Paradigm - November 2017
Ray Anderson’s Point of View: GE recently announced a 50 percent reduction in its dividend and a broad restructuring of its business. GE’s stock is down over 40 percent this year, and reportedly its former CEO used two jets for business travel. These issues developed notwithstanding an 18-member board of directors, which the company announced would be reduced to 12.
GE’s performance and turnaround plan illustrates two important concepts. First, regular, objective evaluation of board composition is critical to performance. Second, a smaller, focused board with appropriate skills can be critical to executing a successful turnaround.
Bloomberg, November 2017
D’Andre Davis’ Point of View: Many leaders are made rather than born. Some of history’s most memorable figures exhibited key character traits as they overcame their adversities and became leaders: courage to face their fears, resilience and perseverance. We in the restructuring community are often called on to remedy a problem situation.
Whether as an interim executive, advisor, counsel, lender or investor, we marshal our leadership skills to influence clients and constituents to effect a desired outcome. We do so, sometimes against harrowing odds, by calling upon an inner strength that has been forged in the fire of prior challenges. Our profession is one that seems to draw unique types of people who can not only survive life’s challenges, but come out stronger on the other side.
Knowledge@Wharton, November 2017
Adriana Vidal’s Point of View: Trial and error can help develop new channels for innovation and growth, but many business leaders fear taking a risk on new ideas that aren’t guaranteed to succeed. Anxiety over past failures plagues management into playing it safe as opposed to playing to win. Companies willing to learn from and admit their mistakes may inspire their workforce to pursue new ideas and developments.
Harvard Business Review, November 2017
Aaron Kibbey’s Point of View: Beyond e-commerce and evolving shopper habits, there is another reason for the demise of retail: too much debt on balance sheets. Significant debt service requirements strain operating models and severely limit the amount of capital available to reinvest in the business.
A larger wave of retail restructurings could take place in the next several years, begging the question: Has the “retail apocalypse” even started? As interest rates rise and debt gets more expensive, more retailers may turn to Chapter 11 bankruptcy protection to address the looming maturity walls and reduce the overall debt in their capital structures. However, existing equity and unsecured/subordinated debt often gets wiped out in these restructurings. The result will be new ownership groups for many retailers, significant losses for equity and many subordinated debtholders. But deleveraged balance sheets should give retailers more time and capital to develop and execute new sales models to compete with the continued shift to online shopping.
Bloomberg, November 2017
Ray Anderson’s Point of View: The Bank of England recently released an analysis of real interest rates over the last 700 years that has interesting implications for lenders and borrowers. The research indicates that current interest rates are severely depressed by historical standards, and that rate reversion usually happens quickly (315 basis points, on average, over two years). If this pattern holds, it spells extreme risk for highly leveraged or underperforming companies.
Bank Underground, November 2017Contact Us