Dramatic rise of new board level interim role by Doug Baird
The recession has forced an increasing number of companies to create a new board level role, called the Chief Restructuring Officer (CRO). As more companies approach the limits of their banking covenants they are appointing this new type of interim manager who has the specialist skills to quickly bring their companies' finances under control and to keep the banks "onside".
As a result, there is a growing demand for experience professionals who can fill the role of a CRO. CROs are most frequently being appointed to companies with a turnover between £30 million to £1 billion. Recent examples include Alan Fort as CRO at Jessops; Robert East at Cattles; and Dan Roth at Scottish Re. It does not take supernatural powers to foresee many more appointments of this type in the coming months.
Traditionally, CRO appointments were associated with US Chapter 11 proceedings. In the UK the use of this role has grown dramatically with the credit crunch and resulting recession. This means that the right candidates can command up to £5,000 a day.
In the last recession and even up to the start of the credit crunch this role would have been led by a turnaround officer. However, banks are now demanding that this job function carries more authority and senior level experience.
The attitude of banks has evolved from the last recession and they are now far keener to see a company work through their problems. 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. However, to continue lending to that company or even increase lending, banks want a board level executive in place that will deliver on the company's side of the bargain and that may include rapid cost cutting and down payment of debt.
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. Banks will ask for the appointment of a CRO as it is generally viewed as a less disruptive measure than asking for a change of Finance Director or CEO.
The CRO role comes with a high level of authority and the need to be able to undertake a rapid programme of cost cutting. The individual must also have diplomatic skills to lead negotiations internally and with third parties. 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. Often they will depart when the company is back on an even keel.
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 company's management team. 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.
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 are far less adversarial. 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.
Another important 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. A distressed company can have a maze of interested parties who all need reassurance that cost cutting plans remain on course, that the company is performing well and that they are not just throwing good money after bad. Consequently, the CRO will also need to have excellent stakeholder management skills in what could otherwise end up as a hostile and confrontational environment.
For further information please contact Doug Baird, Head of Private Equity Practice, on 0207 484 0700