PILOTpartners sat down with busy turnaround CEO Andy Etherington in between assignments for a quick but quiet City lunch.

Andy Etherington is a distinguished interim CEO with an individual approach to complex change, turnarounds, acquisitions and disposals for private equity investors – both in the early stages of sorting out the mess as well as the recovery into growth and delivering optimal value for stakeholders. His experience since he became known to PILOTpartners has encompassed successes especially in retail/consumer and specialist healthcare after an earlier career in oil & gas, consumer electronics and leisure. Andy is bi-lingual in German and when he is not camped out on assignment somewhere he lives in rural peace and quiet in Suffolk.

You have been a successful interim for some eight years now. How did you start your freelance career turning round private equity owned businesses?

Almost by chance. I came out of corporate life to bring my business building and change management skills to a private equity leveraged company in the healthcare sector. After a successful exit of this business, I was invited to undertake some advisory work, which in turn led to turnaround roles. What I enjoy most, is the variety of situations I am parachuted into.

You have done a lot of work recently in specialist healthcare and retail. Are there any links in these markets as far as managing a turnaround are concerned?

There are. Turnaround skills are like a briefcase full of tools, which are easily transportable and transferable across industries. Healthcare and retail have similarities and dissimilarities. Both are multi-site, open all hours, deliver a product or a service through many people, have reasonably high barriers to entry, have high capital expenditure and are fiercely KPI driven. The environment is, of course, utterly different. One sector is highly regulated, and does not respond to the advertising and promotions 'tap' in the way that the other might. In the healthcare sector the staff are dealing with highly vulnerable people, consequently personal levels of responsibility that the staff carry are far greater than in retail. A different management style is therefore required in the healthcare environment than in retail and consumer. The turnaround manager must be highly sensitive to this and must have the ability to adapt accordingly.

I have heard it said that all turnarounds are basically the same: you need cash, management and a plan. One knows what they mean, but do you think this is true?

In general, turnarounds work with universal principles; they all need analysis, careful cash management, cost control, a defined strategy, income generation and strong directional management. The questions are always:

• What's gone wrong?
• How long is the 'runway'?
• Can costs be substantially reduced and quickly?
• What is the desired outcome and what is the plan?
• Where are the untapped and undeveloped opportunities to generate extra cash quickly?
• Is the management team part of the problem or part of the solution?
• What is the customer base, fragmented or consolidated and what is the creditor profile?

In all cases decisions need to be good and they need to be made fast. Each situation, however, has its quirks, so your plan in Company "A", is unlikely to translate in a linear fashion to Company "B".

As a provider of turnaround expertise I am sometimes baffled by the stakeholders' expressed absolute requirement for an executive with a matching sector background. Your experience across many broad sectors would seem to run against this...

I genuinely believe that an executive's background gives him or her a briefcase full of skills and experiences, which are transferrable across industry sectors. My experience demonstrates this: consumer electronics, retail, leisure and the healthcare sector. The individual has to be flexible, adaptable, resilient and able to assimilate information quickly. A turnaround manager must be highly financially literate and financially focused. He must have a solid understanding of sales and marketing, and HR. Crucially, he must be able to manage and motivate people. Turnarounds may be led by one individual but he must have the ability to bring people along with him. One person alone cannot accomplish the turnaround, you need the workforce to act. If the manager has these pre-requisites then he should be able to stretch his expertise across industries.

It helps if the sectors have parallels in common; this allows the turnaround manager to move up the learning curve of the new sector quickly. For example, a multi site funeral services business has parallels with a multi site retail chain, an hotel chain with a multi site serviced office business.

Whereas I am often asked to provide a shortlist for a turnaround very early on, I know you have an issue about being brought in too late. When is the right time for you to step in? Too early and there will be too many intractable management or shareholder issues to resolve. Too late and...

Technically, a turnaround situation may be defined as a company that has become loss making and is on a downward spiral. There are usually signs of stress long before the company becomes distressed, by crossing the line from profit to loss. However, management is often in denial of the situation, sometimes the investors are too. This hinders the recognition of reality. If the shareholders or debt provider could recognise the signs early and act, by putting in a CRO quickly, then there would be a far longer "runway" to effect a sustainable turnaround. The returns would thus be greater for all parties.

All too often this decision is delayed, by management engaging in rebuttals of the gravity of the situation, probably because they have a lot to lose: their jobs, pensions, their investments and reputations. This can lead to irrational and increasingly risky decisions. Like the gambler who fervently believes that the next role of the dice, or spin of the wheel, will be in his favour, management continue to fudge the numbers, because (they believe) salvation is just around the corner. The problem is: the corner is never turned and tomorrow never comes!

Sometimes the decision to put in a CRO comes so late, that a sustainable turnaround is no longer a realistic proposition. Understandably the debt provider starts losing patience, they need to recover their investment, rather than an unplanned administration. The best possible outcome for creditors is an accelerated M&A, often by way of a breakup of the business, a trade and assets sale close to a 'fire sale' price, or a pre-pack sale, with all stakeholders losing something.

Recognise the signs early. Same as when sailing yachts, the time to put a reef in, is when you first think of it. As the wind strength increases, do not delay until the tempest is upon you! The time to put a CRO in is when you first think of it! Do not wait until the slippery slope has taken you to the edge of the abyss.

From your recent experience, can you describe some of the different ways you have managed to resolve seemingly intractable management or operational issues?

Once you have a plan, you deal with intractable issues with firmness, but not arrogance, with constructive not destructive criticism. You need clear guidelines with defined targets and timelines. Once the direction is set, it is surprising how well people tend to respond and how anxious they are to make a positive difference. There are occasions, when you have to be firm and resolute in your approach, as there simply is insufficient time available to debate matters.

In one of my assignments management were clinging to a recent acquisition, which turned out to be loss making due to reasons which should have been identified during due diligence. Two years later, they were still trying to resolve the problem, unwilling to accept that their original decision to purchase was flawed. They poured effort into the acquired business, not concentrating on the core business in which cracks had appeared. As the independent manager I had to clear the fog, and help them see that the only realistic solution was to divest them of this ill fated acquisition, enabling them to concentrate on the greater prize: the core business.

I know you have had experience of handling cases where there have been multiple stakeholders with opposing views and seemingly entrenched positions. Can you give examples of these and explain how you have resolved these issues?

The usual stakeholder groups tend to be the major investor, the bank debt provider, staff, senior management/directors (who may have some of their own money at stake), customers and sometimes trade unions. As I have mentioned earlier, management are often in denial of the gravity of the situation.

As an independent outside manager, you have no entrenched position to defend, you do not have to pay heed to internal politics, you owe no favours and neither are you worried about job security. Consequently you can be dispassionate. It is easier for the independent manager to remain focussed, calm, take a detached view and call it how it is.

If a division should be closed, the independent manager can call it, he has no vested interests, there is no loss of face, it is a business decision in the light of the facts. Often it can be very difficult for the incumbent management team to take such a dispassionate view.

Slightly outside the normal ambit of an interview in these pages, Andy, and because the sector is currently very much in the public eye, could you talk through one of your most recent case involving your role as interim CEO of a provider of elderly residential and domiciliary care? As I recall this was completed under serious time pressures. And are there lessons here for other similar businesses currently in similar difficulty?

Yes there are. This was a business which had been established for a number of years, operating in the elderly care sector. Mistakes had been made, the business was under invested in, and poor financial controls had led to little visibility of the underlying financial performance.

The management team had not kept abreast of developments in the market place, placing too heavy reliance on one customer group, running at manpower plans (care hour plans) that were no longer sustainable. So, instead of generating profits to invest in the buildings and sales and marketing, what little profit was generated, went to fund inefficiencies.

Instead of "grasping the nettle" early, by restructuring the care hour plans and indeed closing inefficient and inoperable homes, management "fudged" the numbers, until the house of cards came tumbling down.

The money was going to run out in 120 days, so radical steps had to be taken. Care hour plans had to be drastically reduced to get close to industry norms, leading to redundancies. Homes had to be closed to increase the overall efficiency of the business and head office costs had to be slashed.

The various stakeholder groups were pulling in different directions. Staff were unhappy about the new processes and procedures, the main trade union was extremely hostile to any redundancies. The principal customer was not minded to agree to fee increases linked to cost inflation and local politicians were unhappy about job losses and home closures. Yet, costs were rising, occupancy was reducing and the company was making losses. Something had to give!

The lesson here is that the seemingly impossible can be achieved if you have a vision, if you can communicate the vision to the stakeholder groups and if there is strong leadership and direction, then management can be enthused to do something that ordinarily they might not wish to do.

Andy, many thanks for giving Pilot's Log readers the opportunity to look at the reality behind the CV. It seems to me that everything you have been talking about – your experience over the past couple of years – remains distinctly and poignantly the same right now. In a world of constant change some things never do...

Andy Etherington can be contacted at:
andy.etherington@tiscali.co.uk