Principles of Corporate Renewal, Second Edition

Contents

Contents List of Figures xi List of Tables xiii Preface xix Part 1. Basic Issues Chapter 1. Iutroduction to Corporate Renewal 3 Chapter Organization and Content 3 Change and Survival 4 The Three Levels of Corporate Renewal 4 Turnaround Management 6 Who Are Turnaround Managers? 10 The Failure Record 11 Survey Results 16 Measuring Performance: Net Income and Cash Flow 19 Chapter 2. Understanding Bankruptcy Law and Its Application 23 A Short Overview of Chapter 11 23 U.S. Bankruptcy Laws 24 Comparing the Bargaining Power of Debtors and Creditors 55 Secured Transactions 58 Bankruptcy Laws in Industrialized Countries 62 Bankruptcy in the European Union 69 Bankruptcy among Insolvent Nations 70 Bankruptcy Laws in Emerging Countries 70 Questions 72 Chapter 3. Failure Prediction 75 Failure Prediction with Financial Ratios 77 VlII Contents Financial and Operating Leverage 86 Failure Prediction Models 89 Applying EWS Models in a Turnaround 98 Break-Even Analysis 104 Additional Funds Needed and Sustainable Growth 106 The Alternative to Growth 116 Measuring Performance with EVA 117 EVA/MVA and the Privately Held Firm 120 Exercise 120 Chapter 4. Ethical and Legal Considerations in Financial Distress 121 Consumer Fraud 121 Business Fraud 122 Accounting Frauds and Near Frauds 123 Director Liability and Responsibility in Financially Troubled Companies 128 Liabilities Arising from the Board Itself 130 Corporate Organizational Form: Introducing the Limited-Liability Company 131 Pension Benefits in Distressed and Bankrupt Companies 133 Part 2. Implementation Chapter 5. Turnaround Analysis 139 Is a Turnaround Possible? 139 Promoting Organizational Change 145 Questions 151 Compensation Systems 151 Sources of Finance for a Distressed Business 160 The Role of the Board of Directors during Corporate Renewal 168 Negotiations 170 Questions 177 Procurement Options and Transfer Pricing 177 Outsourcing and Insourcing 183 Auctions 190 Accounting as a Management Tool 191 Chapter 6. Employee Downsizing 201 Economic Considerations 201 Practical Downsizing Issues 209 Empirical Evidence on Downsizing 211 The Downsizing Message 212 Contents ix Management Structure and Task-Based Layoffs 224 Questions 242 Pension Plan Changes That Induce Retirement 242 Layoffs: Rehiring Fired Workers 245 Questions 248 Part 3. Advanced Issues Chapter 7. Crafting a Plan of Reorganization 253 Strategic Changes 253 Determining the Treatment of Obligations 254 Finding Excess Cash 257 Crafting the Plan 257 Valuation Issues 259 Using the Threat of Bankruptcy 262 Continental Airlines and the Denver International Airport 263 Reforming the Bankruptcy Laws 264 Questions 267 Exercise: Developing a Plan of Reorganization: Seaman Furniture Company 268 Student Assignment 273 Classes of Claims 279 Questions 281 Chapter 8. Business Process Reengineering 291 An Overview of Reengineering 291 An Elementary Example 294 Reengineering Details 295 The Rethinking Phase 297 The Redesign Phase 303 A More Complete Example 305 Process Reengineering: Summary 315 Chapter 9. Deming and the Quality Revolution 317 Total Quality Management 320 ISO 9000, a Worldwide Standard of Quality 324 Product Innovation 326 Chapter 10. Tax Considerations: Protecting Tax Attributes 327 Net Operating Loss 327 x Contents Debt Forgiveness 330 The Stock-for-Debt Exemption 333 Distressed Investing: Buying into a Troubled Situation 334 Chapter 11. Advanced Accounting Issues 339 The Interview in Activity-Based Cost Systems 343 Fresh-Start Accounting 344 Writing off Goodwill 356 Fudging Net Income with Inventory Overvaluation 357 Conclusion 359 Acronyms 361 Notes 363 Glossary 383 References 389 Index 399 ...