Case Study of a Turnaround

Anthony MacariClinical Assistant Professor

of Finance and Owner of ExplainFinance.net

September 20, 2011

What we will cover Introduction Turnaround process Guiding Principles Lessons Learned Major Mistakes Case Study Questions

BACKGROUND Education:

University of Connecticut – BA, MBA Pace Law School–JD

Emery Worldwide, PepsiCo, Kiewit Continental - 1981-1988 Various Finance/Planning/Acquisitions positions

Fortune Brands – 1988-1999 Director of Planning and Director of Business Development-focus on

Strategic Planning, Acquisitions, Divestitures Sacred Heart University-2000-2003, 2008-Present New York University-2003-2006

Clinical Asst. Professor of Finance and Director of Welch MBA Program Assistant Dean of Business and Legal Studies at NYU Consulting work with for-profit Education Clients included SchoolNet, Cardean Learning Group, Lehman

Brothers ExplainFinance.net

ExplainFinance.net Provide financial training/coaching to

non-financial employees and executives

More cost-effective than seminars Can be customized by company or

function (human resources, operations, marketing, etc.) in order to focus on what is most relevant to the group

Thanks to Mark Bonney Mark is the EVP and CFO for Direct Brands and

has permitted me to use a number of his slides outlining the turnaround process. His affiliations include:

Board of Directors American Bank Note Holographics, Inc. (NASDAQ)

Audit Committee Chair; Compensation Committee Axsys Technologies, Inc. (NASDAQ) ThreeCore Inc. (Venture funded start-up) Community Health Centers, Inc. (Non-profit)

Chairman of the Board; Audit and Finance Committee; Compensation Committee; Executive Committee

Turnaround Process Fix – Find what is broken and fix it Re-Margin – restructure, revise

business processes, renegotiate and retool IT to lower fixed and variable costs

Grow – look for the “Blue Ocean” growth opportunity early but fix and re-margin first so growth is profitable

Fortune Brands Tobacco, Spirits, Golf Office Products Home Improvement (Moen, Mlock,

Cabinets) Office Products and Home

Improvement combined some low margin businesses in consolidating industries

Guiding Principles People will watch your every move!

Be respectful of everyone. Work harder than anyone. Be visible. Be accessible. Talk with people about their lives not just

their work. Communicate and cascade appropriately. Expression needs to

match words. Base decisions on facts and data. Decide quickly. Good results come from your Team’s efforts. Bad results come from bad decisions…don’t be afraid to say that

you made a mistake…makes you human…earns respect. Managing up is as important as managing across and down. It’s not “just business”. It is about people and the relationships that

form and maintain that will define you.

Enjoy the ride and have fun.

Lessons Learned Before you join.

Can the business be saved? I look for three things:

CEO with strong skills in the critical area. Brand reputation. People that will execute.

Also good if there is an obvious source of CASH.

Lessons Learned You have six months:

Day 1: Communicate the seriousness of the situation and take control of CASH processes

Day 2: Understand why performance is bad Bad is a relative term History is more important than you think

Day 3: Find the enablers Change is harder than you think

Always think in terms of FIX, Re-Margin, then GROW!

Major mistakes Impatience while learning Firing too fast Firing too slow Not respecting history Giving history too much credence Over-achieving Not managing upward

Case Study-Profile• Highly educated work force• Significant licensure requirements• Strong pricing-well above inflation

rates• Strong demand profile worldwide• Highly fragmented • Product quality inconsistent• Consumer profile varies

Case Study-Profile Considerable debate on whether

industry or individual providers need to be fixed

Definition of product quality and basic success metrics unclear

The Education Industry K-12 Community Colleges Regional Colleges State Universities Elite Universities

A Few Myths Just need business expertise• Gates Foundation• Mike Milken Foundation• Mike Bloomberg Just need more money Technology will solve the problem

Educational Governance At the college level, the “inmates” do

run the asylum, with mixed impact Personal agendas vs. optimal solution Project management vs. academic

integrity Input is considered a “right” Similar to local non-profit Boards

The “Corporate “ Culture 20% are truly outstanding 60% are competent and want to do

the right thing 10% are not competent 10% are very high maintenance Real gap between faculty and

“corporate/administrative” functions

What is “Good” Education Before understand why performance is

bad, need to define “good” performance Is it achievement on standardized

exams? Is it getting a job? Good teacher evaluations? Assurance of learning? Is it development of the total person (soft

skills, dorm life, athletics)

For Profit Education Lower teaching costs ($1.5k vs $25k) Leverage technology Marketing and customer service Rubric based grading and assessment Marketability of degree Quality debate More typical corporate structure

Back to Mark’s Points Can the “business” be saved? Can it be fixed like any other

business or is there a different model?

Questions