Defining the Role of the CRO The Strategic and Tactical Benefits of a Seasoned Professional

Defining the Role of the CRO The Strategic and Tactical Benefits of a Seasoned Professional

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Chief Restructuring Officer (a.k.a. CRO):
A corporate turnaround leader having financial, operational and management expertise, skilled in the complex and painstaking process of crafting consensus among all stakeholders around a common outcome.

Over the last 20 years, the position of chief restructuring officer has emerged onto the corporate landscape. Ask any three people what a CRO is and what he or she does and you are likely to get three different answers. Because there is no consensus in the definition, we often find that there is confusion about the role by many stakeholders. This misunderstanding is a common frustration among professionals working with troubled or underperforming companies. We know that outcomes could be improved if the key constituents confronted the issues quickly and, if necessary, sought out a CRO for help before it is too late.

The intent of this article is to define the role by discussing the strategic as well as the tactical benefits that an experienced CRO brings to a crisis situation, and offer concrete examples to illustrate these points. In doing so, it will become clear that in today's environment of heightened scrutiny of management decisions the use of a skilled, seasoned CRO during times of transition can mean better outcomes for all stakeholders.

The Strategic Value of a CRO

When a company's financial resources are dwindling, delays and missteps in reacting to a corporate crisis trigger a domino effect: Falling revenue and weakening cash flow worsen liquidity, exacerbate supply-chain problems and increase employee turnover. The symptoms are common and quickly become life-threatening for the organization. If management lacks the resources and depth to adequately handle the problem, the board should consider the use of a CRO. Addressing all of these symptoms, plus outside stakeholder activism, hedge fund debt-holders, global competition and business deterioration, requires special skills and a boatload of experience.

Having an experienced business expert in the form of a CRO who can hit the ground running in a crisis to provide strategic guidance coupled with tactical hands-on support to management is critical to achieving a successful outcome. Since turnarounds often come with a host of financial and operational issues, having a CRO to handle the significant extra workload makes sense. Additionally, the CRO brings the major benefit of insulating the CEO and the management team from many of the pressures of the reorganization process so they can focus on the important job of running the company on a day-to-day basis.

Strategically, a CRO provides the board and management team these strengths:

  • Objectivity: This is the single most important element that a CRO brings, as it helps him or her generate the trust needed to gain consensus with key stakeholders. Restructuring is contentious by nature, since all stakeholders must reset their economic expectations to some degree. The gaming between parties for relative advantage in the process is constant, creating frequent disagreement. However, without the support of the key stakeholders, the process will stagnate. A seasoned CRO brings an unbiased view of the economic options available to the organization and an assessment of these options that sets the groundwork for a consensual solution to the problem.
  • Authority and Accountability: The CRO's priority is to focus the organization's attention on achieving results. To do so, he or she must have the authority to eliminate the impediments that stand in the way of the company's success. Having strong financial and operational skills are critical to assess the problems and, more importantly, develop the appropriate solutions. Equally important, the CRO must be willing to be held accountable for the outcome.
  • Flexibility: The CRO may need to wear any number of corporate hats, simultaneously if necessary, to help overcome the immediate threats to the company. Often this multi-tasking is driven by the departure of key personnel. However, if the existing management team is intact and has sufficient depth, the CRO can focus exclusively on a narrower band of issues.
  • Urgency: The CRO brings a daily sense of urgency to achievement of the restructuring goals. The CRO knows that speed and a sense of urgency are critical in a crisis situation when time is money. He or she is responsible for ensuring that proper levels of resources are identified in advance to implement the plan.

Case Study: Acterna

Taken as a whole, these qualities help the CRO bring all parties and their agendas together under the common goal of creating the best solution for everyone: the company and employees, the equity-holders and the debt-holders alike. An example that illustrates exactly how the objective perspective of the CRO can find the best solution to a problem—one that not everyone may see initially—and bring everyone together under a common goal is illustrated in the following example of Acterna, a billion dollar cable and telecommunications industry equipment supplier.

In the telecom downturn of 2002, capital expenditure spending dried up practically overnight, leaving Acterna with a debt load of almost $1 billion while revenue plunged by more than 50 percent. As covenants were breached, the secured parties pushed hard to divest Acterna's international operations to reduce their exposure. The board, recognizing that the future for the company was worsening daily, brought in a CRO to work side-by-side with the CEO and management.

With the existing management team in charge of the day-to-day operations, the CRO focused on developing a common vision of the company's future with all stakeholders. The decision to keep or sell the offshore businesses was a critical strategic choice in the case. The CRO's objectivity demonstrated to the stakeholders, through detailed analysis, that the company could obtain a better economic outcome if it remained a global supplier with restructured international operations. The turnaround plan required significant changes in the business, and the CRO would be responsible for implementation oversight. Based on this plan, the resulting consensual decision was to keep almost all of the international business intact. A §363 sale for a nonstrategic operation in the United States provided the needed additional liquidity.

The CRO immediately began implementation of a 100-day restructuring plan, focusing on short-term survival and long-term value for the company. The CRO and CEO jointly refocused the business priorities on liquidity improvement actions and maintaining control of over 30 nondomestic operations containing over half of the company's assets.

Results included negotiating a consensual reorganization plan that allowed the company to emerge from bankruptcy with nearly $1 billion less debt within five months. The turnaround plan was well executed, and the company generated liquidity in excess of the plan, resulting in a dividend to shareholders one year after the restructuring. The recent sale of Acterna to JD UniPhase at approximately seven times the stock value on emergence is a poignant example of the value the CRO brought to the process.

The CRO's Tactical Skills

An experienced CRO also provides value to a company in crisis on a tactical level, using his or her diplomatic skills, thick skin and calmness under pressure, as well as financial, operational and management expertise to drive to a positive outcome. He or she can be instrumental in tactical areas such as:

  • maintaining liquidity. Accurately forecasting the liquidity needs of the company through a period of change is imperative to maintaining creditor support and necessary to address negotiations of the DIP and emergence financing. Proper planning of cash needs and tight execution against that plan creates improved odds of success for the turnaround.
  • managing the divestiture of excess assets. When cash is tight, monitizing some excess assets that will not significantly reduce long-term value to the company might be necessary. Executing the sale fairly, quickly and efficiently can contribute greatly to the success of a turnaround.
  • maximizing the opportunity for change. Businesses cannot endure serial restructurings; therefore, the company ought to look to all areas that can offer improvement while change is underway. An experienced CRO can quickly work across all company segments (both functionally and geographically) to uncover meaningful change opportunities.
  • coordinating the restructuring process to obtain efficiency of efforts. Keeping the outside professional team focused on tasks and timetables drives the process to a successful conclusion at the lowest cost. If the company is attempting to refinance its existing debt, often the CRO is the lead professional on the road show to discuss the company's future.
  • improving employee morale. Often overlooked, getting the company to refocus on the business of taking care of customers is an important piece of the success of any turnaround plan. Bringing in a professional to deal with the restructuring can help to reduce the anxiety common in the workforce during a turnaround.

Case Study: RCN

An example of how the CRO's tactical skills can improve a company's outcome is the recent case of RCN, a $600 million high-speed cable, Internet and telephone service provider.

This "triple play" provider had more than $1.6 billion of debt in breach of multiple loan covenants. The unsecured and secured debt-holders were at an impasse as to the future of the company, and liquidation was a strong possibility. Rumors were rampant that the company would have to file for bankruptcy protection, which led to low morale, declining sales and a general deterioration of the business. The board hired a new restructuring team, including a CRO.

With the company unsure of its ability to continue meeting its cash needs, the CRO quickly established a credible 13-week liquidity plan with tight controls on cash. The business plan was revisited, leading to a credible restructuring plan that included cost improvements at all levels and areas of the business. The plan refocused the business operations on the fundamentals of efficiency and cost, improving the company's liquidity position and improving asset utilization. This plan provided sufficient comfort to the secured parties that RCN had the necessary resources to allow time to restructure and refinance the company.

The CRO focused his efforts on the restructuring process, including refinancing of the existing secured debt, acquiring the remaining 50 percent share of a critical subsidiary, developing a consensual reorganization plan and implementing cost-reduction actions.

The result was a relatively quick reorganization within six months. Upon emergence, the balance sheet carried $1.2 billion less debt, and the remaining $450 million of debt was refinanced with appropriate terms and maturity for the company.

In summary, the CRO is a professional well-versed in the strategic and tactical skills necessary to fix an ailing company or return an underperforming company to top performance. The CRO can build consensus between stakeholders while simultaneously driving a company's restructuring process to a conclusion in a timely manner. This job is not for the faint of heart. It requires considerable experience, communication skills and the ability to engender trust from all stakeholders.

When a company finds itself in the early stages of a problem—be it financial, operational or managerial—this is the ideal time to consider the help of a CRO.


1 Tony Horvat is director of the New York office of AlixPartners LLC and has more than 20 years of hands-on business leadership experience with an extensive background in bringing consensus and focus to the divergent interests in complex and contentious restructurings both domestically and overseas. His background includes operational reorganizations and cost reductions, strategic repositioning including divestures and acquisitions, and financial reporting. Return to article

Journal Date: 
Thursday, September 1, 2005