A Business in Difficulty should Involve Stakeholders in its Efforts to Restructure and Survive

Copyright (c) 2011 Alison Withers

When a business is in difficulty the support and co-operation of its stakeholders can be crucial to the success or failure of its efforts to restructure and survive.

There are several ways of defining stakeholders, such as internal and external stakeholders, or primary and secondary stakeholders, but all have an interest in the business and its continuation and success.

All those people who have an interest in the business and are likely to be affected by its activities and most crucially by its failure are stakeholders and theyinclude shareholders, investors, creditors, the bank, suppliers, landlords, employees (and their union representatives) and customers or clients.

Clerly when a business in difficulty has has called in a rescue adviser to review its activities, costs, business model and viability, the actions identified to be taken as a result will be more likely to succeed if its stakeholders both understand the situation and support the proposed solutions.

While there is one key interest that all hold in common, which is that all have an interest in the business surviving if they want to continue to receive income from it, it is probable that the interests of some stakeholders will conflict with those of others.

Employees at all levels will be most concerned about keeping their jobs and their co-operation in any restructuring is likely to depend on whether they feel the management is considering their concerns as well as involving them in the changes that may need to be made. If the employees are union members and there are unions reps involved getting them on board can be the key to persuading employees to co-operate.

On the other hand creditors and investors may just want tyo be paid what they are owed and how much confidence they have in ther company's future will determine whether whether they are prepared to forgo or renegotiate payments or finance in the short term to help the company to survive. If they do have some confidence it is possible that suppliers, for example, may be willing to consider deferred payment schedules (or for example landlords may consider shifting quarterly to monthly payments to help the business manage its cash flow in the shorter term) so that they can keep doing business into the future.

The bank's primary concern is to ensure loans are secure, safe and will be paid and will want to be kept informed as well as being given evidence that the business has been properly looked at by a specialist rescue adviser, shown to be viable and any proposals are realistic and have a good chance of achieving the desired results before they will consider extending the overdraft facility, any debt rescheduling or further loan facilities.

Therefore, if a business is to undertake the adviser's recommended restructure is is clear that it must be honest with all stakeholders about the current situation and about its plans to address it.

It is crucial that the adviser is involved in the management of the stakeholders as they will bring creativity to proposals and plans and ensure the stakeholders are invited to participate in both developing and implanting the plan thus ensuring that their concerns are understood. This will go a long way to ensuring stakeholders' co-operation.

Stakeholders can be used as a resource; They may have ideas, experiences or other perspectives that could contribute to setting the business goals for the future.

Being realistic about what can be achieved in the future is also important and being honest about this may make all the difference to surviving with the stakeholders' co-operation.

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