How You Can Turnaround Your European Business

CEOs and CFOs often feel like they are following in the footsteps of Don Quixote when they try to restructure business operations in Europe. In theory, the formula for a restructuring in Europe is the same as the US – control cash, adjust pricing, renegotiate contracts, reduce employees, eliminate poorly performing divisions or products, accelerate collection efforts and restructure the balance sheet. In practice, implementing those actions in Europe can seem like an impossible dream.

Too often, European management or advisors will raise an unending series of roadblocks and reasons as to why they cannot implement change. To complicate matters, when they do decide to act, they often lack the urgency demanded by the deteriorating situation. A half-hearted or botched attempt at a turnaround can further cripple the business, alienate customers and demoralize employees.

To create lasting change in a distressed European business, turnaround efforts must go beyond goal setting and conference calls with European management asking for progress reports. The initial focus should be:

1) getting complete buy in from ALL the stakeholders your company and
2) retaining operationally skilled turnaround managers that have experience with the business and legal challenges of Europe.

All turnaround professionals know that getting buy-in from stakeholders is the most difficult part of any turnaround. In addition to insuring that internal company constituencies are aligned with the restructuring goals, substantial effort must be made to insure that shareholders, lenders, employees, vendors and, most importantly, customers, understand and embrace the turnaround plan.Finding a manager who can trim expenses or improve a specific process is not terribly difficult. Finding an operationally gifted manager who can quickly envision and produce dramatic, enterprise-wide improvements in Europe can be. Companies that lack someone with this skill set should recruit from outside. Whether hiring a full time employee or a turnaround expert, you should look for an experienced hands-on manager who can document strong operational results in situations in which he or she personally led the restructuring efforts. The 3 keys to a successful European turnaround are:

1. An effective management and financial control system,
2. a comprehensive employee plan and
3. cross-Atlantic business alignment.

Developing and implementing a carefully crafted management and financial control system is critical to the long-term success of an operational restructuring. An effective management control system begins with written strategic and operational plans that are specifically designed for your European business. It must go beyond ordinary financial controls and include clear ownership for revenue generation, new organizational charts and job responsibilities with no operational holes, procedures for measuring activities and results, accountability and reward systems that encourage employees to act in the best interests of the company.

This management and financial control plan should not go on your bookshelf to get dusty. It must be continually communicated throughout the organization until it is embraced as the centerpiece of the new structure of the business.

In Europe, things work differently. You can’t layoff employees easily. If a decision has been made to terminate employees of a European business operation-perhaps in connection with an overall workforce reduction or a plant closing-careful consideration must be given to applicable laws in all jurisdictions, which can vary widely and differ substantially from U.S. laws.

Although the United States subscribes to the idea of employment at will, most European countries do not. Generally, U.S. employees can be terminated for any reason or no reason at all. In contrast, the statutes in many European countries afford employees significant protection from termination, regardless of whether they are union workers or not. Employers often cannot terminate an employee without citing reasons enumerated in local regulations. Virtually, all countries require that severance or similar payments be made to terminated employees, in some cases for a year or more.

Any European employment strategy must be designed to insure that the employees that are critical to insuring the future success of the business are not only retained, but given the tools and incentives to succeed. Naturally, a restructuring creates stress and anxiety in an organization. The fact that most of the decisions are being made in the US, often create a sense of impotence amongst European employees. It is important to confront that problem by having open and constant communication between the turnaround manager and the European employees. With dogged persistence, you can turn the tide and eventually get the local employees to support the goals of the turnaround (and understand the consequences of failure).Developing or maintaining a harmonized global business strategy is difficult during a turnaround. If you add the complexities of multiple countries, cultures and languages, the challenge can be monumental.

Executives facing an operational turnaround often develop the plan to align their global strategy in the US and then leave it to the local country management to implement it. This can be a big mistake!

In some instances, the local management created the problem in the first place and are not prepared to solve it. If the US parent is leading the company’ restructuring plan, then you should have US turnaround managers leading the reorganization efforts of your struggling European subsidairies. This seems obvious, but in our experience it is rarely done – which is part of the reason so many US executives get so frustrated with the pace and results of European turnaround efforts.

It’s a fact. Successfully completing an operational turnaround of your European subsidiaries is harder than restructuring your US operations. In Europe, it takes more imagination and persistence – two things that Don Quixote knew well.