By Cliff Ennico
“I have been unemployed for some time, and have come to the conclusion that corporate America no longer wants me.
Recently I heard about a local manufacturing company that’s fallen on hard times. Their once-popular product line is no longer in retail stores, the owners can’t stand each other, and the CEO has tons of credit card debt that suck up all of the company’s free cash.
Not only does the company have no website or mobile app, but I’m told the company doesn’t even use computers or laptops in their business. There are only a handful of employees, mostly ‘long timers’ who are personally related to the owners.
I am thinking of offering my services to this company as a ‘contract CEO’ with the goal of turning things around. I’ve got plenty of time on my hands, I have relevant experience in the industry, and if things work out I want to be a key player in this company going forward.
What do you think of this idea, and how should I approach this company?”
Like Daniel entering the lion’s den, very carefully . . .
The problem here is that this company’s management has become too “set in its ways” (I would bet the owners and the CEO are all past retirement age). They are probably only too aware that they need to change – or sell out – if the company is to survive. The problem is they don’t want to, or can’t: the CEO needs the dwindling cash the company generates to pay his debts, and any potential buyer will offer only a ‘fire sale’ price the owners can’t live on.
The first step is to persuade these people their company is dying, and that hiring you is the only way they will be able to leave anything to their grandchildren. I’m not sure you will be able to, but given your situation there’s probably no harm in trying.
The next step is to let these people know you are willing to work for “sweat equity” for at least a year, assuming you can survive financially that long without any income. They have no money to pay you with anyway, and few people can turn down a free offer. You will be operating essentially as an unpaid intern or, as unpaid interns are sometimes called, “slave labor”.
The next step is to persuade the owners to let you run the company the way you want, with minimal oversight. The current CEO will need to go, but that will be difficult because the owners are obviously attached to him personally and will be reluctant to “throw him under the bus” financially. Also, being of advanced age, they are likely to see you the same way they see their own children and grandchildren – as a snot-nosed upstart who thinks he knows everything – and will be reluctant to give you too much authority.
The best approach would be to have the current CEO retire with a retirement or consulting package that maintains his current income and helps him “save face.” If that’s not possible, you will need a seat on the Board of Directors and the title of President with sole responsibility for day to day management operations: the current CEO can stay where he is, but with no actual authority. This will require amending the company’s by-laws or operating agreement, so get a good lawyer to help out.
The next step is to find the cash necessary to turn the company around. The company’s brand name and history may be attracted to lenders and investors who specialize in turnaround situations. You can find these folks through websites such as www.turnaroundinvest.com and www.turnaround.org (the Turnaround Managers Association, which you should consider joining). Better yet, get in touch with some investors first and have them give you “letters of intent” to invest in the company if you are put in charge.
The last step is to make sure you are adequately rewarded for your time and effort if you are successful in turning this company around. You will need a strongly-worded employment or consulting agreement with the following terms, among others:
- The term should be at least three years;
- During this time you can be terminated only if you commit fraud or are convicted of a serious crime;
- You should be granted a salary and a cash bonus as soon as the company has achieved certain specific “targets” (for example, reaching at least $1 million in revenue over a consecutive 12-month period, or a 25% annual increase in pretax earnings);
- You should also receive an option, exercisable as soon as the targets have been reached, to acquire a controlling interest in the company at today’s “bargain basement” valuation.
Once you’re in charge, you can exercise your options, cram the “old guard” down into a harmless minority, and take permanent control. Be sure to hire an excellent publicist when the time comes.
Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. Copyright 2013 Clifford R. Ennico. Distributed By Creators Syndicate, Inc. Follow Cliff: @cliffennico.
