile Mergers & Acquisitions Corporation. He can be contacted at mercant@interlog.com