Part 2 Early recognition of a company crisis
By Wilhelm Dahm / Equity Partner The European Parliament had adopted the Preventive Recovery Directive in 2019, with the requirement to convert this into national law by 2021. In addition to the legal concerns of managerial responsibility in such a restructuring, which has already been dealt with in a first blog on this, another question arises here that is crucial for the success of this restructuring: How is the crisis identified at an early stage so that preventive restructuring can be carried out promptly? Classically, a crisis does not arise suddenly, but announces itself at an early stage. Here, it is important to take the first signals seriously and take precautionary action, similar to a cancer diagnosis. The earlier corrective measures are started, the greater the chances of recovery. Unfortunately, the first signals are usually only present subliminally and are therefore difficult to detect. It already starts with possible discrepancies in the management (stakeholder crisis) or wrong decisions at the management level – all of which are hardly noticeable – because this is day-to-day business and has already been dealt with in the past without external help. However, these first signals can be an indication that a strategy crisis will follow, in which, for example, competitive advantages are gambled away, up to and including a results crisis and a liquidity crisis. Preventive restructuring must therefore begin at the latest with the strategic crisis in order to be successful. As I said, the first signs of a crisis are difficult to detect. This is aggravated by the fact that the management, especially in medium-sized companies, often loses the “neutral” view from the outside, which makes an objective analysis of the situation difficult. Key business figures, sensibly adapted to the company and regularly checked, can support the management in recognising such initial signals and evaluating them accordingly. Other factors, such as employee satisfaction or possible changes in the market, are more difficult to discern and require careful analysis in order to initiate corrective measures at an early stage. It is certainly also due to the fact that analyses initiated by one’s own management bring a less objective result to light (lack of criticism by employees) than is the case with 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.