When Management is the Reason Your Company is Struggling Financially

Posted on January 11, 2019 at 12:00pm by
Learn more about Chapter 11 bankruptcy on our blog.

Eddie Lampert’s 4.8-billion-dollar Sears buyout announcement earlier this month comes amid the once-iconic corporation’s Chapter 11 bankruptcy filing. The bankruptcy, filed in October, allows for financial restructuring. Lampert personally stands to lose 2.4 billion if it fails. While the buzz around this latest headline is focused on Lampert’s intentions to possibly bleed the company of more money through the deal’s fine print, the fact remains: even in bankruptcy, Lampert is still in charge of a business he is widely accused of running into the ground.

A Business Insider article reveals the intimate details of a small, private meeting between Lampert and a few mid-level employees, providing insight into a deeper level of dysfunction within the once-iconic company. The article describes employees’ fearful preparations moments before Lampert appeared on a screen at Sears Illinois headquarters. He joined the meeting from his Florida mansion. The employees were concerned about the words the presenter would use and provided a list of terms to avoid from a whiteboard across the room.

Chapter 11 bankruptcy can occur for many reasons. Many of them are not preventable. But in some instances, the need to file is a symptom of systemic dysfunction. If a Chapter 11 filing is going to help a failing company survive, it can only do so if the root cause of the financial problem is addressed.

American Airlines CEO Tim Horton also played a crucial role in his company’s 2011 bankruptcy proceedings. Fortune Magazine interviewed Horton in 2014 following the quick recovery of the company (much which occurred while still in bankruptcy). The recovery plan included a merger with US Airways. In the interview, Horton revealed US Airway and American Airline executives’ willingness to give up damaging perspectives were key. By choosing to focus on financial success, rather than lose time and possibilities in a battle over “who gets what” in the restructuring, the company’s restructuring found its footing.

Horton attributed a key moment in the company’s success to US Airways CEO, Doug Parker. Parker argued to ‘“bury the knife” over the ownership-share negotiations so the team could concentrate on securing valuable new labor agreements, and their subsequent work as a team to launch the new American.” The rest is history.

While Chapter 11 works differently for multi-billion-dollar businesses in some ways, an honest examination of power dynamics in light of needed future growth is key for companies of any size. It pays to evaluate every aspect of a business, including leadership structure, along with finances during a business bankruptcy filing.

If you’re currently utilizing a Chapter 11 bankruptcy to restructure your business’ finances, it’s wise to look at the reasons the business is in trouble as objectively as possible. This means looking at the business from new perspectives. It might be helpful to discreetly poll employees and those closest to you regarding misgivings they might have had regarding the business. Are they surprised by the bankruptcy? What have they always wanted to tell you but been afraid to say? It’s also important to look at each tier of management. Do you receive complaints about leadership or their management styles? Do employees trust them and thrive under their direction? It’s important to know the answers to questions like these during this crucial time of reordering priorities for your business.

Own a business that’s struggling? During times of financial difficulty, Chapter 11 bankruptcy makes room for needed changes. After filing, you will be able to maintain product and service quality. You’ll also get the chance to take your mind off of things like past due accounts– even foreclosure notices — and focus on fixing whatever caused these issues in the first place.

If you are unsure about bankruptcy or the financial options for your business, call The Sader Law Firm for a free consultation with one of our attorneys. They will be able to give you the information you need so that you can make the right choice for you and your business.



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