The human element of a turnaround

Tell employees the truth: Geoffroy de Rusquec, director of Prospheres, explains the key factors for a successful transformation in NEXTSTEP magazine.

The first step is to tell employees the truth, honestly, without dramatising. Even if they have to be told bad news about the company, they can handle it,” argues Geoffroy du Rusquec, a director of Prospheres dirigeants, a firm specialising in transformation and turnaround.

While the interim management specialist is known for his work in the retail sector, where he is currently head of Go Sport and has worked on the turnaround of Graine de Malice, he is also working on turnaround assignments for the industrial sector, where the practice of transparency is not always present. “Many employees are unaware of the extent of the company’s difficulties, and telling them the truth is the best way to help them take action, which is a source of satisfaction for the individuals and performance for the company,” continues the turnaround specialist. Accordingly, when Geoffroy du Rusquec arrived in April 2019 at the operational helm of ATI Environnement, a small business based in the Loiret region specialising in the manufacture of cremation furnaces and small incinerators, he did not hesitate to announce to all the employees that there was one month’s cash left in the company’s bank accounts. An electroshock to quickly mobilise the core group of employees who would play a leading role in the recovery. Time is of the essence for these emergency workers, who have been assigned to save dying companies in a matter of months.

Shaking up organisational charts.

In their conviction that part of the solutions come from the bottom up, the turnaround experts are willing to shake up organisational charts in order to promote initiatives and free up resources that are restricted by vertical hierarchies. “We are setting up working groups so that employees can take concrete action. And we appoint employees who are not part of top management to the steering committee of these working groups in order to increase the number of employees who take ownership of their company and to encourage new initiatives,” explains Geoffroy du Rusquec. However, one would be justified in thinking that the context of the turnaround is hardly ideal for experimenting with new types of participative management, given that employees are so burnt out and angry at the management that has brought them to the brink of collapse. The formula seems to have worked well for ATI, which broke even in 2020 and seems to be back on the growth track after halving its revenues between 2016 and 2019.

At Mutares, the German listed group specialising in the turnaround of industrial companies, due diligence covers the industrial and human aspects in equal measure. “A deteriorated social climate does not prevent us from concluding a deal, but it does make us realise how much work needs to be done to win the support of management and employees,” says André Calisti, managing director of the German turnaround specialist Mutares, which, by the very nature of its business, is prepared to defuse complex social environments. “We have come across companies where the absenteeism rate was 15 to 20% when we arrived, whereas the national average is 3%,” says the specialist in industrial companies in difficulty, who announced the acquisition of Lapeyre from Saint-Gobain last May.

Financial alignment

Generally, the recovery of the social climate precedes industrial restructuring, and it implies a lot of pedagogy and transparency, especially when the company has to move from the status of a subsidiary of a large group with a prolific treasury to that of an investment holding company which has to learn about life as a “stand-alone” company.

“We bring all employees together from day one to explain to them where we are coming from and where we are going. It is an opportunity to deconstruct the myths about our role and our objectives,” says André Calisti. First of all, Mutares must ensure that the managers are compatible with the new project. Those who participate benefit from a retention plan with targets for one year and 24 months. “Because participation also involves the financial aspect”, explains the managing director of Mutares, who is working on setting up a system for sharing capital gains on sales in addition to the profit-sharing scheme that has been introduced for all its holdings. For example, at the Alsatian paper manufacturer Cenpa, which was taken over from the Sonoco group in 2016 and sold to Accursia Capital in July 2021 after a successful turnaround, the 90 or so employees of the SME with revenues of EUR 30 million received a profit-sharing bonus of EUR 3000 each.

Sharing the value created by a turnaround can also be achieved through employee share ownership, even if this is particularly difficult to implement in a crisis context where employee confidence is at its lowest. The Alandia fund achieved this feat in the context of one of the best industrial turnarounds of recent years: the synthetic graphite specialist Carbone Savoie. The beginning of the venture, however, was quite epic. The Alandia team was not exactly welcomed with open arms by Carbone Savoie’s unions, who were badly scarred by their drawn-out descent into hell under the Rio Tinto administration and were torn between relief at finally being owned by a committed shareholder and apprehension at leaving the protective conditions of a large group.

To obtain the support of the employees, the new shareholder deployed the “Alandia method” in five steps:

• a shared awareness of the diagnosis
• a clear turnaround plan that everyone could understand
• full transparency in communication by including employee representatives in the company’s supervisory board
• effort sharing with a reduction in management remuneration, including the Alandia partner who took over the operational reins with a 40% reduction in salary compared to his predecessor
• and finally, the sharing of the profits of the turnaround with the implementation of a profit-sharing plan that took shape in 2017 with a bonus of over 1000 euros per employee (which reached 4,500 in 2018), as well as an offering of 5% of the capital subscribed by over 90% of the company’s employees within the framework of a French employee buyout mutual fund (“FCPE de reprise”).

Released at the time of the takeover of Carbone Savoie by the Japanese group Tokai Carbon during the summer of 2020, the FCPE enabled each of the employee shareholders to receive 20,000 euros, for an initial investment of 100 euros… A fine illustration of the alignment of interests between the employees of a company in difficulty and the architect of its recovery!