Business management | Financial Recovery articles
Emergency Interim Management can Rescue
Clients in Crisis
Author: Uwe Manski
Date: May 2010
Publication: Lawyers Weekly
It’s often referred to as denial syndrome and is typical of business owners who can’t conceive of not being at the helm of their enterprise and therefore have not prepared for that eventuality. Yet with seven out of 10 of Canada’s small and medium businesses owned by aging baby boomers,* the incidence of disability and death is increasing and, along with it, the risk of business crises.
ACME Electronics experienced this first hand. The controller answered a phone call one morning to learn that the CEO, the owner of the business, had experienced a heart attack the previous evening and was in the hospital. With only three people on the management team, none of whom were capable of assuming the CEO’s role, suddenly there was a serious void with an immediate impact on the company’s ongoing operations and customer commitments.
When it comes to the heart of an organization’s labour force – the executive team – many owners of mid-size enterprises have denial syndrome when it comes to planning for the temporary or permanent exit of a key person – including themselves. Based on a three-person executive team whose members are around the age of 45, actuarial statistics suggest that the chances of one member dying before age 65 is nearly 50%.** The risk of disability significantly raises the odds: the probability of one of those people suffering a long-term (90 days or more) disability prior to age 65 is over 78%.***
In the past, organizations subjected to an unexpected executive void would often experience serious profitability declines and subsequently fail, or become involved in hasty mergers or sales. In ACME’s case, the shareholders were fortunate to be able to arrange for immediate interim management support to assume responsibility for the CEO role. This allowed the rest of the team to continue focusing on their respective areas of responsibility and enabled ACME to seamlessly maintain day-to-day operations and meet customer commitments. Eventually, when the CEO recovered from his heart attack and decided to retire, the interim management team was retained to sell the business in the ordinary course, at going-concern value.
This example illustrates why interim management is expanding beyond its traditional scope of business growth and transition to encompass unforeseen absences within executive teams. Many small and medium enterprises have no contingency or succession plans in place and are unable to address sudden executive departures. While owners tend to be very protective of the physical and financial assets of their businesses, they frequently overlook protecting its vital human assets: experience, knowledge and leadership skills. Thus the voluntary or involuntary exit of the owner or other key person can precipitate the rapid demise of a business.
Often, management team members lack the expertise or available time to fill in for one of their colleagues: CEO, COO, CIO, GM or other key executive. Given today’s intense time pressures and demands, if an executive team experiences a sudden, critical void due to death, disability or serious illness, the company often requires an immediate replacement. Similarly, the discovery of serious wrongdoing by one or more senior members of management can force an immediate termination for cause, or required resignation, leaving the remaining management team in disarray, and the business in crisis.
Interim management addresses these kinds of organizational quandaries by carefully matching the needs of an enterprise with one or more executives or professionals who have relevant industry and business experience and who can assume senior management responsibilities within days, or even hours and for as long as may be required. Executive interim managers focus on stabilizing daily operations in a crisis situation while also reviewing the implications on the future of the business. They can assist in identifying and implementing remedies to safely guide an enterprise through the crisis, while assuming responsibility for results. Staff supervision, communication and coaching are often integral to the role of an executive interim manager, helping to reduce strain on organizational resources, including the other members of the management team.
In certain situations an enterprise may require a team of specialists with expertise in several disciplines who work together to resolve complex operational or financial challenges. Thus executive interim management typically consists of executives and professionals with years of specialized experience spanning a broad range of industry sectors and business situations, who demonstrate expertise in diverse disciplines such as operations, financing, taxation, auditing and assurance, mergers and dispositions, and restructuring and turnarounds.
Having a contingency plan in place to address “the big four” – death, disability, disagreement and departure – is obviously the ideal scenario. This is simply not, however, a reality for many mid-size enterprises today. While lawyers should encourage their business owner clients to address this issue, until this happens, it is critical for them to know that interim management is available to offer a life-saving response to an emergency in the executive ranks.
Uwe Manski, FCA,FCIRP,CMC (umanski@bdo.ca or 416-369-3072, heads the interim management division of BDO Canada Limited, which helps entrepreneurs manage through transitions and crises. He is the former president of BDO Canada Limited.
* Statistics Canada Survey on Financing of Small and Medium enterprises 2004, special tabulation
**New York Life, Commissioners 1980 Mortality Table
*** New York Life, Commissioners 1985 Disability Table
