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CEO's Diary: Assumptions
Will the CEO have a bank?September 30 - Still working on the forecasts.
After last night I decided to do a real down side version too.
I also questioned as many assumptions as I could. Then I asked if it was reasonable to assume that we'll still have a bank and decided there are some things where you just must have blind faith. This is one of them right now.
* * *
September 29 - OK, so I've had a weekend to pick myself up, dust myself down and start again. And I've decided that I'm a better off than a lot of people today: it will have to do. I admit, I remain deeply annoyed (maybe angry) with the reason for our failure to proceed. But I also have to live in the real world. I really do think there was little I could do about it.
So it's been back to planning. The shareholders want a dividend. That's fine by me, but I also have to recommend how much and cannot do that without a new corporate plan, which I want written and through the management team this week.
This is it, in a nutshell:
1) Get as many remaining non-automated sites converted as soon as possible. This cuts cost, and aids our competitive advantage.
2) Keep our eyes peeled for opportunities, especially from smaller companies. Seek to take the business or buy the assets of the companies in question (or both, in that order). This is not a time for a lot of sentiment.
3) Recruit someone to research and drive this process who can also lead the takeover process. I have someone in mind.
4) Look to improve the technology. This was the plan with the buy out. The investors have a need for similar technology in a quite different area. I still think collaboration to get what we want would pay real dividends for relatively limited outlay, and working together somewhat more quickly with spread risk.
5) Invest in the core team, and seek to keep key people.
6) Move all asset purchases to leasing to keep shareholder dividends up.
7) Push hard on the new business line Newc has developed as it serves the public sector and is looking resilient.
8) Use those public sector openings to push the existing product lines into that area where we are relatively weak.
I think all of that is achievable. The investment is focussed on payback. The sales are expected to come mostly from other companies as a result of our keener pricing, not from market expansion. I think we do have the competitive edge to make that work.
I've already run this by East and Newc, and they buy it, entirely. Now I'm going to make sure it pays.
You don't keep me down for long.
* * *
September 26 - I slept extraordinarily well last night.
And today I am overwhelmingly tired.
On Monday I have to start writing a new plan.
Today I just want to go home and have a weekend off.
My PA is answering calls.
The team do seem happy with what has happened: they seem entirely content that if I think I've done the right thing then it will be OK.
And I'm both angry and relaxed: relaxed that I made the right decision at this time on the information I have. That's the basis for having no regrets in my book. And I'm angry with those who have brought the world to a situation where the bankers are trying to destroy the game for the rest of us.
I'll get over it.
* * *
September 25 - I'm not often completely taken by my surprise, at least by anyone but my children. But it happened this morning.
The board meeting assembled, and the ex-CEO's lawyer asked if he could speak on his client's behalf. The Chair agreed.
He read a statement. It said:
"We have noted the events of the last few days.
We cannot say we have enjoyed the experience of seeing our expectations change, but we are hardly alone in saying that at present, and many have more reason than we do to be disappointed.
What we want to make clear is that our disappointment is that the deal has failed. We had high hopes for it. But we are not disappointed with anyone associated with it. We think all conducted themselves in good faith. Events moved beyond anyone's control.
We wish to particularly note our thanks to [me]. We believe that he has acted in our bests interests throughout this matter. We were especially grateful for his brave action taken this week in advising all parties (as we now know) of his decision that the proposed management buy out of this company could not proceed as he perceived it to have become contrary to the best interests of both its shareholders and employees.
We believe this an honourable act. We know it must have imposed personal cost on him, both in terms of thwarted ambition and for expense incurred.
We cannot really address the issue of ambition: it is our intent to retain ownership of this company at this time. Indeed, he has indicated that he thinks it right that we do so. We can however address the issue of cost. We wish to advise that as a gesture of our appreciation of his sincerity and good intent we authorise a payment of £10,000 as a bonus to him to assist him in meeting the costs he will have personally incurred in mounting this bid.
We also make clear our full confidence in his ability to lead this company through the potentially difficult period that lies ahead. We therefore wish to confirm our commitment to his continuing appointment as Chief Executive of this company.
That confidence also extends to [the Chair]. It is apparent that he has become an effective partner to [me] in the conduct of his duties and therefore, subject to his signing a new confidentiality agreement regarding relationships with those parties who wished to participate in the management buyout of this company we wish to confirm his reappointment as a non-executive director and as Chairman of this company.
This being said, this whole episode has resulted in us reappraising our own involvement in the company we founded and which we still own. We have as a result asked our advisers to consider new and appropriate long term incentives for the directors and key employees so that they might take this company through the difficult trading period that would appear to be facing us, and to see it through to happier economic times.
We have also considered our own rewards. We believe it time that these were reappraised. It is now apparent to us that whilst caution must be, and will remain our watchword because we would not wish to prejudice the security of employment or earnings that this company offers, we have been too cautious in our dividend policy in the past and have left the company with cash in excess of its needs.
We would therefore advise that it is our wish that the shareholders agreement be reviewed and that it be amended so that a new approach to the payment of dividend reward by the company be adopted. This reward will be designed to leave the company with all that cash that it might reasonably be foreseen to require to undertake its trade without recourse to borrowing facilities, but no more and in this regard we look forward to receiving advice on the value of a dividend that might be paid in fulfilment of this policy fourteen days hence.
We are aware that some key members of the staff of the company are aware of the proposed transaction that has now been cancelled. We authorise the issue of this notice to those staff.
We look forward to a long and prosperous period of working with out colleagues on the board to fulfil those objectives we have long held in common.
Signed: The ex-CEO and the ex-Mrs CEO
25 September 2008"
I'm still in shock.
I know they didn't write this. I'm sure the lawyer did. I don't care. The message was delivered with them sitting smiling at my obvious relief at its message. Heaven knows what these lawyers have done, but it seemed they have knocked some sense into her, at least. It's notable that her accountant, who has been so negative for the last few years and such a bad influence, was absent and has been throughout much of the discussion on the deal. Maybe she's realised he's been an obstacle to her own well being.
Whatever it was, I thanked them. I assured them I thought there policy on dividends was appropriate. I assured them I would give it my attention. I welcomed the opportunity to discuss incentive arrangements. I didn't say thanks for letting me keep my job. I'm sure I am the best person they can get for now. But the Chair did thank them for the votes of thanks, and reiterated their opinion of me.
We agreed that enough had been done. I needed to reassure the staff. We would meet before 14 days are out to review matters further. Then we will look at the shareholder agreement and other issues.
And so I left. The Chair shook my hand, hugged me warmly, said he was as shocked as me, assured me that he would try to make sure I bore no more cost than the bonus would yield (although it's obvious, I must bear some) and then sent me back to the office. He said it was my moment. I must deliver the message.
Everyone in the management team was in. It seems that whatever else they were doing had been cancelled. Even North had found reason to come down.
I didn't delay. I assembled the team. I read them the statement. They cheered. Then they were stunned. Then they asked if the shareholders had been taking anything illicit. Then I reassured them they'd be stripping out a great deal of cash in the next fortnight, so that was their choice. And we all wondered if this can last.
But right now it's as good an outcome as I could have wished for today.
It may not be in the future. I already appreciate that. This whole thing started because of bigger dissatisfactions. But I'm still here. I have a job despite risking it all. I have the backing of the Board, and it does not seem like the proverbial chairman's 'vote of confidence' that precedes a sacking.
It will do.
My wife was so relieved she cried.
I'll put the crystal ball gazing aside for a day or two. There's a job to do right now, which is setting this place on a new course. It's enough for now.
PS The investors sent an email - the Chair had told them. They were delighted, they said.
They also confirmed that their bank was being vastly more cooperative now the deal was off.
We just got the timing wrong. But none of us could have known that.
But for once I'm very, very grateful to a lawyer. I never thought I'd say that.
* * *
September 24 (3) - I've been summoned to a meeting with the shareholders in the morning.
I asked if it might be a board meeting. I want a witness.
They agreed.
I fear it's another sleepless night coming up.
* * *
September 24 (2) - I got a round of applause form the managers. Tears from Office, maybe a moist eye from my PA.
I made it simple. I said their jobs came first. So the deal is dead. I think they'll be secure as a result.
They asked what this meant for me.
I was candid: I had no plans to go anywhere else. I had no idea what the shareholders thought.
And so far I've heard nothing.
But I know I have the team on my side. Even the heirs apparent (East and Newc) were unambiguous in their support. I know it was genuine.
Now it's wait and see.
But I did spent some time tidying loose ends, just in case.
* * *
September 24 - Did the world look better this morning than it did last night? No, is the honest answer. And I didn't sleep much between the two.
Do I think I've done the right thing? Candidly yes. When I looked into the lead investors eyes yesterday I realised I'd solved a massive problem for him as well. I know he would have tried to continue. I know we could have tried to patch a deal. I'm pretty sure he knows it would have been tight.
I know we would have lived on a knife edge. With anything like an OK economy the deal could have been good. But I'm not a fool. And with banks in free fall and commercial property all over the place we're going to have to work hard just to stand still now. That's not the time to take on a pile of debt.
So, I can hold my head up high.
So, secure in that knowledge, and knowing the deal is off I mailed both shareholders and their lawyers to this effect first thing this morning. Now I'm about to call a meeting of all managers who know of the deal (some by speaker phone, unfortunately) to tell them the news. I insist on doing that before anyone tells me I've got to get out of here. And so far they haven't.
* * *
September 23 - The board meeting took place at Mrs ex-CEO's lawyer's office. All were present. The Chair tabled a one item agenda, which simply referred to a discussion on future ownership of the company and its consequences (talk about a catch all!).
He asked me to open the discussion.
I explained my concern. I said that I was aware that given the changes taking place in the UK financial climate, the likely impact this would have on future growth prospects, the effect it would have on financing any deal and the premium I placed (and I knew the shareholder's placed) on provision of a secure employment environment for our staff and a stable pattern of earnings for our shareholders I had to draw to their attention that in my capacity as a director of the company (and not as a bidder to buy it) my perception of the risk profile of the proposed deal had changed. I could no longer be sure that the deal was the best one for the company in the current circumstance and I felt beholden to say so. I would rather do so than live with the risk, however marginally increased, that a takeover would result in employees losing their jobs or the shareholders the value of their investment, but the proposed level of gearing in an uncertain economic climate did now suggest that possible in a way that was unimaginable when discussion started only a few months ago.
The shareholders listened in stunned silence.
It was the ex-CEO's lawyer who responded by asking "Are you saying that you recommend my client withdraw from this deal?"
My answer was "In my opinion that may now be in his best interests, and as importantly, may be in the best interests of the company of which he is also a director."
Mrs ex-CEO was more brutal. "Does this mean you've got cold feet?" she asked.
"No." I replied. "It does not. What I am doing is fulfilling my duty to you as shareholders and my duty to this company by saying that I cannot be sure that the offer that has been tabled, to which I am just one party, is now in your best interest, much as I would have liked to say otherwise."
I was grilled as to my reasoning. I put everything down to just one thing: my lack of confidence that I could now grow the company as I had planned when the deal started for reasons that were, I presumed, glaringly obvious to all present.
The meeting did not take that long. Only a little over half an hour. And the shareholders then told the Chair and I that they would reflect on the advice I, in particular had given.
Following which I felt it my duty to talk to the investors. They couldn't see us until four. It was a long, very sober, lunch and subsequent car journey as we made our way to them.
It was an equally sober meeting. Their advice was that they'd seen the bank and now had no idea if the funding was available. I was rather hoping they'd say it wasn't, but bit the bullet and told them of my change of heart. I stressed this was no reflection on them. It's just when circumstances change a sensible man does, in my opinion, reappraise the evidence. It was clear they had issues to address in their businesses which the new situation had presented. And I no longer believed in the growth we'd all hoped for.
We looked at each other. The lead investor put out his hand and we shook. "It's been worth the effort", he said. "I still want to work with you. That door's always going to be open."
I might need it. It was too late to go back to the office.
I have no idea what tomorrow may bring.
I had no idea the deal would end like this. But I guess I'm not the only one caught out by events of the last few weeks.
* * *
September 22 - It's five years to the day since I joined this company. I hoped that I'd be buying it soon. But I had meetings with the investors over the weekend. It's clear that the bank wobble is not really to do with us: the bank in question supplies some of their other businesses as well. I think the wobble has to do with those other companies, although I can't be sure.
I then discussed this with the Chair. I was candid with him: was it our duty as directors to change our minds on this deal? Whilst we wanted to buy the company didn't we also have a responsibility to our existing shareholders and to our staff? Right now we were in a company sitting on a pile of cash, more cash than it needs. But in that situation there is security.
We are offering the shareholders more risk, and we are offering the staff more risk. Of course we hoped for profit potential as well, but in an uncertain world the risk premium has changed considerably since we started this deal. I asked a simple question, is that the right thing to do now?
I can assure you we agonised about this. The Chair ad I now know each other well. He knows the investors better than I do, by far. I do not doubt their competence. Actually, I do not doubt the quality of their other operations. I have done enough due diligence to not be troubled. But, banks are irrational beings at the moment. They can say 'no' whatever we think and that would consign us to a nightmare scenario.
I had to be honest: I could no longer be sure we could take that risk for this company. I felt we had a duty to tell the shareholders we thought the deal should be called off, even if at considerable personal cost to us. I'm not wholly sure I will survive here if there is such a change in events.
We slept on it. Or rather, and to be candid, my wife and I talked about it through much of the night.
And this morning I told the Chair I was still of the same mind. He accepted we had to call a board meeting and point out the risk. He agreed that to do anything else was inappropriate.
I called lawyers for both shareholders. The called the shareholders personally. We agreed to meet tomorrow at 11am. Earlier was, apparently, not possible.
Despite that the meeting with the bank and the investors went ahead, I gather, today. I was not a party. Nor was the Chair. We were not invited. That was useful, in a way. It was also acceptable: this is about their cash funding at the end of the day, however much we are partners in the eventual plan.
And I've tried to play things as cool as can be here. I don't feel cool. I keep looking at my office and the people around me and wonder whether I'll be doing so for much longer.
* * *
September 19 - The bank meeting has been cancelled, and is re-scheduled for Monday.
With little to do on the deal I concentrated on one thing that may be of importance, which is the management accounts. Whatever happens those for August won't be the completion accounts, of course, but they are our half year and they do therefore represent an important milestone in our year. So I spent much of the day with #1 making sure there are no surprises of any sort of which I need be aware of in them.
Candidly, I think they're as robust as is possible, but this week I'm beginning to think any such statement is rash. What is a good debt in this market?
* * *
September 18 - Mayhem has broken out. The jitters in the City have repercussions: our bank facility is now on hold. I can't believe it.
New discussions are planned for tomorrow but I realise that the decision may be out of the hands of the people we're speaking to.
Our brief to our lawyers today was simple. We issued the instruction to go slow. We need delay right now.
It would be massively frustrating to get this far and see the thing fall apart. At one level that worries me sick: the idea of my future relationship with the shareholders in that case does not bear thinking about. But I also have another duty, and that's to try to ensure those who work for this company keep their jobs. In the current climate not much seems more important to me. So I too have an obligation to manage risk and if a deal is the wrong thing to do, to say so.
I don't think we've got there yet, but in all my planning this was one scenario I did not model, and never expected to face.
Which is a sobering reflection on the value of planning, but no comfort at this moment.
* * *
September 17 - I had every intention of going to work this morning. I failed. I sat in the car and realised it was reckless to drive: I felt weak enough to appear drunk at the wheel.
That said, there was enough to do reading the latest version of documents needing comment here.
And the Chair and the lead investor have been doing great work in my absence. It's clear we have the bank on board, even though there is lot of detail to tie down. I'm now satisfied we have the money in place.
We also have made progress with the shareholders, I'm told. The warranty issue has been largely resolved by taking it off the final payments, and having no withholding of consideration up front. The tax warranties have been limited in scope. Some of the completion accounts issues have been dropped. There's no point arguing when I'm entirely happy they're materially correct and we've never had an audit adjustment in my time. And we didn't supply Lehman Brothers.
The other good news, they've accepted they get quarterly management information, not monthly, and they can have quarterly briefings. Given that's all they've had, in effect, to date that's OK. But the new board will, I'm sure, meet monthly and there's no way we wanted them at those meetings.
I'm beginning to feel this is going to happen.
Tomorrow I'll have to be pulling my weight to make sure it does.
* * *
September 16 - Well, marginally better today, perhaps. I've drunk tea and not suffered a violent reaction. I've talked about work to people for short periods, and felt totally exhausted by it. And I've written this.
My wife, helpfully, says this is just a reaction to stress. I called it food poisoning.
Whatever it is, it's come at a mighty bad time. But #1 is, I think, doing a great job on getting the data the new bank needs.
So I'll go back to bed.
* * *
September 15 - Note from the Editor:
You may have noticed that the CEO rarely takes a day's sick leave.
He regrets to advise that today is an exception. Deal or no deal he is indisposed.
He says it's food poisoning.
From the description his wife delivered to us (at his request) we're willing to believe him.
Get well soon!
* * *
September 12 – We have a bank offer. It's a bit more expensive than we wanted. The guarantees I wanted to avoid are not being asked for. We'll certainly see a very different cashflow. It looks like they'll be enough on the table.
But excuse me if you will. I don't want to spend all of another weekend here and this one needs to be put through my simulation model for this company to show just how it impacts on our finances.
Actually, I'll really enjoy doing that. This may be the first time I'll really see what I'm going to be up against in terms of the need to generate cashflow in a way completely different from that we've done to date.
But as I write this it's also a bit of a case of 'fingers crossed'.
* * *
September 11 – It's so strange that a date can now be symbolic, but it even feels odd writing those words now.
And it's been a tough day. I hear back that the ex-Mrs CEO's lawyer is being adamant that she's not budging. The ex-CEO's lawyer is a lot more amenable. He says there are issues to discuss, but not those causing his colleague on that side of the deal all the problems.
Why aren't I surprised at this? She'll play divide and rule till she dies, and this may be her last chance with us.
So I've agreed some 'red lines'. We're not letting them into board meetings. We're not copying them with all management data. We will allow compensation for loss of office if the revenue will agree (can you ask for clearances on this? I've no idea). We won't change the buy-back terms if we fail to make a payment. We'll reduce the warranty period. We will drop some of the tax warranties: candidly we all know the risk exists, but I also feel relaxed on the basis of recent VAT and PAYE inspections (for example) that it is limited and on corporation tax I'll be surprised if things come out of the woodwork. We're really careful on our claims.
I hope this is enough. I'm leaving them to tough it out for now.
* * *
September 10 – It's been a 'non-deal' day. The action on that is elsewhere. I've been out and about – with East, for a change, as he pretty much gets on without me.
Which is why I sometimes just need to spend a day with him, meeting some of his people who need to be reminded I'm around and am interested, to appraise how they are going, to see how relationships in his team are working, and to visit a customer (just one, as it turned out).
Fascinating today. East (as regular readers will recall) for all sorts of reasons now manages the Western division of the company which runs from near London to the West Country, into Wales and way above Birmingham. It's a big patch, with a lot of people covering a lot of miles. He has three sub team leaders who help with this, and I saw two. Given he's actually not managed these people for long it's refreshing to see how good the relationships are. He might have gone West for his own personal reasons, and it was a sideways move, but he's obviously invested more time and effort into things than I had realised.
I took the opportunity to say so.
* * *
September 9 – We discussed the whole issue of the shareholders being awkward today and have come to an agreement that I will not have significant involvement in this.
There are two good reasons. First, I’ve got a business to run. Second, it’s a lot of hassle and stress.
So, whilst it’s just jockeying for position I’ll stay out. I trust the Chair to inform me when a position requiring a decision on a material compromise arises.
Which has left me trying to deal with the real thing, that business we’re trying to buy, in between discussions with the new bank on the data I have now supplied to them. In fact even writing that shows the current dilemma: nothing is really possible now whilst this goes on. I know it’s impacting real decision making.
Be warned if ever you contemplate a deal of this sort. You need a good order book or good people who can get on without you. Otherwise you’ll wonder if there was anything left worth buying by the time the process is over.
* * *
September 8 - Got the first marked up contract back from ex-Mrs CEO's lawyer this morning. He seems to be taking the lead (which is no surprise).
What was surprising was how little was left of the contract. Any significant warranty had been deleted, including all tax warranties.
A claim was made for compensation for loss of office even though the Heads of Agreement specifically excluded this.
The terms of the ratchet for reacquisition if payments of instalments were not made on time had been changed substantially from that agreed.
A demand was included for full access to board meetings and to all board papers even though the shareholders will supposedly resign. Their cost of attendance is to be reimbursed, but is not defined.
And on, and on, and on.
It's crazy. It's like we never bashed out the deal and signed a Heads of Agreement.
Deep breaths were taken all round. We had an emergency session between the Chair, me and the lead investor this afternoon, plus lawyer (who I like, a lot) and it's been agreed to go back patiently at this stage and point out what has already been agreed, what changes are inconsistent with that and what just contravene all accepted practice.
But believe me, this is torture. I'm beginning to wonder if it will ever end, and I bet there's some way to go yet. We haven't even got all the funding in place as yet.
* * *
September 5 - Amazingly refreshing to meet a bank that still wants business. I presumed that was going to be a tough task in itself, but that did not appear to be the case.
OK, inevitably the issue was security and the rule appeared to be pretty much if it moves or can be counted we can use it for security, so let’s discuss it. So I did!
It will be an extraordinary change of mind set for me to run a company which will be tight for cash, which has to comply with banking covenants, which will have invoice financing, which will lease everything it can, and so on, when for some time I have been used to enjoying sitting on a pile of cash. That will require a new basis for the banking relationship.
These people seemed to understand that though. It's a good start.
The other thing is that they're not seeking guarantees from the directors; the security is either from the company itself or from the investors. I know this is self interested, but I genuinely think I will manage this better if my back is not against the wall all the time.
I think we've cleared another hurdle, but I'll want to see the offer letter. What we have agreed is to provide piles of information ASAP. So that's goodbye to my weekend.
* * *
September 4 - We decided that the only way I could sit on both sides of this deal with regard to disclosure issues was to provide the same information that had been given to those doing due diligence for the new shareholders to the lawyers advising the existing shareholders for the purposes of preparing their disclosure letter.
The difficulty is though that Mrs CEO does not want to pay for accounting assistance in this process, so I am already having to hold her lawyers hand as to where to find answers to questions. But I admit I don't see it as my duty to tell him what to disclose. I am sure it will make no difference at the end of the day whether disclosure takes place or not, but I really do not see why it is my job to decide what they say.
Whether they understand that I do not know, but I can't see an ethical issue in this as she has access to alternative advice and has refused it. Anyone disagree before I get into deep water?
* * *
September 3 - The people who have given their notice are definitely up to something. It's frustrating to say that we do not know what, although I suspect they are setting up on their own. I'd be surprised if a competitor would take out two people at the same time. But neither East or Hitchin could get much out of then. The reaction is simple. I called them in today and got no more so they have gone, now. The risk of having people around who might be taking information is too high, so much to their surprise they were relieved of their van straight away.
Office now has the job (as usual) of scouring our routine job applications file that we have found the cheapest and most reliable way of recruiting new staff over the years to see if we have replacements available.
If you don't do this I recommend doing so. It pays. Simply keep on file all those people who write to you who want jobs and who are suitably qualified. This happens to us quite often. That's why we do it. But, I stress you need someone with real understanding to run the system. Office has that and only people who are likely to be really useful to us get on the file. She usually checks this by ringing likely looking candidates who send us information about themselves, even when we don’t have jobs immediately available. The resulting brief chat lets her form a pretty clear opinion on the applicant, which is then noted. As I say, it works.
* * *
September 2 – Full marks to the investors. They don't hang around. Another bank is already on the case. A manager actually came to look around this afternoon. How keen is that?
I'm making a presentation to them on Thursday and I made clear in advance that it’s the full team I want to meet. So I want to see bankers and asset financiers and invoice discounters all at the same time. We want a package, not a pick and mix ensemble.
I have been promised they will deliver.
* * *
September 1 - A pretty important part of the whole BIMBO process is making sure that people come along with it. The management team are. As far as we know no one else in the company is yet aware of it, bar my PA.
Today though we made a presentation to our bankers. We have already been in discussion with them about funding because for some quite short periods they will be called upon to provide significant funding during the ownership transition process, for which security will be made available. They had expressed willingness to supply these facilities but as we are now assuming the deal will happen the detail needed to be discussed.
At the same time we took the opportunity to present how we think the business will look and expand if the deal goes ahead. I admit that this really excited me and I had put some effort into the presentation. There is no point in buying this company if we have no strategic vision for the future, whether that is short or long-term, and this was a really good opportunity to present that vision to a team who are reasonably familiar with the way things are.
It went well, from my perspective. But I came away dissatisfied with the bank. They may provide the necessary facilities but it is clear that cost is going to be high. I think the investment team know that they will be looking elsewhere before the future banking arrangements of the company are resolved.
This seems commonplace to me. Throughout my career I've always had problems with bankers when they have been faced with a changed circumstance. It seems that a bank is only ever capable of forming one view of a customer. So, in our case they have been used to us being someone who demands high rates of return on excess cash deposits. Now we are seeking funding, and the change in mindset seems beyond their ability to comprehend. Why is that? Why do we have to change bank to get the service we require? I don't know, but I think it likely.
* * *
For previous installments of the CEO's Diary, see:
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004
April 2004
March 2004
February 2004
January 2004
December 2003
November 2003
October 2003
Number of comments: 22
AccountingWEB.co.uk 30-Sep-2008
Categories: Business Features, CEO's Diary
Times read: 21229
by 1 user(s)
How has the CEO's thinking change with regards to assets and guarantee instruments and personal guarantees with regards to the credit crunch?
Let's say, a company got his bank to issue a bank guarantee. Next, the financial situation got 'out of hand' with major collapses. This affected this bank.
Next, this company goes 'shaky' finacially. Next, the supplier for this company having long term deals with this company starts to think if his sales can ever be paid. Ban guarantee was a solution but looking at the current financial situation, what do you think?
Similarly goes for personal or directors' guarantees. Don't you think the value would go down?
If views are negative towards such instruments of guarantee, then what recourse or actions can the supplier do to get back his payments should the company default?
Like-wise, what should the company do to convince his suppliers (and his customers) that he can be financial sound to weather any financial turmoil that may strike his company.
In passing, noting that the CEO got around this problem, I have just reported a case and looked at the tax treatment of bank guarantees and directors - not all plain sailing if you are made redundant. Yet another point to watch.
See: Tax relief on directors' guarantee payments
Is your current cash pile all sitting in one bank?
Would it make sense to spread the risk?
Thanks CEO for giving us a real world example of the effect of the credit crunch on 'Main Street' as opposed to 'Wall Street'.
Just a pity that you had to suffer for it!
1 and 4 in your budget summary, and my recollection of previous entries, suggest your competitive advantage is that the technology you use is ahead of the competition and provides real benefits for the users. So why are you using "keener pricing"? Ok maybe when selling to the public sector where approval rules might force the buyer to go for the chepest, minimum, solution. But even then a value for money argument can be put forward in your favour.
I just wish I had a boss like you....
Phew! Well done! Sell the Film Rights - I think your following here would guarantee it's success!
I feel like my faith in the human spirit has been restored. It's a bit like a combination of the end of "It's A Wonderful Life" and Lord of the Rings when the Theoden overthrows the influence of Wormtongue. (Or am I being a bit dramatic? - It brightened up my day anyway.)
I can't say I'm surprised. You strike me as someone of great integrity, and it seems everyone involved has responded in kind.
The owners creaming off the surplus cash does mean the company will never again be "cash rich" as it was before this proposed buy-out. Does that matter for any future option to mount another buy-out? Will there be enough to "weather the economic downturn storm" (unlike Britain with its empty gold reserves!) The bonus/compensation for bid costs and time/work/stress incurred did sound a bit like a 'bribe' before the removal of cash by the owners - then again, it's their company.
In any case, the genuine votes of confidence from the team are fair reward for good management. Whether or not the bid reached fruition, you made the right decisions and kept everyone informed; it couldn't have been done better. I'd say you've more than earned the ten grand :)
Common sense prevails.
Next...
Make hay while the sun shines.
With the shareholder agreement and their management involvement up for negotiation, what do you need to see in the new arrangements?
How do you get them to look at the non-financial aspects of incentivisation both for you and the team?
What empowerment do YOU need from the shareholders to resolve the problems that led to you looking at the deal, and truly free you to lead?
How would you have involved your management team in the new structure? Is there scope for doing something similar now? can you get some of them onto the board now or in future? Would you want that? Or is it better to keep the two (board and management team) separate?
One other consideration... Will you be able to GROW market share by acquiring the competion if they become vulnerable in the downturn. Or to use acquisition to bolster revenues and profits by diversifying into sympathetic products or services? Or will the new agreement drain too much from the company to support such a strategy?
Only a few minutes after me posting my previous comment, today's instalment appeared.
Excellent news, as long as it isn't the proverbial vote of confidence before the sacking.
This blog is an incredible read. What drama!
Over the last few days I have been reading it and wondering if it's real. You couldn't make it up and it be any more compelling.
Good Luck, CEO. I hope the shareholders realise what an incredible asset they have in you and that your integrity and honesty remain with your business.
I think I can speak for MANY of us who read this and say we are very much hoping for the best for you in this... and watching and waiting for the next post...
Time after time, you've shown your integrity and the value you add... I just hope the Shareholder's appreciate it too.
We're all rooting for you!
I am a regular reader to your diary since it started, but not one to make comments on an anything like regular basis.
All I can say is "good luck". The diary is obviously in "real time" and there must be a publishing deal somewhere whether you are sucessful in buying the business or not.
I was once in a company where I could not deal with the owners/ directors and can only say that I moved on and am far happier now, although as an employee and not an owner (maybe once the kids have grown up!).
I wish you success and happiness, however things turn out.
A few questions you should be asking before you give up:
What happens if you tell the shareholders to pull out and the investors sort things out with their bank? Do the investors have a contingency plan? Did you challenge them on this?
Does it have to be the investor's bank? Or can you get any other bank interested?
If it is truly necessary to pull the plug on the deal, then what are the chances that the shareholders would appreciate your acting in their best interest? Would this create scope to renegotiate the existing shareholders agreement to give you a freer hand? (perhaps unlikely, but if you don't ask, you don't get) What if your shareholders already spent the money anticipating that the deal would go through?
Even if there is no scope for change, is it likely that ex-Mrs CEO would prefer to keep you at the helm rather than allow ex-CEO back in to management? Even if one of them wants your head, can they have it without the agreement of the other?
Is it there anyone else out there you could put a deal together with?
What happens if the bankers and the investors agree, and then tell the shareholders it is still on, perhaps with some sweeteners for them? Better, surely, to stay on board then rather than risk the introduction of a completely new management team?
Obviously an attack of food poisoning will be bringing up thoughts of Key Man Insurance... How about a policy with AIG?
I think the CEO has nipped across the pond to buy a couple of US banks which are going cheap this week!
Having been through a similar situation myself (with a similar funding structure), I would advise caution when dealing with any bank. I am not surprised at the incumbent banks stance - you're right, they seem incapable of shifting their mindset. It was exactly the same in my own situation. The new bank, I have found, are alway like a new puppy - very eager and willing to please, but sometime will leave a nasty little present for you to step into. So, don't get too excited about them until they come up with the goods. And don't forget to meet those who will be managing you on a day-to-day basis once the hand-shakers have left the building and, like Elvis, are never seen again.
If I were to do it again, the banking relationship is one that I would give more emphasis to, particularly as you will be geared after the event and the bank will want to have confidence in the deal from day one.
I wish you well.
I'm just asking out of curiosity....
If one or more of the stakeholders in this BIMBO were to come across this diary - would it not put the whole process in jeopardy (or give them a valuable insight into the thought processes of the 'opposition').
Is that not a rather large risk to take?
...or is this diary actrually post-dated a month or so to avoid problems?
