Principles of Corporate Renewal, Second Edition

Notes

Notes Chapter 1 1. No doubt smaller companies actively engage in corporate renewal, but less is heard about their exploits since the press focuses on larger companies. 2. The New York Times (1996a) titled it "A National Heartache," in its seven-consecutive-day series, "On the Battlefield, Millions of Casualties." 3. Jensen (1996:A29) argues that companies face the choice between corporate renewal and demise; the former has immediate costs but long-term benefits ; the latter postpones the costs to the future and as a result magnifies their severity. 4. Triage denotes a scarce resources allocation scheme developed on the battlefield. Severe problems (beyond help) and those that are stable are ignored ; only problems that respond immediately are assigned resources. Emergency medical care on the battlefield relies on the triage principle. 5. It would be more convenient to express failures in percentage terms. However, D&B adopted the failure rate convention long ago and it has stuck. The percentage of firms failing is found by dividing the failure rate by 100. 6. Personal bankruptcies are not studied to the same extent as corporate bankruptcies. The major determinant of personal bankruptcy is thought to be disposable income, which depends on the state of the economy. Greater attention is focused on understanding the determinants of mortgage and car loan defaults. 7. Several related research papers by the author are "The Determinants of Inter-Industry Failure," Journal ofEconomics and Business 41 (1989), and "Business Cycle Effects on State Corporate Failure Rates" (with Marjorie Platt), Journal of Economics and Business 46 (1994). 8. When the percentage change in gross domestic product (GDP) is directly compared with the failure rate, the correlation is -0.07; however, the correlation between these series is 0.14 and 0.19 with a one- and two-year lag on GDp, respectively. None of these correlations is statistically significant, though the 0.19 correlation is significant at the 0.15 level. 9. Judge Paul Glennon, who was chief bankruptcy judge in Worcester, Massachusetts , for twenty-six years, reports to me that this omission was frequently 363 364 Notes to Pages 16-25 observed in many of the thousands of small-business failures that passed through his courtroom. 10. See Domowitz and Eovaldi 1980, and Hudson 1992. Christine Zavgren also has a fine unpublished paper looking at failure rates of industrial firms. 11. Another possible influence is the failure rate of industries. Platt 1989 suggests that bankruptcy moves systematically through the economy, affecting first one industry and then another. Also see the historical discussion of industry failure rates in appendix A of Platt 1985. 12. Unfortunately, D&B discontinued this effort in 1993. 13. D&B obtains its information from field agents. Criticism arises because gathering this information is not their principal occupation, nor are these persons trained business analysts. 14. Ineffective management is an excessively broad classification that probably includes many of the important categories in the D&B surveys. 15. Most of their responses concerned companies in the 1970s. 16. Bibeault's results would have been strengthened had he reported the percentage of all companies that are centrally organized to compare with the reported 44 percent of distressed businesses so organized. 17. Geographic decentralization remained constant pre- and postturnaround. 18. Merry Go Round, Inc., filed for Chapter 11 soon after its CEO's airplane crashed in Aspen, Colorado. Some felt that the deceased chief was irreplaceable or at least that he had not arranged for an heir apparent. Chapter 2 The author is not a legal professional. Be advised that this and all other legal topics are discussed for the sole purpose of providing basic information and should not be construed as legal advice or counsel. Please consult an attorney on legal questions. My thanks to Frank G. Conrad for reviewing and revising this chapter. I. I have received considerable assistance on this section from Margaret Howard, Chris Ryan, and Sheldon L. Solow. 2. The merchant's bench is synonymous with the mercantilist period. With a bench to sell his/her wares, a person gained economic freedom from the landlords . When debts were not repaid (usually to the landlord), the creditor's troops or the sheriff would seize the merchant's goods and break his/her table, effectively putting the merchant out of business. 3. Texas is a state notable for protecting a person's home against creditors, regardless of its size or worth. Similarly, Florida's homestead law exempts a resident 's home and up to 160 surrounding acres of land from attachment by any creditor...