Preventive refurbishmentthe obstacles to a successful launch – Part 2

F&P BlogPart 2 – Recognizing the corporate crisis at an early stage

The European Parliament adopted the Preventive Restructuring Directive in 2019, with the proviso that it be transposed into national law by 2021.

In addition to the legal concerns of management responsibility in such a restructuring, which have already been dealt with in a first blog, another question arises here that is crucial for the success of this restructuring:

How is the crisis recognized at an early stage so that preventive restructuring can be carried out promptly?

Typically, an imbalance does not develop suddenly, but announces itself early on. It is important to take the first signs seriously and take precautionary action, similar to cancer. The earlier corrective measures are taken, the greater the chances of recovery.

Unfortunately, the first signals are usually subliminal and therefore difficult to detect. It starts with possible discrepancies in management (stakeholder crisis) or wrong decisions at management level – all of which are barely perceptible – because this is day-to-day business and has already been dealt with in the past without external help.

However, these initial signals can be an indication that a strategy crisis is on the horizon, in which, for example, competitive advantages are squandered, right through to an earnings crisis and a liquidity crisis.

Preventive restructuring must therefore start with the strategic crisis at the latest in order to be successful.

As I said, the first signs of a crisis are difficult to spot. To make matters worse, management often loses the “neutral” view from the outside, especially in medium-sized companies, which makes it difficult to analyze the situation objectively.

Business performance indicators, sensibly tailored to the company and regularly reviewed, can help the management to recognize such initial signals and evaluate them accordingly. Other factors, such as employee satisfaction or possible changes in the market, are more difficult to identify and require careful analysis in order to initiate corrective measures at an early stage.

This is certainly also due to the fact that analyses initiated by the company’s own management produce a less objective result (lack of criticism from employees) than external specialists.

It is therefore advisable for the management to make use of these specialists from time to time in order to subject the company to an analytical quick check for the first factors of an emerging crisis.

Without early recognition of the crisis situation, preventive restructuring is doomed to failure.

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