Turnaround Expert Stephen Cooper Addresses Wharton Conference Wharton Alumnus Helps Enron, Krispy Kreme, and Over 300 Others
In January 2002, corporate turnaround specialist Stephen F. Cooper, WG’70, signed on as interim CEO of the bankrupt Enron. Just weeks ago, with his Enron mission winding down, Cooper was hired to rescue floundering Krispy Kreme Doughnuts.
Cooper, who spoke at Wharton’s Restructuring Conference on February 11, has more than 30 years of corporate turnaround experience, with engagements at more than 300 companies, including Polaroid, Federated Department Stores, and Laidlaw, the parent company of the Greyhound bus line.
He remains confident that he’s leading a growth industry. In the future, he predicts, “not just individual companies but whole sectors will need restructuring. There is no such thing as an untroubled airline; there is not a single top-tier automobile parts manufacturer in the United States that is making money.”
In line with Cooper’s forecast, Wharton’s student-run Restructuring Conference, held for the first time this year, invited attendees and leading industry experts to consider such critical topics as: valuing a distressed company, crafting solutions to contentious situations, and managing companies in crisis, including retaining key employees and improving productivity and operational performance.
5 Reasons Why Companies Fail
According to Cooper, distressed companies can usually blame their troubles on one (or some combination) of five weaknesses.
Some companies fail because they are slow to recognize and adapt to new business trends, often driven by legislative changes. For example, tax law revisions of the mid-1980s pulled the rug out from under businesses, such as railroads, that depended on tax shelters.
Others fall short when they wander away from their core competencies. Laidlaw’s core competency was running private school bus operations. But then it acquired Greyhound and also started buying ambulance services.
Unplanned growth can lead to failure, as companies expand without adequate operational or balance-sheet support. Or a company may try to deliver short-term returns instead of focusing on long-term health. Chief executives of these companies, in Cooper’s words, “take their organizations and jam steroids down their throats every 90 days. Ultimately you begin to do dumb, crazy things to please a fickle investment community.”
Finally, managements in denial can torpedo their companies by failing to make tough decisions or getting lulled into complacency after initial successes. These are managements, Cooper says, that have a tendency “(a) to be surprised; or (b) to be random-excuse generators when the proverbial you know what hits the fan.”
From Pipelines to Doughnuts
At Enron, Cooper’s restructuring effort had to contend with “tremendous compression” of time, money, and people. There was not a lot of time to do things in well-thought-out ways because “the wild beasts of creditors want not just their pound of flesh but the whole body.”
At the same time, there was limited access to capital, since a lot of creditors treat a Chapter 11 bankruptcy reorganization filing as “a liquidity event” – an opportunity to take as much money out of the company as they can. Finally, Cooper says, “you lose good people, and people whom you prefer to lose, stay.”
Disorientation and confusion were on display on the very first day of Enron’s bankruptcy, when 4500 employees were fired – by email. Weeks later, with its stock nearly worthless, the company was still deducting amounts for stock purchases from employee paychecks.
Cooper put thousands of Enron entities into three or four “boxes,” or categories, depending on how viable they were. And he resisted creditors who wanted to sell off portions of Enron’s hard assets, such as pipelines and power generation equipment, ultimately raising about $1 billion more in 2004 than the assets would have fetched in 2002.
At Krispy Kreme, Cooper must rescue a brand hobbled by undisciplined growth. In one of his early acts, he ordered the company to trim its 500-member corporate workforce by 25% and get rid of a leased corporate jet.
“And you know, it was just used by a couple of people in the company. I mean, it's just nutty. But you can get used to that kind of stuff, nutty or otherwise, and you don't want to let go of it.”
Krispy Kreme must find a way to transition from a specialty item to a more mass-market phenomenon. As Cooper explains, “the problem is, when anybody can get it at any time, it is no longer a cult item.”
