Tag Archives: Morality

The Business of Life Chapter 33 – like snakes without the ladders

On the day we acquired the Metal Spinners group of companies (MSG)I drove the 100 miles to Newcastle to take control of our new acquisition after just two hours sleep.  Following months of tortuous negotiations that I swear would have sent a saint insane, we had completed the transaction at 4.00am that morning in our lawyers’ offices in Leeds.  Roger, Mark and I now owned (along with 3i, our equity partners) a specialist engineering business that had been formed in 1953.  Along with our nearest competitor, we were jointly the largest such firm in the UK.

Like snakes without the ladders

 Our business strategy, which had won us the backing of 3i & Allied Irish Bank, included not only growing the MSG business organically but buying up a number of our competitors, rationalising production and ultimately selling on the business.  However, that morning when we addressed the workforce in two mass meetings at our largest factories in Newcastle, we spoke only of our commitment to the business and of continuing investment.  Whilst Mark set about the process of ensuring that we had firm control of the company’s finances, Roger and I set off with Clifford (the previous owner) to meet some of the major customers.

 The meetings went well and Clifford was companionable and co-operative enough.  The following week I travelled with him again to meet more customers as Roger immersed himself in the production processes.  This time little inconsistencies began to emerge in Clifford’s accounts of a number of aspects of the business and it wasn’t long before Roger’s assessment on meeting him for the first time came back to me, “I wouldn’t trust him as far as I could throw him.”  Given Roger’s size advantage I was prepared to allow Clifford some latitude but doubts nagged at me when he became increasingly evasive over what should have been straightforward matters.  This evasive behaviour plus a word in Mark’s ear from the management accountant as he departed for a new life in Australia sent what had been merely niggling doubts into full blown alarm.

The more we dug into the company’s affairs the more our doubts rose until we had a dossier of concerns that we laid before our lawyers.  Their advice was that we had significant claims against the vendors plus a damaging potential problem with HMRC.  Warning letters from our lawyers were sent out that were initially ignored only eventually to result in a counter claim from the vendors.  Additionally, as the stakes rose and the acrimony mounted, towards the end of that first year Clifford demanded repayment of the loan notes he had issued as part of the sale and purchase agreement.  These loan notes (which gave Clifford the tax advantage of spreading part of the consideration over two years) had provided a large chunk of our working capital and were repayable on demand to Clifford.

Word was at the same time filtering back through the local business community that Clifford was claiming we had no idea how to run the company, would be forced into administration and he would buy the business back for a song.  Hearsay, yes.  But the demand for repayment of his loan notes could have been fatally damaging.  However, our business was performing extremely well and we had built something of a cash mountain by year end.  We repaid the first loan note, pushed on with the claims and over the next two years incurred huge legal bills in progressing our investigations and the claims.

The business was certainly performing well and Roger, Mark and I had settled into our respective roles.  Roger had his hands around his role of MD and his wealth of experience not only as an engineer but someone with immense knowledge of the steel and engineering sector worldwide was proving ever more valuable.  With complete agreement over strategy, I had immersed myself in two key tasks.  The first was ensuring we progressed our legal claims in the most effective manner.  The other was researching companies in our sector seeking out potential acquisition targets.  Other problems were growing though.

 “We need a word, “Roger said one day, closing my always open office door, “We’ve got a real problem with Mark.”  He then proceeded to spell out a litany of concerns he had over Mark’s ability and performance as financial director accompanied by hard-hitting evidence.  I was shocked.  I had seen Mark work tirelessly with me over the previous two years through one rejected bid after another.  I had been impressed with his understanding of corporate finance and his grasp of the wider aspects of business strategy.  I had seen Mark go through a particularly difficult period in the month prior to our acquisition when it looked increasingly like the transaction would be successfully completed.  His dilemma had been over timing of his resignation from his existing role as FD in a small Plc.  I had needed Mark full time from the very first day if we were successful and he would have to resign at least a month ahead of our scheduled competition.  In the event he had resigned but with a young family it had been a difficult decision to give up financial security.  I said I would speak with Mark.

 The process that took place over the next few weeks was far from easy.  I liked Mark, enjoyed his company, had been impressed by his financial judgement and knew his family well.  I felt committed to him for his support over the previous few years but the evidence that he was failing was overwhelming.  It was not a matter of experience, he certainly had that.  The problem appeared to be that he lacked many of the competencies required for the role.  I prepared for our meeting by reviewing the requirements for the role of finance director, covering every aspect of the role.  I shared our concerns with Mark and provided him with a copy of the list I had drawn up.  I suggested he took a week off to consider how he felt he matched the requirements of the role.  He agreed to do this.

A week later we met and I was saddened to hear from Mark that he accepted that he was deficient in most of the key competencies required for his role.  Nevertheless he felt he could improve.  What he was basically admitting was that he did not have the aptitude for the key aspects of his role.   Roger and I discussed the situation at length.  We were just a three man board.  Having recently acquired a large and demanding business, with a potentially crucial legal claim unresolved and with the tasks of reviewing and improving every aspect of the business, we could not afford to be carrying anyone.  With a vast amount of debt, external shareholders and financial backers, it was essential that the financial systems and processes and the man responsible were bombproof.  Quite apart from our considerable personal investments, we had to consider the wellbeing of over 150 employees, our customers and suppliers.

Parting company with Mark was another low point of my career.  But I believe that the process and timing of our approach enabled him to forge a career more suited to his undoubted skills and competencies before the situation degenerated into one infinitely more damaging to all concerned.  Certainly the relationship with our financial backers was going to be critical over the next few years and the role of FD would come under the spotlight on many occasions.  Luckily for all concerned, as a result of experience, our shareholders’ agreement made explicit provision for dealing with the transfer of equity in such circumstances.  Mark went on to forge a new career as a financial advisor, a role he was well equipped for.

Once more we were thrust into the task of finding a suitably skilled and experienced executive to join our team.  In the event the hunt was not a lengthy one and after a thorough process Malcolm joined us as FD and became a fellow shareholder.  Having worked with Roger in a previous business for many years, he was a known and able man who made a strong contribution to the business (although I do have to say he seemed to operate occasionally on a unique and personal time and priority system).  We were a team that would work well together.

Over the next year or so the process of updating both the fabric of the company, its systems, procedures and equipment gradually sorted out the able employees from the also-rans.  We were pleased to be able to support and enhance the roles of those who were skilled, loyal and committed but were not sorry to wave goodbye to a few who decided they couldn’t or wouldn’t change.

When we had acquired the company we had inherited well over 1,000 customers on our sales ledger.  Following a complete strategic review, including analysis of each and every one, we found the best margins were flowing from those customers for whom we produced the most demanding and technically difficult components.  These customers also had one other characteristic in common – they all produced a final product that absolutely must not fail during life.

This review enabled us to form a strategy of concentrating on identifying, reaching and influencing those potential customers in certain key industries with the most demanding needs.  This strategy led us into major investments in new plant, equipment and engineering techniques.   But it also gave us the security that when we converted such a critical and demanding customer to our process, there simply wasn’t another company that could replace us.  We were to suffer the agonies of our largest customer (a global giant) constantly trying to replace us as a way to drive prices down,  ultimately finding that no-one else in the world could do what we did.

As we were moving towards the end of our second year we had drawn a blank in trying to find a worthwhile competitor to acquire.  Exhaustive research and meetings with a number of the most promising firms had failed to reveal anything worth acquiring.  The picture was emerging of a sector of the engineering world that was continually fighting over the same narrow amount of business for components that were traditionally made using the process of spinning.  Furthermore, the only weapon in the armoury of these firms seemed to be price.  As a consequence almost none of them were making any worthwhile profits and they hadn’t been able to invest in new equipment or techniques.  In short, they were caught in a vicious downward spiral.

Our own newly confirmed strategy seemed to make more sense than ever.  Why fight the competitors in our own sector for commodity components where prices were terrible when there was business we could win from other processes?  Yes, it would be far harder but there had to be business out there we could take from other engineering processes where we could win on technical advantage.  The opportunities were global, the challenges were significant and Roger was itching to get stuck in.

 Meanwhile, events seemed to be conspiring against me once more.  Not only was Bridgestream looking decidedly sickly but another of my investments was beginning to show signs of terminal ill health.  And then an even worst piece of news struck just after that second Christmas that had appalling potential consequences.  Malcolm telephoned to let me know that Roger had been taken seriously ill.  Just how many problems could come at the same time?

Image courtesy of thinkbrigade.com

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The Business of Life Chapter 31 – the gathering storm

Having successfully acquired the Metal Spinners group of companies I was elated But the glow of post-deal euphoria was destined to be short-lived.  As I started the process of taking control of the businesses with Roger and Mark problems in the other companies were bubbling to the surface.   I shall be returning to the MSG experiences in due course but, meanwhile, there are other tales to tell. The Business of Life chapter 31 - the gathering storm   

 The failure rate of new businesses is high with around one third disappearing within their first three years.  But once through this initial period the rate of attrition falls and many businesses survive to have a long life, weathering even the odd recession.  Business risk is omnipresent but there is one circumstance where the greatest risk arises and that is when a new owner takes control.  Research has shown that the majority of acquisitions work to the benefit of the vendor’s shareholders.  There are many reasons for this phenomenon, including inappropriate strategy and culture being introduced and sometimes sheer incompetence on the part of the new management.  But the greatest problem for even the best new incoming owners, despite the most exhaustive due diligence, is that they simply don’t know where the bodies are buried.

Introduced by 3i to become investing chairman for the acquisition of the Bridgestream business (not its real name), I had become the third member of the buy-in team.  The impression I came away with my initial meetings was that the team leader (we’ll call him Richard) was a great guy; originally a chartered accountant from one of the major firms and well experienced in business.  Richard was charming & urbane and we hit it off at once.  The other team member, Tim, struck me as a solid and dependable man who would make a great operations director for the business.  There was the added advantage that they had both worked together previously on another 3i investment.

Bridgestream was, at the time, a privately owned service based business with a large distribution arm for the products it used.  I reserved judgement until I could carry out my own due diligence.  The following week I visited, met the owner and had a chance to look over the main premises.  Being after office hours I wasn’t able to meet any of the staff or get a feel for the atmosphere of the business while it was operating (confidentially concerns on the part of the owner had precluded a visit during normal hours).  I came away thinking, the premises are old, they had a neglected feel and I didn’t take to the owner (I’ll call him Offhand).

However, when I reported back to Mark T at 3i it seemed we shared the same view.  The business was not a particularly exciting one but the plan the team had tabled seemed realistic and we both shared a very favourable opinion of Richard.   Furthermore, it seemed that he came with a tremendous recommendation from the references that had been taken.  We agreed it would be a goer given a ceiling on the purchase price, a satisfactory funding package plus my role as chairman and the experience I could bring to the team.

Richard, Tim and I worked on a detailed reworking of the business plan whilst we awaited the financial due diligence from KPMG.  A series of meetings with banks and factoring companies resulted in finalisation of the funding package and my individual equity investment was settled.  I was surprised to learn just how large a cash stake Richard and Tim were putting up.  They had originally planned to complete the transaction without external equity participation but suffered when, being unable to finance the deal on that basis, they had revealed to 3i just how much they could scrape together (and that was then set in concrete).  The final element of the funding package was an element of vendor finance in the form of a deferred element of the total consideration.  The vendor haggled but finally conceded.

Shortly before completion, we met to receive the financial due diligence report.  There was good and bad news.  Whilst the overall level of company performance was confirmed, it seemed that the financial systems were not particularly robust.  There were two associated companies, only one of which we were purchasing (the distribution arm), the vendor retaining the service business.  The concern was that the accounting systems couldn’t be relied upon to always delineate between the two companies.  Richard undertook to work with the vendor to review the systems and finalise a working capital level for completion, which would then be guaranteed.

Negotiations over the sale and purchase agreement dragged on but we finally completed the transaction with everyone happy.  We were the new owners of Bridgestream (along with our VC equity partners 3i) of a distribution business with eight branches around the UK and two separate operating divisions.  For myself, I had made my first private equity investment.  However, even as we sipped our champagne and accepted the congratulations of our advisers, the storm clouds were gathering.

With the glow of success (or it might have been champagne) still infusing our faces the following morning, we took control of the business and set about reviewing our new company.  Bridgestream traded from eight warehouses across the Midlands and Southern England, supplying a wide range of chemical and consumable products into two discrete industrial markets.  The business was trading profitably (albeit on narrow margins) but had high overheads in terms of both premises and staff.  Our business plan included achieving major savings by consolidating down onto a single site; this would also have the advantage of operating with reduced inventory whilst improving customer service.  During the remainder of the first week, I visited most of the sites, which served to confirm the urgency of the plan.

The first bombshell came with my return to the office to find an extremely concerned looking Richard in his office with the management accountant.  “ We’ve been screwed.” Richard announced to me.  In contravention of the terms of the sale and purchase agreement the vendor had cancelled all of the previous month’s payments to creditors.  The effect of this was to deprive Bridgestream of the major portion of the working capital we had relied upon.  I agreed with Richard that an overhaul of the accounting systems was vital if we were to have accurate information.

The situation was compounded when we also discovered a few days later that in settling an intercompany debt pre-completion between Bridgestream and its sister company (remaining with Offhand), a large over-payment had been made.  The net effect was now a hole in our working capital of well over half a million pounds.  This was a situation that moved us from being seriously injured to virtually crippled.  Richard quickly spoke to Offhand who made soothing noises over the matter and promised to look into the situation.  We hastily re-ran our cashflow projections and calculated that, with changes to our payment terms and some savings we could make we might survive; but we needed that cash.  Now.  The next call was to our lawyers.

Despite many calls to Offhand, no payment was forthcoming, so on our lawyers’ advice, we instituted proceedings against him for breach of contract.  Offhand’s reaction was to issue a counterclaim claiming repayment of the deferred consideration.  As the months dragged on I attempted to engage Offhand in an Alternative Dispute Resolution (ADR) process but despite agreeing he never showed up for a meeting.  One of our managers still in contact with Offhand reported that he had no intention of paying as he believed we couldn’t afford the legal costs to win our action.  The legal processes rolled on and our costs duly rose.

Meanwhile, the cash situation was not improving.  We were surviving but barely and the prospects of a new loan to compensate were zero.  Towards the end of that first year, the directors all agreed to reduced salaries.  Richard had previously agreed to replace the management accountant (we had acquired with the business) as he was, in Richard’s own opinion, simply not up to the job.  The months dragged on but no change took place, Richard always having one excuse after another to delay making a change.  It also became apparent that our invoice financing company were reducing their advances to us, having the effect of stressing our finances still further.  A meeting with their management revealed their concerns over the credit worthiness of many of our customers.  Richard promised a major drive to improve debt collection.

Richard had started giving me growing cause for concern over this period.  He was increasingly absent from the office, ostensibly improving sales but instead he frequently met with one ‘snake oil salesman’ after another and came back full of his latest ideas for additional (and wholly inappropriate) new product lines.   The monthly accounts were increasingly late for our board meetings and appeared to be showing profits whilst we were bleeding cash.  After another board meeting when we were again without full accounts, I called off the meeting and met alone with Richard.  What followed were, hopefully, the most difficult couple of hours of his life.  I covered all of his shortcomings, his continued failings to take corrective action despite commitments, inappropriate sense of priorities and his duties as a director and informed him I required a programme of specific actions over the next month (through to our first year end).

Over the next couple of months we set about the site consolidation process.  We finally found suitable premises, close to the centre of the country and the motorway network and, after careful planning on Tim’s part, we made the move over one hectic, weekend.  The long awaited reduction in stock levels finally started showing benefits and along with the staffing reductions our overheads would come down (after the effects of the redundancy payments had fed through).

Yet another turn of the screw came when the financing company rewarded our stock reduction programme with a corresponding reduction in their advance.  The promised sales improvement failed to materialise and combined with our reduction in stock financing we were seeing no improvement in cashflow.  Richard was pleading the need to concentrate on finalising our year end accounts (which we were under pressure to produce) and had still not replaced the management accountant (saying now that he had great loyalty).  I was forced to give him additional time to achieve the commitments he had made to me.  Richard shortly afterwards produced management accounts showing a break-even position at the year end.  He also promised that the cash situation would quickly improve and that, now the move was complete, we would see real benefits.

Some weeks later my mobile rang with a devastating call from our major supplier.  I learnt in a very difficult conversation that Richard had reneged on a previously agreed payment schedule and was now avoiding calls.  He informed me that all confidence in Richard was exhausted and was going to close the account.  I promised immediate attention to the issue and asked, on my personal surety, for additional time to resolve matters.  By this time I had also gone many months without payment of salary and other business expenses I had incurred.  The following day I was due to meet with Richard and Tim at KPMG’s offices for the audit meeting, so I decided to delay any conversation until we could meet face to face.

The information from our audit partner was worse than I could have imagined.  The year-end break-even result Richard had reported (critical to the continued support of our financing company) was in fact a very large loss.  Furthermore, we were informed that the firm had never seen an accounting system in such a mess.  Richard bumbled on making a series of ludicrous excuses whilst I sat and tried to configure a plan.  The first step had to be to remove Richard; not only was he past the point at which he could recover any credibility, it was clear that he was utterly incompetent.  I made suitable excuses and left to start moving things forward.

 My first action was to meet with our VC partner to bring him up to speed and gain his agreement to the action I was proposing.  I then had a meeting with our lawyers to review the terms of Richard’s contract.  They agreed that the situation constituted a serious enough breech of his duties to warrant dismissal without compensation.  That left the issue of Richard’s equity, which was literally under water and without value.  Under the terms of his contract if he left the company he was required to sell the equity back to the company at an agreed valuation.  In an act of generosity I set a valuation at a nominal sum.  I called Richard and set up an extraordinary board meeting for a couple of day’s time.

What followed was the hardest task I have ever had to undertake in business.  It had fallen to me to fire more than a few people in my time but to take away someone’s dreams and their life’s savings at the same time was not something to relish.  In the event a usually verbose Richard was stunned into silence save for a few monosyllabic replies.  I escorted him whilst he cleared his office and saw him off the premises.  Later that night he returned blind drunk and hurled two pallets through the front office windows.  The exercise of power can be a sobering experience.

Could we save the business?  

 Image courtesy of viralblog.com

 

The Business of Life Chapter 30 – trust and integrity

With two management buy-ins (MBI) completed plus appointment as non-executive chairman of two other firms, it could reasonably be argued that I was more than fully occupied.  However, the two MBIs were not deals that I had initiated and I had only a minority equity stake in each.  So, my goal remained that of acquiring a substantial engineering business as head of my own MBI team.  Things were looking up with a heads of agreement signed and a period of exclusivity guaranteed to acquire the Metal Spinners group (MSG) of companies based in Newcastle upon Tyne.The Business of Life - Trust & Integrity

Mark and I set about the process of refining our business plan for the acquisition.  We now had a complete team of advisors with Phil and Ian (one of his senior managers) at KPMG providing corporate finance advice and Jonathan a partner at Pinsent Curtis on the legal side.  Paul and Mark T at 3i were working with us to ensure we could complete this transaction (following our three previous failures where we had been heavily outbid) and add another investment to their portfolio.

The original MSG company in Newcastle had been formed in 1953 by Clifford’s father and had grown steadily, supported by continuous investment in equipment from the leading German manufacturer of the CNC spinning lathes the business used.  This continuous investment had enabled the business to constantly expand its range of capabilities.  With its low level of exports and the possibility of offering solutions to a range of different industries I was excited by the development possibilities MSG offered.  I made time to visit the various Metal Spinners companies in Newcastle, Manchester and Birmingham to carry out a detailed review of the facilities.  There were five factories spread over these locations with a total production area in excess of 150,000 sq ft.  Whilst the range of equipment was of high quality it was clear that all of these factories were old.

Clifford was a curious character; slight of build and height he may have been but he seemed to posses a vitality that spoke of commitment to the business he had inherited.  The only other working shareholder was Mike, the finance director who had been with the company for many years.  I felt that I had established a good relationship with Clifford and this impression was reinforced when I called on one occasion to confirm a further meeting when he invited me to stay at his house the evening before.  Following a very pleasant dinner at a local hotel we retired back to what I discovered was Clifford’s holiday house (some 35 miles north of Newcastle) where a bottle of fine cognac settled us into a conversation that lasted long into the night.  Clifford, perhaps lubricated by the cognac, talked at great length of his life and his family. The following day the meeting went well and I drove back to Yorkshire convinced that our relationship was stronger than ever and that the deal was really going to happen.

A day later Mark T called me, “What on earth went on at your meeting? he enquired. “Clifford just called me to say that he can’t trust you and the deal is off!”  I was stunned.  Going back in my mind over the entire period we had been together I could recall nothing that I had said or implied that could have given Clifford any cause for concern.  In fact, during the entire time we had spent over dinner and back at his house that evening I had merely been an attentive listener to Clifford pouring his heart out over many very personal issues.  It made no sense and I called Clifford who finally agreed to meet me.

Seated together in a hotel just off the A1 a few days later, I attempted to get Clifford to share whatever concerns he felt he had with me.  His demeanour had changed significantly and he was evasive and imprecise speaking only in the vaguest of terms concerning his new-found lack of trust in me.  “OK,” I responded ” then I will call the acquisition off.  If you have no trust in me, and I really don’t know why, then there is absolutely no basis for trying to complete what will be the biggest transaction either of us has ever entered into.  If you do wish to complete the deal then I must know that you have no reason to mistrust me.”  Clifford stared away in the distance for what seemed an age and I could almost see the mechanics of his brain working.  Finally he turned to me and said he would withdraw the comment; no further explanation was offered.

This was the second time in a few years that someone very important to me in business had poured out the most intimate details of their personal life to me only subsequently to turn on me without warning.  I could only assume that both Swaanen  and now Clifford had, upon reflection, felt that they had let their guard down, revealed too much, felt weakened and decided to get their defence in first.

It was increasingly clear that I needed to supplement our team with the addition of an experienced engineer who would be destined to become managing director upon completion.  I started a process of trawling through contacts offered by our various advisers and other contacts.  With the deal community in full flow in 1997 (and destined to reach a peak of buy-in / buyout activity in 1999) and the business world still shedding senior executives, there was no apparent shortage of candidates to join our MBI team.  But when I had completed my essential selection criteria the list got very much shorter.  Finally, following many fruitless meetings and interviews, as a result of a 3i introduction, I met a seemingly perfect candidate I’ll call Pete.   Mark and Mark T both agreed and our team was complete.

My business life had become increasingly frenetic but was still hugely enjoyable with every day bringing fresh challenges (that I shall return to later).  So, it was with a mixture of surprise and regret that I faced the fresh question from Mark T “How much time are you intending to spend on the MSG business if we succeed in this acquisition?”  Given that three of the roles I held were as a result of their introductions, I was a little annoyed at the inference that I wouldn’t be able to cope.  I reasoned to him that with our new team member in place as MD designate all would be well in future.  It was clear from his reaction, however, that all was not well now and something had to give to maintain their support for the MSG deal.

The previous year I had agreed to become non-executive chairman of Jerrard Bros.  Working closely together we had refocused the business and the management team and profits had increased.  However, Steve the major shareholder (and son of one of the founders) was becoming increasingly visible as the major problem.  Previously unhappy in his role of MD and wishing to be freed from the demands of people management he had expressed a strong desire to simply concentrate on product design.  So, we had reshuffled and recruited and once again events were proving Steve to be the problem; his one responsibility, a new product, was woefully behind schedule and he was blaming everyone else.  With 3i’s implicit message that something had to give ringing in my ears, and knowing that the company was 90% owned by Steve, it was his train set and I knew that I was flogging a dead horse.  I resigned at the next board meeting.

The next few months brought fresh frustrations and challenges not least of which was a growing concern over Pete.  Despite his qualifications and experience I was becoming concerned at how little he was contributing to the process.  Mark and I were working every conceivable hour to pull the ever increasing stream of due diligence information into our business plan and I called a meeting to review the latest iteration face to face.  Pete contributed nothing, instead spending the entire time attempting to massage a previously agreed package higher.  When he returned to ‘needing’ a Jaguar XJ6 once more, Mark and I looked at it each other and I decided it wasn’t going to work.  Pete was dropped.

Now some three weeks before a scheduled completion date, I had no managing director candidate on the team.  I had agreed with 3i that my role would be that of executive chairman spending a minimum of two weeks a month in the company but that was predicated on my having a full time MD in place.  Without an engineer as MD, it was simply not going to work.  I called Mark T and Phil and let them know what had happened in my best low key manner and assured them a replacement was no problem.   Except that it was a major one.  I saw more candidates but no-one was even close to being right.  Apart from the big company experience I wanted someone who would be at home in a hands-on role in a medium sized company.  No luck and time was running out.

The results of the KPMG financial due diligence were due and two weeks before scheduled completion I travelled to their Newcastle offices to receive the briefing.  All had gone well with their investigation and as I was leaving one of the local managers put his foot against the door of the lift to prevent it closing, “Are you still looking for an MD?” he enquired, “I played golf with a great guy yesterday whose also trying to do an MBI.”

When I met Roger two days later in the 3i offices in Leeds we found we had a very much aligned view of business.  A highly qualified and experienced engineer, his CV showed everything I was looking for and he was happy to join the team on what looked like a done deal.  After a brief meeting with Mark T, we shook hands on what we both hoped would be a mutually rewarding relationship.

The next couple of weeks flew by in a whirl of constant meetings to review the legal due diligence, environmental surveys, the latest version of our financial projections, obtain bank finance and to discuss the equity split with 3i.  This latter aspect gave rise to a ‘blood on the walls’ dispute with me fighting unsuccessfully for the team to retain more than 50%.  In the end I had no alternative but to settle for just less than this figure but I did manage to win some other very useful concessions.  In the last week there had also been a very frustrating meeting in the office of MSG’s lawyers in Newcastle.  Very late in the evening with a couple of key issues still to be resolved, the main partner stood and declared he was going home!

Finally, the morning of the day for the completion meeting found Roger, Mark and I gathered in the offices of Pinsent Curtis in Leeds.  Most of the day wore on with little happening initially.  Allied Irish, our debt funders, arrived during the day in  the company of a supercilious lawyer to agree the finer points of the banking agreement.  I won nothing from that negotiation.  Clifford and Mike arrived late afternoon and were shown into a separate room along the corridor.  It was only at this late hour that we got to see the disclosure letter they had brought, raising fresh queries over the warranties we required. The pace quickened with what seemed like a fair impression of shuttle diplomacy as lawyers from both sides hurried back and forth attempting to resolve one query or another.

Despite the seven months of painstaking work it had taken to get matters to this point fresh information seemed to be arising in a flood.  Newly discovered potential problems required perhaps a provision against the price we were paying with an amount held in escrow or a deduction in the price.  Each of these problems required a delicate negotiation with, by now, manifest mistrust between the parties. The evening wore on with a painfully slow resolution of one issue after another.  Then, at one o’clock in the morning, Clifford and Mike walked out and disappeared somewhere into night-time Leeds, pausing only to inform their lawyers that they had had enough and might be back or not.

Almost the last issue we had on the table at this point was our requirement for a deduction to cover repairs to the roof at the Manchester factory, something that had only come to light in the last day or so with a surveyors report.  The sum involved though relatively minor may well have been the last straw.  All we could do was sit and wait to see if they would return.  Time ticked by and then two extraordinary events took place, which to this day illustrate to me integrity and honesty and what happens when it is lacking.

Quietly sitting on my own in a corner of the maze-like, old building, trying to relax and remain positive while hoping that all these months of work for everyone had not been in vain, Jonathan the head of our legal team sat beside me.  “Look, don’t worry,” he said quietly and very precisely, “if there are any issues still remaining we can get these sorted out later.  The key thing is to get the agreement signed tonight.”  I couldn’t belief my ears.  I had gained enough experience to know that problems in legal agreements only got worse with time and involved huge additional fees.  I waved him away.

Some time later, Ian from KPMG, also sought me out, solicitously enquired how I was holding up and then counselled “Look, if everything isn’t right to your absolute satisfaction, walk away now.  They’ll be other deals but for God’s sake don’t sign an agreement you’ll live to regret.”  I looked up at him and could only nod and squeeze his shoulder.  KPMG in the shape of Phil, Ian and their whole corporate finance team had put a simply massive number of hours on the clock on my behalf and if this deal fell through they stood to wave goodbye to fees well into six figures (and probably very healthy personal bonuses).  Absolute integrity demonstrated.

Seeking out Roger and Mark I brought them up to date on the two conversations and asked their opinions.  The response was immediate and unanimous; get it right or we walk away.  Mark T was in agreement; he’d seen the results of too many bad agreements.  Shortly after Clifford and Mike reappeared and disappeared with their lawyers into their meeting room.

A few minutes later and the remaining issues were resolved (at least to our satisfaction).  We were then ushered into the main board room where a sea of documents was laid out for our signatures.  The formalities completed, champagne was poured, backs were slapped, thanks exchanged and words I cannot remember were uttered.  It was 4.00am on the morning of the 8th July 1997 and I had (with a simply huge amount of debt and VC finance) become the owner of a substantial engineering firm that was a leader in its sector.  I later learnt that our deal was one of only 54 MBI deals completed in the UK that year.  Not bad for a lad who’d left school at fifteen with no qualifications.

I crawled into bed at 5.00am, rose again two hours later and drove the 100 miles to Newcastle to take control of our business.  Life was about to get more complicated than I could ever have imagined.

The Business of Life Chapter 29 – and then three come along at once

The New Year of 1997 brought surprises that, for once, were something to celebrate.  Shortly after the world started work once more after the long Christmas break, I had one of my regular review meetings with Phil at KPMG’s offices in Leeds.  “We’ve had a positive response from the last batch of letters I sent out,” Phil informed me, “Metal Spinners up in Newcastle are prepared to meet you.  However, when I spoke with them they told me how much they wanted for the business and it’s more than a bit rich.”  I remembered the business well from the last batch we had discussed and when Phil let on the amount they wanted, I groaned inwardly.The business of life chapter 29

There are many ways of valuing a business but one of the simplest is that of a multiple of sustainable earnings.  Somewhere between 6 and 7 times profit before interest, tax, depreciation and amortisation would be a reasonable average for a privately owned manufacturing or engineering business at the time.  The problem was that the figure they had quoted Phil was way above that.  “Sod it,” I responded, “We haven’t had a nibble for a while and the pipeline is a bit depleted, I’ll go and see them.”  We fixed a date for a week or so later and Phil volunteered the services of Crevan, one of his managers, to accompany me.  Perhaps there was some reason not evident in the published accounts as to why they had such an apparently inflated view of the value of their business.  Time would tell.

Back in my office the phone rang a short time later and I had Mark T from 3i on the line.  “We’ve just concluded a management buy out (MBO) of an engineering business in Sheffield and we need a Chairman on the board.  No guarantees that they’ll pick you as we have provided them with the names of a few suitable candidates, but are you interested in having a talk with them?”  A few days later saw me seeking out the address on a small industrial estate on the south side of Sheffield.  The business was housed in old premises and specialised in the production of small batches of bespoke tungsten carbide components and was very profitable.  The business had been bought out by its management (the engineering director and finance director) who now shared the role of MD.  I was given a tour of the facilities and we then discussed the business plan they had used to support their bid.  The meeting seemed to go well and they said they’d let me know when the other candidates had been seen.

The next week Crevan and I made the journey up to Newcastle and met with Clifford the MD and Mike the finance director of Metal Spinners (Newcastle).  The business had been founded in 1953 by Clifford’s father and proved to be spread across numerous sites in Newcastle, Washington, Manchester and Birmingham.  The premises that we saw that first visit were old (like so many UK engineering firms I had seen over the last year or so) but there was something about them that gave off good vibes to me.  I liked the fact that their main process (metal spinning) was very much a niche one and that they had both a major blue chip industrial company as their main customer plus over a thousand others.  The incredibly welcome news was that the business was in fact a group of eight separate companies that were non-consolidated.  The combined turnover and profitability of the group was far higher than I had realised (having only seen one company’s accounts) and put the asking price right back in the realms of the feasible.

The other great news was that the business was not on the market and wouldn’t be if we could deliver a deal on their asking price.  Crevan and I came away with a complete set of books for the total company and pages of notes that we had made during our discussions.  Driving back to Yorkshire we summed up the opportunity; the shareholders seemed willing (although there was an absent shareholder and a family trust), the business was in a highly specialised niche, it was profitable, it had very limited exports and seemed to offer once more the opportunity to acquire smaller competitors and consolidate onto a smaller number of sites.  This was the best opportunity I had seen in a year and a half and it was exactly the type of company I had set out to buy.  Crevan and I agreed a split of the workload needed to assess the business and I headed back to my office to telephone Mark with a briefing on the day’s events.

The following day I received a call from one of the joint MDs in Sheffield.  They had completed their interviewing and wanted to appoint me as chairman if we could agree terms.  A few days later I formally became the non-executive chairman of Hallamshire Hardmetal Products with a requirement to chair monthly board meetings and be on hand to guide strategy, oversee the delivery of the business plan and provide whatever assistance they might require.  The company was run on a relaxed basis but I was pleased that their accounting systems were rigorous and Trevor H and Trevor S (the joint MDs) were easy enough to work with but had an all consuming passion in keeping things simple.  There isn’t a great story to tell but over the next ten years or so we formed a great working relationship, evaluated several businesses, bought a smaller competitor and then staged a further buy out from 3i.  The business never failed to make profits in all these years and was finally sold to a buy-in candidate in 2008.  Sadly, Trevor H never lived to realise the fruits of his labours, dying a short time prior to the sale.

Meanwhile, I was still in the midst of evaluating the Metal Spinners business when Mark T came on the phone once more.  “We have a buy-in deal we’re trying to complete but have a problem with their choice of chairman and are not sure about the business.  Would you like to have a look at the business for us and let us know your views?  If it looks good, we’d like you as investing chairman to lead the team.” There’s a long and tumultuous tale to tell here but suffice for the moment to record that I did approve and complete the deal and became investing chairman of Rothmere Ltd in the first half of 1997.

Over this hectic period I was burning the midnight oil with Mark and KPMG to pull together a heads of agreement with the owners of Metal Spinners.  Earlier that year we had managed to get Clifford and Mike down into the 3i offices in Leeds to thrash out an outline deal.  The sum that they had put on the table had transpired to still be far too expensive once Mark and I had put together a full 5 year projection.  I had discovered Clifford to be volatile and I was concerned as to how the meeting would go.  After an hour or so we had reached what seemed to be a significant hurdle and were well over seven figures apart.  We were also surprised to learn that they had appointed neither lawyers nor accountants to advise them; proving to be both advantageous in the short term and a near disaster later on.  Paul called a breakout and very quickly came up with a plan.

That morning we had received the first set of up to date management accounts and learnt that the business was rapidly building a substantial pile of surplus cash.  Going back into the meeting Paul spelt out (in the absence of any advice of their own) the net proceeds they were likely to walk away with after tax if we delivered the price they were asking.  This wasn’t enough to keep Clifford and Mike happy.  He then asked them what they thought they would be happy receiving after tax.  Having established this figure, Paul then laid out a formula whereby they took a combination of pre-sale dividend of the cash they had build up and took a substantial slice of the proceeds in the form of loan notes spread over the two years following a sale.

This formula of deferred consideration would give us a hefty contribution to our working capital requirements and lessened the upfront investment.  These loan notes together with the pre-sale dividend (their own money) produced a substantially lower overall tax bill that just brought the net proceeds up to the level Clifford and Mike had agreed they wanted to achieve.  In effect they were financing part of the transaction to achieve a lower tax bill.  They agreed and by lunchtime we had a signed copy of heads of agreement on this basis.  As part of the agreement they were giving us a period of exclusivity to enable us to complete the deal during which they would neither approach another prospective purchaser nor would they enter into negotiations with any other party.  The deal was on and it seemed achievable but a vast amount of work needed to be done in terms of due diligence.  A phrase was then uttered by Paul that was to come back to me time and again over the years in every transaction I was a part of,  “The devil’s in the detail.” he cautioned.

A couple of weeks later Mark T called me to ask what my time commitments were like.  By this stage I was chairman of one 3i investment and had recently completed my first MBI as investing chairman of another.  In addition, over the last couple of years I had continued my work with Jerrard Bros Plc and had been appointed chairman the previous year.  I responded that I still had some spare time and asked what he had in mind.  By this time it had become clear to me that, even if I couldn’t pull off the one big acquisition I had set my sights on, I could achieve a very nice portfolio of non-executive roles combined with equity participation.  We agreed to meet the following day.

Sat once more in the 3i offices (where I was beginning to feel at home) I listened to Mark T describe the problem he had.  They had backed the growth plans of a small technology products distributor that had grown extremely rapidly (by around 35% each year) and  had expanded into the USA and Germany.  Profits had been sacrificed for growth but the latest year’s results had produced an unexpected loss of £1m (largely as a result of the US investment).  The shareholders equity was now ‘below water’ and the bank was making ominous noises.  Would I go and meet the two director shareholders and, if they agreed, join the board as a non-executive?  I was subsequently appointed to the board and another rollercoaster ride was about to start.

Over and above my due diligence work on Metal Spinners and maintaining the research and analysis to keep the MBI target pipeline full, I was now working for various periods each month in businesses based in Croydon, Hull, Heathrow and Sheffield with various additional activities in London, Bristol & Birmingham.  I stopped all efforts to win new consulting clients and knew that something would have to give in these activities if I managed to pull off the major acquisition I had been seeking.  I was burning the candle at both ends and in the middle but was enjoying life more than I had for many years.  And any concern about money had disappeared over the previous few months as my portfolio of activities had grown.

My new life as a non-executive & chairman seemed to be the role my career had been building towards.  I was responsible to 3i to ensure that their investments in the companies I had joined produced the results they had planned.  However, this role was legally (and in practice) overridden by my responsibility to all of the shareholders (and in my mind to all of the stakeholders) of these businesses.  My broad experience had provided me with an ability to see these businesses in a wider context than their other directors (whose deep functional & specialist experience certainly exceeded mine).  Freed of the responsibility to manage a day to day role I was able to concentrate on direction, strategy & people (including customers).  These key aspects could only be achieved as a result of the closest working relationships with my fellow directors and their teams.  I was finding my business life to be immensely fulfilling.  Unfortunately, I was also going to find out that it would shortly become vastly more challenging than I could ever have imagined.

Meanwhile, alongside my work and responsibilities with these four companies, I was ploughing every once of energy and expertise I could muster into completing the acquisition of the Metal Spinners group of companies.  I was increasingly confident that I could pull this off but completely unaware of the scale and scope of the problems that were about to emerge in three of the other companies.

Image courtesy of en.wikipedia.org

The Business of Life Chapter 27 – no way back

Some people would say that it was madness, but I found it liberating to know that I had blocked off an escape route and that the only way was forward.  Having withdrawn from the job search process and informed head hunters I was out of the game, I had but one goal and that was to achieve a management buy-in (MBI).  To facilitate this process I had to earn just enough to support the household and preserve my savings for the stake I would need for my share of equity.  As John Major resigned the leadership of the Conservative Party to trigger a leadership election in June 1995, thus burning bridges in the hope of winning party support, I made my own play for future success.  My bid was rather less exalted but it was critical to me and had a similar air of ‘do or die’.No Way Back

A corporate finance partner at Grant Thornton I had met during the due diligence process at Selmar was my initial port of call.  “Why do you want to do this?” he enquired when I had finished laying out my plans.  “Because I can be a whole lot more successful at running businesses than most of the clowns I’ve worked for!”  “Wrong!” he shot back at me, “You stand in front of a venture capitalist and tell him that and you’re finished.”  I felt perplexed and my look must have revealed my confusion.  “You’re doing it for the money, you want to make shedloads of money for yourself and for them.  That’s what they want to hear.”

My first task was to commence my own due diligence on the process of achieving an MBI.  I started this by talking to several contacts, eitherold or new, who had managed to get VC backing to either buy-out (MBO) or buy-in to business.  Their advice was interesting but the one phrase that struck me as invaluable given my own experience with cash was, “Never buy what you can borrow and never borrow what you can steal!”

An essential element I absolutely had to ensure was in place was a contingent fee arrangement with a firm of accountants and a lawyer firm.  To get a deal to completion meant accounts and lawyers putting a great deal of hours on the clock for both accounting and legal due diligence plus all the work on the finances, deal structure and the sale & purchase agreement.  These costs would run to hundreds of thousands of pounds and without this ‘no win, no fee’ arrangement in place, failure to complete a deal would ruin me.  In the deal-charged environment of the 90’s all of the major accounting and law firms realised that without such an arrangement the deals would simply never happen.  The quid pro quo was an acceptance by VCs that transaction fees would be inflated for success.  It was a feeding frenzy.

The combination of my approaches and CV got me meetings with the corporate finance partners of every major accounting and law firm I approached.  A vast amount of highly practical advice flowed from these meetings, which was adding to my rapidly growing knowledge of the intricacies of the MBI process.  All lost no time in telling me how difficult it was to achieve and how risky it was to buy a company as an outsider, “You just won’t know where the skeletons will fall out of the cupboards!”  Knowing that it was going to be a lengthy and fraught process, the key aspect both parties were assessing was the personal chemistry.  There had to be mutual respect and trust, something that I was well aware of, but something that would also be brought into a stark spotlight in the future.  The result of many meetings was an agreement of backing from KPMG and Pinsent Curtis both in Leeds.

With one vital building block in place I started contacting all of the major VC firms.  Again I succeeded in achieving meetings at director level with every firm I approached.  The choice of equity partner transcended almost every other consideration.  Yes, you would share equity in a deal but management equity was a very subordinate animal to that held by a VC.  I knew that all firms could and would be ruthless in the event of non-performance but there were other considerations that I knew to be critical.  Most of the firms I talked to had a strict policy of exiting from their investments within a set time period, being driven by the way they raised finance.  I had met one management team who had almost been sunk by being forced to refinance as a result when their business was going through an appalling difficult period.

The one exception to this almost cast iron rule was 3i whose policy was that management drove the timing of exit.  With its roots in the Industrial and Commercial Financial Corporation and the Finance Corporation for Industry going back to 1945, 3i had probably more experience and understanding of financing private businesses than any other VC.  I had had a welcome and very useful initial talk with the head of the Leeds office and, following all of my other meetings, I decided that I simply had to get 3i backing.  The head of the Leeds office was Jonathan Russell (who went on to become a main board director) and underlying his smooth and urbane appearance and warm welcome was a very shrewd businessman.  After I had filled him in on my success in getting contingent fee arrangements in place with KPMG & Pinsents, he leaned back in his chair, nodded and enquired, “Anyway, how’s your job search going?”

This wasn’t a trap I was ever in danger of falling into and took delight in firing back, “I don’t have a job hunt.  I’ve closed all the corporate doors and I’m going to succeed in achieving an MBI with you.  That is my future.”  I was then vetted by Patrick Dunne (who ran their MBO / MBI programme) in London and was then able to benefit from the vast knowledge 3i had gained in this sector.  From their research I was able to ascertain just how many MBI candidates there were in the country attempting to achieve the same goal as me.  Comparing this number (over 2,000 from memory) with the number of deals actually completed each year (210 in 1994) was, at face value, disheartening.  Of these only 28 were MBI transactions that had been completed!  When I considered the reasoning behind Jonathan’s question about my job search and added this to the knowledge I had gained so far I realised that the odds were better than the apparent 1.4%.  Clearly some of the c2000 executives seeking a deal would also form part of a team of 2 or more.  I also knew from my research so far that the majority of people who claimed they had a goal of an MBI merely waited for the deal community to throw up an introduction to a potential transaction.  I had already decided that I wasn’t going to sit around waiting for a deal to show up, I was going to make it happen.  When I added this self-sufficiency to my competitiveness and determination, I decided the odds were rather better at around 8~10% pa.  Good enough for me.

I started work on a methodology for searching for suitable targets.  The advice I had been given so far was to buy a dog.  What was meant by this was buying a failing business and turning it around would yield fantastic returns.  The problem I envisaged with this approach was that the margin for error narrowed to almost zero.  Problems come from all angles even in a good business that one knows well but buying into a failing business raised the stakes dramatically.  No, I decided, I would buy a profitable business even if the price was higher but it wouldn’t be balanced on a knife edge from day one.  The obvious approach would be to attempt to buy a business in a sector where I was experienced, so the lighting industry had to be on my target list and I started making approaches to all my contacts in this sector.

I had drawn up a list of ideal criteria for a target company and this included:

  • Privately owned
  • No more than 3 shareholders and ideally same as directors
  • In business for between 15~30 years (potential retirement sale)
  • Turnover between £3m~£25m
  • Profitable and cash generative
  • Engineering, industrial manufacturing or distribution
  • Were differentiated in some way (or could be)
  • Had growth potential.

Obviously businesses in declining sectors were out and I also decided that I would have nothing to do with those selling consumer products into high street retailers.  I new that Companies House had all the information required to ascertain if the first 6 criteria could be fulfilled for a small fee.  However, there is no way one can carry out a criteria based search from this source (needles and haystacks).  However, I knew that there were many credit agencies and other research companies who bought the entire information from Companies House and compiled databases that could be searched by criteria.  Their fees were beyond me though.

Leeds business library proved to be an excellent halfway house for the information I required.  It had research reports on a vast number of UK business sectors and it had searchable databases that would give me a snapshot of likely companies.  In addition, the cost of information was only £0.10 a page.  I would blitz a business and geographic sector and come away with a single page on each of around 200 companies.  Returning to my office at home I would wade through this information refining it down into a short list of 20 to 30.  I would then arrange a meeting with Phil, the corporate finance partner at KPMG and we would then discuss each one and agree a final list of 10 to15.  Phil would then get one of his team to run off a complete financial history for the last 5~10 years in great detail for each one.

Back in my office I would then input all of the resulting data into a large spreadsheet model I had developed that would produce key ratios, further analysis and graphs.  The resulting report I produced for each company showed at a glance a clear picture of the health of each business plus all of the relevant trends.  I would put together any further information I could gather as desk research and then get together with Phil to review the results.  These reports together with our discussions enabled us to whittle the list down to 5 to 8 key targets.  Having discussed the various ways of approaching these targets Phil counselled that we would get a better response if he approached each company saying that he had a client with funding in place who was interested in a purchase.

Whilst carrying out this research I had been working my way through all of the potential businesses I knew in the lighting industry that were worth an approach.  I had meetings with a number of potential targets but despite serious interest from the owners there was really nothing worth pursuing.  I was waiting to hear of the results from the initial batch of letters Phil had sent out when he gave me a call and suggested we meet.  He explained he had information on a paper processing business that was for sale and he could introduce me if I was interested?

Was I interested!  After months of work I was off running with a lead on a business that was for sale.  Would it shape up?  Could I pull off a deal?

 Image courtesy of http://www.virtualdjradio

The Business of Life Chapter 26 – casting off the chains

On my first morning at Selmar Industries I arrived early.  After a quick word with the few managers and office staff who were in at that time, I went on a tour of inspection.  The company was housed in an old textile mill on the outskirts of Brighouse in West Yorkshire almost at the end of a tightly wooded valley.  The buildings were a veritable rabbit warren with both offices and production facilities spread across different levels connected by tight and twisting passageways.  A new warehouse had been added to the rear of the site some years before and the yard outside appeared to be a dumping ground for disused HGV trailers.The Business of LIfe Chpater 26

Following a brief session with the management I held a series of meetings for both office and production staff.  After laying out the realities of the present situation, I went on to share my personal values and inform them that we would be working together to turn around the fortunes of the company.  I then held a series of individual meetings with all of the board and management team.  The highlights of my new team were Jeff and Neil (not my group MD), sales & finance directors respectively, professionally capable, enthusiastic, committed and nice guys.  They also proved to be extremely loyal.

The rest of the board and management were way below the level of competence I had been used to and, to be honest, made my heart sink.  They offered a veneer of support but it was barely masking an underlying denial of the dire situation the company was in and any personal responsibility for their role in it.  To say that I sensed a potential resistance to change would be a vast understatement.  Quite the saddest situation I found I had inherited was that of the administration director (who I’ll call ‘P’).  How he ever came to be promoted to this level was a mystery.  It would transpire that whatever hour I arrived in the office or left, he was always there.  Though supportive and loyal, I found that he was way out of his depth and was working 18 hour days in an effort to survive.  Knowing the urgent task I had on my hands to stem the haemorrhaging of cash, I decided to make no immediate personnel changes, there would be time later.  I knew ‘P’ was out of his depth and tried to protect him as best I could but he ultimately resigned.  A couple of years later I discovered from an HR consultant that my predecessor had engaged her to carry out an assessment of the board.  She had found ‘P’ to be so far below average intelligence, she simply didn’t know how he could even hold down a clerical role.  Nothing had been done.

The product ranges of the three companies in my group included domestic and commercial battery chargers, cable reels and power cords.  The business also produced small transformers on a sub-contract basis for another company in the wider group.  The battery charger business had been a market leader (and perhaps still was) but it suffered from a number of problems that were at the heart of the group’s problems.  Sales were highly seasonal with winter producing a demand at least five times that of the rest of the year (more in an exceptionally cold year – and one of those was about to strike).  Production had to run flat out throughout the remainder of the year to build stock as it was impossible to produce sufficient to meet demand as it occurred.  Thus this major division of the business consumed cash for nine months of an average year.  Selling through high street multiples and producing own brand for some of the major retailers it was subject to intense price pressures.  With its many export markets it also had significant foreign exchange risk.  These problems were serious enough but they proved to be compounded by sheer internal incompetence as I was to find out.  The other two companies demand patterns were not as seasonal but were also subject to severe price competition especially the cable business.

Having been intrigued by the trailers in the yard I requested that they be opened for my inspection.  This revealed a horror story of incompetence and connivance.  Each trailer (and there were five or six) was crammed to capacity with components and the largest single category was injection moulded casings for battery chargers.  These casings were either for obsolete lines or had retailers’ own brands moulded into them.  The own brand versions were for current production models but we had lost the business and they could not be used because of the branding.  This was in addition to the warehouse that was also stocked to the rafters with raw materials.  Upon further investigation I found that this stock was sitting in the balance sheet at full value!  This meant the true losses of the company (£3m in the previous financial year) were even higher than the accounts showed.

Horrified, I summoned the members of the management team who were connected directly or indirectly to forecasting or ordering stock to the yard and asked for explanations.  Unsurprisingly, the excuses flowed with much finger pointing but mostly in the direction of my predecessor.  When I raised the subject with Neil (my boss), stating that we had to write these off he growled, “Make some profits first to write them off against!”  After continued investigation the causes became clear with system disconnects and plain incompetence at the root of most.  Many issues could be rectified without delay but others took much longer to uncover and put right.

If the stock situation was bad then the production processes were at least the equal and arguably much worse.  The main production floor housed five production lines for battery chargers, transformers and cable reels.  Two separate facilities existed on different levels for cables and commercial battery chargers.  The first impression of the main production floor was of a state of chaos with people, components and finished goods everywhere.

As an example the cable reel line had fifteen people who seemed merely to be getting in each other’s way.  Finding that one member of the technical department was a trained production engineer I took him down to the production floor and showed him the line.  His response was to tell me that he had done the original line balancing and that it called for only eight operatives.  When I asked him what had happened he claimed that my predecessor, when output needed to be raised, had simply thrown people at the line.  This time the excuse sounded true and I agreed to strip the line down to its original eight members.  The very next shift the slimmed down team increased output and kept it rising over the following weeks.  We started work on the other lines.

I turned my attention to the cable line that produced relatively simple standard products with moulded plugs and sockets at each end.  The process had a history of problems and never seemed to run to plan.  The production supervisor was Marion, a lady who seemed to carry the problems of the world, not least of which were related to her personal life.  I asked her to join me in her small office and asked her what she felt could be done to improve quality and output.  She looked wordlessly at me with world-weary eyes that were deep set, spoke of little sleep and many problems and shrugged.  It was clear that she had once been if not beautiful then perhaps at least pretty.  But a broken nose, black ringed eyes and poor skin had long since robbed her of any claim to looks.  I asked her again. She stared at me with those dark eyes showing a mixture of  suspicion and confusion and murmured, “I dunno.”  It was Friday and I suggested she had a think over the weekend and if anything came to mind to let me know the following week.  She walked off back to the line.  I went home that night despairing.

Arriving shortly after 7.30 the following Monday morning I found Marion waiting outside my office.  “You serious what you said on Friday?” she blurted out, “You really want to know what I think?”  We went into my office and I sat her down and assured her that I was, indeed, really interested in any views she might have to improve the line’s performance.  “No-one’s ever asked my opinion of anything, ” was her response, “but I’ve been thinking all over the weekend and this is what I think.” What followed was a succession of ideas that sounded sensible and easy to implement.  “Go ahead then.” I replied.  Her eyes came alive, “What?  Can I?”  Improvements followed quite quickly and were maintained.

An intractable problem was the night shift that was required to meet demand for the sub-contract transformer work.  Due to uncertainty concerning its future my predecessor had made a not unreasonable decision to use contract labour.  A contract had been signed with a local firm who recruited and bussed in the required labour from neighbouring towns each night.  The assembly tasks were relatively straightforward and the day shift was reasonable in its output and quality.  But the calibre of the people we were getting to work the night shift was dire.  I arrived in one morning to find that an entire night’s production had been lost to ‘an incident’.  It transpired that two of the crew assembled the previous night had been rival drug pushers who had decided to set about each other with machetes!

Output and cost of production slowly improved and the end of the financial year showed a reduction in the losses.  However, as soon as one problem was solved continued investigatory work revealed yet more.  We were by then winning more distribution but price competition was eroding any benefits gained from the lower production costs we were then achieving.  Component quality problems continued to be a problem especially the injection moulded components that came from another company in the wider group.  Attempting to resolve these problems always led to counter allegations of constantly changing demand, which I would invariably find had some substance.

Quite apart from the challenges of solving the cash drain problems of the battery charger business, we also had an unacceptably high level of product returns for damaged and faulty goods.  Carrying out a detailed inspection of our product packaging I found that the quality of the board used had been reduced to something that was totally inadequate for such a heavy product and many products were arriving at retailers damaged.  I then decided to test a number of our products myself taking a different model home each evening and attempting to follow the instructions.  My experience quickly proved that the instructions (even in English) were simply ambiguous at best.  God only knows what the myriad additional translations had turned them into but an unacceptable quantity was being returned as faulty purely because the instructions were unintelligible. .

 Into the second financial year it was becoming clear that with increased competition and the power of major retailers driving prices ever lower our efforts to improve UK production efficiency were never going to be sufficient.  With the greatest of reluctance I decided that the only future for the brand was to outsource production to the Far East.   Having made contact with several potential manufacturers, I headed out to Hong Kong with Jeff our technical director.  During that trip we visited many factories in mainland China, all were dispiriting places and, which combined with the fledgling infrastructure and teeming population, produced a hellish vision of a dystopian future.  Yes, it seemed we could achieve lower invoiced prices but quality and the lengthy supply line troubled me.  By the time we returned to the office the decision had made itself.  We had already received, via another route, a leaflet from an unknown Chinese manufacturer offering their products to us.  ‘Their’ products shown on their full colour leaflet were the samples we had left in China with our brand names carefully concealed!  It was just too risky to take the chance but events overtook me anyway.

By this time we had managed to pull the losses back to a break even position but added to the pressures within my business, our parent company was struggling to survive.  Neil my boss, with whom I had established a super working relationship, arrived early one Monday morning a few weeks later with bad news.  The group had decided, without reference to me and despite our elimination of £3m of losses, to close our operation in Yorkshire and merge with another group company.  I was informed I was to be made redundant but first had to oversee the sale of our cable business, again something that had been arranged by the main board.

For the next month or so I worked with the accountants sent in by the purchaser in the due diligence information gathering process they were conducting.  The sale concluded Neil informed me that I would have to work out the remainder of my contract (in some capacity) but ‘could take reasonable time off to seek other employment’.  The conversation turned into one of those blood on the walls events as I fought to achieve a clean financial settlement instead of working for another 10  months in some spurious role.  Not being able to reverse what was clearly a decision forced upon Neil by a cash-strapped main board, I engaged the services of a law firm specialising in employment matters.  A few weeks later I walked away with a cheque having compromised on a slightly lower sum.

This time there was neither rage nor sadness but simply the realisation that I needed to take stock afresh.  I had proved once more that I could achieve what required but to no avail.  Seeing the writing on the wall over the previous few months I had been quietly testing the market once more and had got to offer stage with a small US corporation.  However, my research on the company told me that I might well be going from frying pan to fire.  I was now 49 and had begun to feel that my corporate days were over and it might be better to draw a line than suffer the same fate again in a few years time.  My mind went back to Norman and his CVC backed purchase of GTE Sylvania and the decision wasn’t hard to make.  Reviewing my knowledge and experience I decided I could achieve a management buy-in (MBI) and I would.  I phoned the Americans and informed them I was withdrawing.  I then called all of my head hunter contacts to let them know that my time as an employee had come to an end.

I had barred and shuttered the route back into employment and, with my mind clear of distractions, I could concentrate on achieving this major new goal.  Could I do it though?  Could I really convince the venture capital community to back me with the millions it would take?

 Image courtesy of businesspundit.com

The Business of Life Chapter 25 – when it’s time to pick yourself up

The flight back from Geneva that evening gave me some time and space to get my thoughts together.  There was none of the rage I had felt when I had been fired from Akai 13 years previously.  Instead, what I felt was a mix of great relief and sadness.  The sense of relief had been something I expected, as working for Norman and Eddie would have filled me with horror.  This feeling was vindicated later that same year when a friendly head hunter shared his experience of dealing with Norman  But more of that in due course.

The sadness was an unexpected sensation.  I had spent all those years working for a company in roles that had provided me with enormous challenges, to which I had usually been able to rise.  The company had given me a superb business education, which I have since come to realise was peerless.  It had also provided me with rich and complex problems on which to apply my new found knowledge.  I still count some of the solutions I arrived at to be amongst the greatest successes of my career.  It was sad that middle management had not always been able to step back from their personal positions and embrace a new reality.  Strategic thinking had been subordinated to the protection of personal gain in many cases.  Nevertheless, I knew I was going to miss the company, the challenges it had provided and the people; even the ones who had frustrated the hell out of me.

One worry luckily I didn’t have was financial.  At least I was confident that I would find the next position before money became a problem.  With the savings I had accumulated and the severance pay I had received life wouldn’t be too bad.  I was under no illusions though as the UK was still recovering from a nasty recession.  For the moment I put that from my mind as I had more immediate matters to deal with.  I had an apartment in Geneva with more stuff accumulated over the previous year than would fit into a suitcase and I had to get it back home.  I made plans to drive over in a few days.  Speaking to a couple of my old team I discovered that they had already had a farewell lunch together but on hearing I was returning for a couple of days they decided to do it all over again – with me.

So, after a few days catching up on my sleep and delighting in being back home with Denise, I headed back over the Channel and through France to Geneva for the last time.  The lunch was bitter-sweet.  I was touched that they were all prepared to give up their time to meet with me once more.  It was apparent though that a number felt a lot less philosophical about the situation than me and it was clear that at least a couple were going to find it very tough to get another position as good as the one they had lost.  One saving grace for them was that Swiss welfare payments were a whole lot more generous than the UK but only for a time.  When the hugs and kisses were over we went our individual ways and I began the long drive back.

Back home in Yorkshire my first priority was to shake off the excesses of too many meals and probably too much to drink.  So, Tilly our Rottweiler joined me for long jogs across the moors around our home and gradually I began to feel good both physically and mentally.  Without a break I started work full time on the hunt for the next position.  In the following 6 months I travelled 20,000 miles attending interviews, networking and researching the market.  Contacts I had made were unstinting with their time and advice and the many head hunters I either approached afresh or renewed acquaintance with were generally extremely helpful.  Together with the advice I had previously received from Max, I was becoming more focussed and more professional in my approach.

Discussing the very exact profile a client had drawn up for a position I was reviewing with an extremely helpful recruitment consultant he suddenly enquired, “It was the same Norman that had run FKI that bought your old company, wasn’t it?”  When I nodded he went on, “God you had a lucky escape!  I had a brush with him a few years back.  He contacted me and said he was looking for half a dozen MDs.  Well”, he went on, “I thought Christmas had come early, so I asked Norman to let me have candidate profiles and I’d get back to him with a plan and an invoice for the amount we charge upfront.”  It seems Norman had responded, “Don’t waste my time with stuff like that, just get me the candidates and I’ll see if I like any of them.”

Things were certainly a lot tougher than they had been the last time I was ‘between positions’.  I was that much older, that much more senior and the number of openings higher up the greasy pole were that much fewer.  It became clear quite quickly that, despite my extensive contacts, I wasn’t going to walk into a senior role in the industry I had just left.  I think I was known as someone with strong views and a different perspective on things and that didn’t appeal to many.  In any case longevity in position was a hallmark of the industry I had been in and there was no game of musical chairs to join in.  Moving industries once again looked the most likely route back into gainful employment.  This bothered me not one jot as I had already worked in 6 diverse sectors and had found problems were invariably generic.

Drawing on the experiences I had accrued in my role in Geneva I reflected on the behavioural skill set that my role had really needed.  When I compared this with the psychometric feedback I had received over the previous few years, I realised that I had really been a square peg trying to fit a round whole.  Whilst the experience and knowledge I possessed had been more than sufficient for the role, my behavioural profile lacked the key political skills required.  I had the influencing skill alright but I clearly lacked what Phil Thurston at Harvard had referred to as ‘rat like cunning’.  My first approach to a problem or resistance was usually to summon the power of logic and rationality.  If that didn’t work I rarely shied away from a full blown, full frontal attack.  I could build and receive the loyalty and support of a team, I could understand the biggest of pictures and what was required to solve the underlying problems.  Yes, there was much I could learn of politics but, as I saw things, I was far more suited to leading than being led.

But my mind was beginning to move in a different direction.  During the final months in Geneva I had started to think of working alone as a consultant and had sounded out a few people I knew who had created successful careers in this way.  The advice had been to specialise rather than risk being known as a jack of all trades.  The obvious specialism was marketing strategy and I was pondering the prospect of setting up and promoting my own business when, in one of those amazingly serendipitous moments, my phone rang.

The call was from Gerard, the finance director of an old customer I had known for many years whilst with SylvaniaUK.  He explained that they had a problem he felt I might be able to assist with.  Was I interested in meeting to discuss the situation?  A few days later I travelled down to Croydon to meet Gerard and Steve, the MD of Jerrard Bros PLC.  The company had been founded by Steve’s father and uncle, had done well for many years but now required a new supplier of a key product.  Would I help them?  I said I would let them have a proposal.  During the visit it became clear that the company had reached a plateau over the previous few years and I probed for reasons.  I said I would also let them have some thoughts on working with them to address this issue also.  A couple of weeks later and after some good natured negotiation we had a business relationship based on two projects.

Almost straightaway I received two more approaches for significant projects and following discussions, proposals and more negotiations I found myself engaged to complete both.  One was a feasibility study for a foreign manufacturer looking to enter the UK market and the other was assisting a company looking to acquire one of my old, major competitors.  Very quickly I became extremely busy and drew a halt to any idea of seeking a new employed role.  I revelled in the freedom of working on projects that interested me at my own pace (although to agreed deadlines).   By now it was summer and I fell into a routine that, when I wasn’t travelling, I often cycled long distances in the Dales.  I would start early and return by midday and then work through until mid evening.  I had always found cycling conducive to thought and now I could actually keep fit whilst doing something I really enjoyed and apply my mind to various problems at the same time.

During my job hunting process I had followed a highly targeted approach seeking opportunities that had not even been advertised.  Each day I would scour the business press looking for news items concerning major companies that were either contemplating or had made major investments or acquisitions.  Whenever I came across a situation where I felt I could add value I would write to the chairman or chief executive (often to their home address so my letter wouldn’t be screened by a secretary).  I would either compliment them on their success or wish them luck with their plans and then spell a short but precisely targeted couple of sentences laying out how my experience could assist.  I would follow these letters up with a call aiming to achieve a meeting.  Several of these approaches got me in front of senior people.  I hadn’t succeeded in getting a new job from this approach but I decided I could use the experience to win new clients.

Another opportunity for creativity had arisen when I lost out after being down to the final two for a position running a national chain of builders’ merchants.  Having invested the time to carry out a great deal of background research on the firm and its competitors I thought it would be foolish to waste it.  I called the new MD, introduced myself as the guy who came second, congratulated him and suggested we meet as I had a proposition.  He was sufficiently intrigued to agree to meet me.  When we met I made the suggestion that as he was busy getting to grips with a big new role there was a way I could help.  He listened very carefully to what I had to say about the industry, the position of his company and the issues I had identified.  He considered for what seemed an age and then said he would be pleased to receive a proposal.  I went away and submitted a detailed proposal for a very focussed consultancy project.  He accepted but not before something else got in the way.

Towards the end of my period of applying for jobs I met a head hunter with whom I had established a good relationship.  Out of the blue he called me months later to say he had an assignment he felt was well suited to my experience.  We met and I listened to the facts he laid before me.  His client was Ross Group a small UK PLC with a number of businesses in electrical products.  They were seeking an MD for one of the group companies, Selmar Industries, itself a group of three businesses manufacturing in West Yorkshire.  The previous MD had departed after running up losses of £3.0m.  Smelling a dead horse, I declined to take matters further.  However, a couple of weeks later he was back on the phone pushing me to meet the Group MD at the company’s factory, “It’s just down the road from you, I’m sure you’ll get on famously with Neil and if you still decide it’s till not for you, well fine.”

The following week I duly arrived at Selmar’s factory, which was housed in old mill premises in a tight, wooded valley on the outskirts of Brighouse.  My heart sank; it looked a tip.  However, my head hunter chum was right about Neil with whom I quickly established a rapport.  He had also worked in major corporations and there was a basic understanding between us over how businesses should be run.  Nevertheless, after several hours of discussions I politely declined to take matters any further.  A week later Neil came on the phone to chat and pressed me to meet the chairman, “Nothing to lose, see what he has to say, eh?”  A long trip down to Basingstoke the following week produced a firm offer, which I rejected.  They responded with an improvement and promises.  By this stage, I have to admit, it had become something of a game, so I pushed on and won more concessions.  Finally I accepted but not before I had negotiated approval to continue my work with Jerrard Bros.

I was back running a group of businesses and was confident that I could improve them.  Would it work out?  Or had my pugnacious nature set me up for trouble again?

 Image courtesy of Eliasbadi.com

The Business of Life Chapter 23 – Keeping Enemies Close

An early, hazy summer sun was shining the morning my flight approached Geneva and I could see the Jura, the city and Lac Leman spread out below.  I had spent ten years flying into Geneva on a fairly regular basis but this morning was different.  I was coming here to live and to work and although visually everything was familiar it felt very strange indeed.  A few years earlier our European head office had moved from tiny, cramped offices next to the lake into a new block adjacent to the airport.  Although it was now just a short walk from the terminal to our offices, the heat of a sunny day together with the humidity that came from Geneva’s position, ringed by mountains and built by the lake, meant I arrived drenched in perspiration. 

Sitting for a few minutes in the office I had inherited from Louis, my predecessor, I gathered my thoughts.  It was compact and somewhat clinical but did offer an astounding view.  Sitting at my desk I could see, over in the distance across the city and Lac Leman, Mont Blanc, just visible above the haze.  After a welcome cup of coffee delivered in beautiful white china by Germaine my new secretary, “Louis would never accept his coffee in anything else!”, I went in search of Don.  Sitting in his palatial office he proceeded to light a Marlborough.  The offices had previously been declared a no smoking zone but Don had imperiously decreed that the rule didn’t apply to his own office.

The briefing I received was perfunctory.  Don announced that stock levels across Europe were far too high and he wanted me to make a significant improvement.  I was perplexed as the company had spent a vast amount of money previously on a Distribution Resource Planning (DRP) software programme.  This programme (identified and implemented by Peter, a Cambridge PhD, who had been recruited to head up pan-European logistics) was designed to analyse sales history and trends and make more accurate forecasts than the capabilities of mere mortals would permit.  I politely reminded Don of this but was greeted with the response that my marketing team should be close enough to the market to be able to predict sales far more accurately.  He would hear no counter argument and made clear the meeting was concluded but not before emphasising that this was to be my absolute priority.  I said I would investigate and see what needed to be done.  This issue was destined to become my Nemesis.

The rest of the day was spent gaining the views of my new team.  They were a real multinational group including Swiss, German, French, Belgium & Romanian members most of whom I already knew extremely well.  The marketing department numbered 13 out of a total headquarters staff of 70.  In addition I also had what is referred to in management speak as ‘dotted line responsibility’ for the sales and marketing functions in all of the 16 European countries where we had subsidiaries.  At the end of that first day I was sitting quietly in my office writing notes on the day’s meetings when Rien Swaanen (VP Manufacturing) burst in.  Without pausing first for pleasantries or even common courtesies, he immediately launched into a vitriolic attack on me, my function and the whole of my new department.  I was totally mystified because the attack was laughable and demonstrated a gross lack of understanding of the issue he was complaining about.

A few years previously after Jean’s death,  I had heard from a colleague that Swaanen’s wife was suffering from the same cruel disease.  I felt spontaneously driven to write to him and let him know of my concern for them both and offered an understanding ear if he ever felt the need to talk.  Very shortly afterwards, I got a call from Swaanen’s secretary to fix a date for us to have dinner on his forthcoming visit to the UK.  We talked late into the night and he poured out his soul to me and thanked me profusely for my concern for them both.  It wasn’t long after that I heard the sad news that his wife had finally passed away.  I wrote again but it was some time before we met as I was still running the UK while he was based in Geneva.

A year or so later, I again received a call from Swaanen inviting me for dinner on his next visit.  Business concluded I drove him to his hotel.  As the sun was shining brightly on that fine summer evening, we decided to take a walk along the river that ran by the country hotel I had chosen.  Once more Swaanen talked at great length, of the pain of his wife’s suffering and death, of the slow repair of his inner self and of a returning belief in the joys of living.  And then he shared with me his love for a new woman in his life, how they had met, what she meant to him and how they would spend their life together.  I had been pleased for him but now, for some inexplicable reason, he was acting as if I was an enemy appearing in his back yard.  I retired to the hotel that shared our building.

The following morning I was met by Walter the office manager, a genial Swiss German who proved an invaluable part of the process of integrating me into Swiss life.  Our first stop was the ministry responsible for registering foreign workers and I was guided carefully through the process of obtaining my visa.  We then set out to inspect the half a dozen apartments Walter had lined up for me to view. In the end the last viewing of the day proved to be the one.  It was a pleasant and large apartment in an old block, close to the lake with on street parking and local cafes and bars, close enough to walk into the old town and it gave me a good feeling.  Critically, it was on the same side of the lake and only 3 kilometres from our office.

Louis had promised to meet me for a full briefing on my role but this never materialised.  Instead, I received in the post a few notes he had jotted down, which included the suggestion that I read through the files he had left.  One of the priorities was to continue working closely to bring a project with The Boston Consulting Group (BCG) to a successful conclusion.  It seemed that Don had initiated a number of major projects when our parent board had put the business up for sale, of which this was one.  The scope of the project was an outwards one to look at the European market and assess what could be done to improve our position.  I also discovered that another major project had been to look at the performance of our manufacturing operations across Europe but this had been put on hold (it was never instigated and I suspected Swaanen’s dead hand).

When I met with the BCG management a short time later I learnt that on finding that no product line profit and loss statements existed on a pan-European basis they had managed to create these.  I was staggered to find that our company, a major global player, had never attempted to create this basic information.  I had been carrying out this process in the UK for some time and found the information simply invaluable.  What the BCG exercise revealed was staggering.  Working from the factory cost price through to the ultimate selling price at market level less all costs showed that our entire incandescent product range was making large losses.  Furthermore, France which had for years been paraded as the premier example for their marketing excellence in this product area, was making the greatest losses.  The situation should have been recognised and addressed years previously.  However, in the current circumstances the required solution (closing obsolete factories and investing in new production facilities) was out of the question.  My previous UK profits for this product group were amongst a minority and vindicated my strategy in this area.  My cynicism started to mount.

The routine side of my new role involved monitoring progress on planned new product development projects, touring subsidiaries to review and promote good marketing and sales practice, sitting through Don’s meetings, which never seemed to address core issues and taking part in the travelling circus that was the individual country operations reviews.  New product development was driven by technical developments that manufacturing felt would enhance product performance rather than any attempt to establish what markets required.  It became crystal clear that my previous suspicions were well founded.  The central marketing function was largely reactive and existed without a clear role in overall company strategy.  In fact there was absolutely zero talk of strategy to improve the long term viability of the company and if such a strategy did exist it must have been securely locked away in a Credit Suisse bank vault.

The hectic schedule of meetings I was required to attend (both in Geneva and elsewhere in Europe) gave me the feeling I was on a treadmill that custom and practice had determined but which rarely achieved anything of value.  However, during this time I had been working away on the objective I had been given by Don and had started to see some startling results.  Swaanen had an entire department (headed up by Peter the director of logistics) solely to run the DRP system and manage the logistics of our business.  I had always kept close to Peter and had been a fervent supporter of the DRP system.  I had encouraged him to work with me in widening the scope of the relationship I had built with some of the largest UK distributors and this had borne fruit.  When I arrived in Geneva I found that this whole department with its huge potential was largely ignored by Swaanen.  With the added benefit of the relationship I built with Peter’s team, I soon had them working enthusiastically with me.

The DRP system complimented Manufacturing Resource Planning (MRP) that ensured materials for production in our factories were available when required.  The purpose of DRP was to ensure that our subsidiaries around Europe had exactly the correct stock levels of all finished stock at any time.  The system was participative with the subsidiaries in that it required that each and every one to define stockholding parameters, share key demand factors (e.g. large contracts producing sales spikes) and merely to review the sales forecasts generated by DRP each month for individual products lines.  In this system the subsidiaries never had to place an order as once up and running and reviewed regularly it replenished stock automatically.  This system was predicated on the finding that the best place for non-differentiated stock was in the centre (the factories) with rapid replenishment of subsidiary stocks.  The problem was that it seemed that the system was not working, giving rise to Don’s complaint of high stocks.  There were profound systemic problems.

Every employee at management grade and above (worldwide) participated in a Management by Objectives (MBO) system. Each individual had as many as eight or more quantitative objectives they had agreed to each year and bonuses were awarded on the basis of performance against each component.  At senior management level these objectives were spread across set areas and could be very prescriptive. For country and factory managers and above there was a specific target given each year for stock levels.  Given that stock levels were contributing to bonuses, subsidiary managers in each country felt inclined to attempt to manipulate these by adjusting the sales forecasts produced by DRP.

The factory managers also had an incentive to manipulate stock levels as they too had targets to minimise stock at factory level.  At one meeting shortly after a year end Swaanen had actually boasted that only the action of his factory managers in overriding sales forecasts agreed by subsidiaries prevented sales targets in subsidiaries from being missed.  The factories had an additional incentive to ship more stock than required because of the ever increasing drive to increase line speed to reduce costs.  Driven by a misguided bonus system both sides were playing the same game and I suspected this was the cause of excess stock.  The problem was that I had lacked the means to prove this.

Working with Peter and his department we solved the issue.  I asked if the DRP system could recover the individual product line sales forecasts it had generated for each subsidiary for the previous 12 months.  “Of course”, came the immediate response.  I then asked if these could be plotted against actual sales achieved over the same period and the revised sales forecasts the subsidiaries had made.  “Of course”, again!  Within hours I had a complete picture.  With the exception of a few low volume lines that had a very lumpy and unpredictable sales pattern, every major product line, in every country, monthly sales forecast by DRP had been far more accurate than the ones adjusted by the subsidiaries.  If the subsidiaries had done nothing more than merely tick the original DRP forecasts without making any adjustments and the factories had shipped against these, the calculation showed we would have ended the year with $10m lower stocks!  I had the answer and the proof.  We had to change the bonus system and stop the counter productive double guessing that was driving stocks higher.

Could I convince Don that I had found the root cause of the stock problem?  And would he agree to make the necessary changes?  Before I could take this issue further it was announced that a sale of the business finally had been agreed in principle and the potential new owners were to visit us the following week.

Image courtesy of Europeupclose.com

The business of life (Chapter 20 – from a dark place)

Although I was no stranger to the death of loved ones, having already lost both my sister and my father and other close relatives, nothing had prepared me for the loss of my wife.  Yes, I had mentally rehearsed the situation over and over in my mind in the preceding months as her health continued to deteriorate, trying to imagine how I would cope. At the same time I had been desperately hoping that somehow she could survive and return to her former self.  But the reality of her death, the awful, aching sense of loss, was something horrifyingly new.  Without Jean and with the certainty that she would never return the house seemed emptier than ever.

Work seemed an irrelevance and I stayed away for several weeks, never phoning or attempting to keep up to date with what was happening.  There was a human side to Gregg after all and he made it known he wouldn’t push me to return before I was ready.  With my son away at school and my daughter often out doing the sort of things that teenage girls do, life seemed hollow.  I prowled the empty house in the evenings half expecting to receive some sign from the heavens that I was not alone but all that remained were reminders of the life we had shared.  One morning, sometime in October, I awoke to find the sun was shining and I set out on a new bike I had bought not long before in an effort to distract myself.  It was one of those magical, calm days when the sun shone as it only seems to do in autumn and I cycled deep into the Dales, soaking up the beauty around me.  The world was carrying on and I had to join in.  The next morning I returned to the office.

A welcome distraction came in the form of an invitation to run a session at a pan-European meeting of our HR directors in Geneva.  I decided to take a few days holiday, took my son out of school and together we drove to Switzerland.  Already a skiing enthusiast at the age of fifteen he cajoled a visit to a ski resort from me and a new ski outfit.  Following my session we drove to Les Diablerets only to find that the snows had yet to arrive and the sun was shining brightly.  “No problem,” beamed Alex, “there’s a glacier that’s open all year round.”  The following morning, subjugating my fear of heights, I joined him on the cable car that took us to 3,200 metres.  Alex quickly disappeared on a set of hired skis while I was content to sit on a terrace in the warm sun.  Surrounded by high peaks set against a deep blue sky, I read an old copy of Women in Love for the second time and felt at peace.

When I became Managing Director I had joined the industry trade association (the Lighting Industry Federation) sitting on the governing council (comprising some 16 CEOs of the largest members).  I had been a little over-awed initially, not only as the youngest member on council, but being the only one who had not spent his entire career in that same industry.  I felt I had been talked down to and treated very much as the junior.  So, having kept a low profile for the first couple of years was then astonished to be asked to take up the role of president.  At first I couldn’t work out what had raised my profile to warrant the appointment.  But by the time I made my acceptance speech and took the chain of office in one ofLondon’s oldest clubs overlooking The Mall and with a Government Minister as my guest, I had worked out what lay behind it.

Long held, polarised and explosive views were held across the membership on a range of partisan issues.  The association (which set technical standards for the whole industry and ran a highly effective parliamentary lobby group) was facing a particularly critical issue at the time that threatened to pull the association apart.   I perceived that none of my largest competitors wished to be seen to preside over an issue that could be a PR disaster for them.  Ranged against them were a large number of members (of smaller firms) in the association holding the opposing view.  Had I been elected as a scapegoat?  Was I being set up to fail?

Deciding on a policy of diplomacy for my year of office, I felt I had to ensure that all views on the subject were heard and taken into account before a decision was made.  I had clear views of my own as to which route the association should take but reasoned that making these views known was only going to make my task harder.  And anyway, I calculated that my own company could exist equally well under whatever regime emerged.  Attempting to force my views on council was not going to work given my image as an outsider who was believed to know less of the industry than anyone else around the table.  Therefore I decided that the process should take priority, be seen to be inclusive and fair and should lead to whatever the membership ultimately decided.

I ran my council meetings in the classic chairman’s style, ensuring that all views were fully explored but never revealing a viewpoint of my own.  I found that by a policy of correct process, questioning and ensuring everyone’s opinions were sought, all relevant opinions and options could be uncovered.  I carried this process through to the wider membership, travelling to regional meetings up and down the country.  At these meetings, where I again chaired the sessions to ensure that every aspect of the subject was explored, I also never revealed an opinion.  I also held one-to-one meetings with the holders of the most entrenched views (large and small companies), always travelling to meet them in their own offices.  At the end of the year when the time came for a decision, the vote was almost unanimous, with everyone feeling their view had been heard and considered with the right decision made.

One surprising and pleasing outcome for me was that several of those who had held some of the most rigid views at the outset felt able to cross over to the opposing side without losing face.  Additionally, the few members who voted against the final decision, came to me later and said that although disappointed they felt that the process had been fair and the decision was one they could support.

By this time I had found love and companionship again and had married Denise.  A hilarious and old fashioned event took place some months before our marriage that showed yet another face to Gregg.  Having taken Denise with me to an industry function in London, I had duly filled out my monthly expenses sheet and sent it off to Gregg for authorisation with receipts attached (why MPs and civil servants can’t go through the same simple procedure still eludes me). A few days later I got one of my lunchtime calls from Gregg, who proceeded to pose questions about the industry event and my accommodation arrangements in more delicate terms than his usual style.  After a lot of beating about the bush, and in a decidedly embarrassed manner, he shared with me his concern that taking a woman who was not my lawfully married wife to a hotel for an industry function would damage my reputation!  Even when I shared the date for our impending marriage he expressed his delight but wouldn’t budge from his ‘grave concerns’ in the interim!

I was happy at the good fortune that life had once more bestowed upon me. However, I began to recognise some fairly profound changes in myself that seemed to have occurred since Jean’s death.  My entire being had previously been focussed upon achievement of my business goals.  I was always clear and focussed upon what needed to be done and prided myself on logical and rational decision making.  The exception had always been my immediate family but looking back I realised that even with them I seemed to have been somewhat removed from a real understanding of their feelings and emotions.  I understood anger and rage well enough, having always been quick to be roused but as far as others outside my close family circle were concerned, nothing had ever really touched me. People must have felt me to be cold and lacking empathy in my decision making when they themselves felt understanding and compassion was called for.

Now, since Jean’s death, I found myself crying for the first time whilst watching films.  I remember sitting sobbing uncontrollably through Truly, Madly, Deeply.  Even music began to touch me on a deeper level than ever before.  Knowing my love of Bach Denise bought me a CD of the Brandenburg Concertos.  As I listened to the opening allegro of the 6th for the first time, tears flowed down my face at the sheer joie de vivre the music conveyed. It touched me in a way that I had never experienced before.  On these occasions it was as if a veil had been lifted from my senses and I was experiencing the colours, sounds and sensations of raw emotion for the first time.  I knew it was connected with Jean’s death but it was some ten years later before I could finally begin to understand what had happened.

In an effort to improve selection of candidates for key roles in the businesses I was then running, I started a process of qualification for a range of psychometric instruments.  In the qualification process for one, the Myers Briggs Type Indicator, I was assessed as an ENTJ (Extraverted Thinking with Introverted Intuition).  Without going into a lengthy explanation, I found that there was a ‘shadow’ or hidden side to my behaviour.  As it was the fourth and least preferred of my four key behavioural functions, my preference for ‘Feeling’ in decision making was underdeveloped.  Whilst someone who has ‘Feeling’ as a preferred function for decision making would be sympathetic, tender hearted, assessing impact on others, compassionate, guided by personal values and be striving for harmony, these were not behavioural qualities I had ever used.  These underdeveloped aspects of behaviour (which differ from person to person) are referred to as the ‘shadow side’ of behavioural preference, usually only being revealed at times of great stress or under the influence of drink or drugs as behaviour completely unnatural to the individual.  Being unfamiliar in using this side of my personality it was manifesting itself in almost childlike ways.  I can still cry at films that reveal emotion but over time I have also learnt to understand others in ways that would never have occurred to me previously.  Life is richer as a consequence but sometimes much more complicated now I can see more than one perspective!

When Martyn left I hadn’t replaced him feeling at the time that none of his team (good as they were) was ready for the role he had carried out and I didn’t wish to bring an outsider into the company.  I already knew the majority of our medium and large customers well and built on these relationships with regular visits.  I maintained a regular schedule of visits to major customers by accompanying our regional managers or sales people on their visits.  In this way I was able to demonstrate my commitment to customers and sales force and, importantly, ensure I was hearing directly from both on their views concerning our strategies and service compared to competition.

One of the strangest situations I ever had to manage was that with our largest customer.  The owners (tax exiles) worked initially from beautiful offices overlooking the lake a few kilometres outside Geneva and then moved to Monaco where the tax regime was even kinder.  They had built one of the largest electrical distribution businesses in the UK and were spreading across Europe but had the strangest (and possibly the most Machiavellian) management structure and systems I had come across before or since.  There was no one person in charge of the UK and buying was spread between four regional general managers.  The buying process (designed to drive price down) was in fact so fragmented that, despite their size and potential clout, they were paying prices considerably above anyone else of their size (and many smaller firms).  Whilst I enjoyed the profits that flowed, at times their purchasing was so out of line on price I had to feed the senior management with a series of hints that would then lead them to ‘put the squeeze’ on me.  I just couldn’t run the risk that they would find out how terrible their prices actually had become!

I was now totally immersed in and enjoying every aspect of my role.  But whilst I was widening and deepening an understanding of my colleagues, our customers and the industry and steadily improving results, events were quietly and inexorably moving towards the most challenging set of circumstances I had ever had to deal with.

The business of life (chapter 19 – the end of a dream)

With my wife recuperating from her major operation and my business life far from stable, I had to develop a strategy that would allow the greatest chance of keeping everything together.  Once again I cancelled business trips and kept close to home until Jean could achieve what she considered was sufficient strength to resume some semblance of daily life.  Work was now out of the question for her and with it the dream of a degree that she had tasted all too briefly. I found strength for myself in a process of compartmentalisation.  By dividing my life into discrete segments I tried to preserve time for the things that were important in my life; time for Jean, for the children, for work and lastly for myself (cycling and playing trumpet in a terrible but enthusiastic band).

By the time Brian had moved on leaving the role of managing director of GTE Sylvania vacant, I felt I was holding the constituent parts of my life together.  Jean had encouraged me to apply for the job and I was awaiting news of the procedure.  My probing had revealed that there were at least 4 other candidates from within the global company but evidence of a selection process appeared non-existent.  Finally, I got a call to advise me that Gregg, the European President was coming to the UK, would interview me and then join the rest of the senior UK team for dinner.

I collected Gregg from the airport and drove him to The Devonshire Arms, a beautiful country hotel in the Yorkshire Dales that he enjoyed.  I had known him for approximately 6 years, although not closely.  I was aware he was a lifelong employee of the company, possessed of a mercurial attitude to the business (you never knew where he was going next) and a volcanic temper.  Seated in the elegant lounge with our coffee, Gregg got around to what passed for an interview and demonstrated that, whatever other skills he possessed, interviewing was not one of them.  It was like playing a game against a competitor who had no real experience or skill and didn’t want to be on the court.  Frustration (and more than a little doubt) was beginning to rise in me when we were interrupted by a call for Gregg and he excused himself to take it in his room.

What seemed an eternity passed while Gregg was on the phone and it gave ample opportunity for my fears and doubts to surface.  By this time I had spent 6 years with the company and had achieved significant success but had not returned to a full general management role. I was also 41 and one year behind the schedule I had set myself of attaining an MD’s role.  The thought of working under any of the other candidates filled me with gloom and I realised that I was going to have to leave if this appointment went against me.  Gregg then returned and shared with me that one of his oldest friends had died suddenly.  “Ah hell, you just never know what life is going to throw at you.” he said shaking his head and then, slowly looking at me with tears in his eyes, “Look, I’m going to give you the job.”  The evening went by in a blur shared with my colleagues at least two of whom had emerged unsuccessful.  Celebration at home later that evening was a quiet and emotional hug.

Margaret Thatcher was elected to a third term and Ronald Reagan was challenging Mikhail Gorbachev to tear down the Berlin wall when I took up my new appointment.  One of my first duties was to sign a flurry of papers legally registering my appointment.  I don’t know if it was an error or a quirk of the corporate structure but I realised before I got to the bottom of the pile that I had also been appointed as MD of the ultimate UK holding company encompassing the complex web of businesses we then owned.  Technically I was now Brian’s boss.  I did a quick mental exercise and realised that, despite this, there were still ten layers of management between me and the president of GTE!  Flat management we did not have.

Life working for Gregg was never easy.  As he was based in our European headquarters in Geneva, I might go for several months without a meeting with him.  When we did meet either on one of his UK visits or at a pan-European meeting he always wanted a formal presentation.  He always travelled with one of his team and he would simply never sit and discuss subjects with you.  His style was that you either submitted to an inquisition on a subject of his choosing or, if you went to him with a proposal he would either attack it or ensure that you made a decision and not him.    He had a combative style, which may have been associated with his lack of height (around 5′ 5″) and, given he had one glass eye, you never knew if you had his attention or not.  The only time you ever got an easy ride was when he fell asleep in a meeting after lunch.

The time I loathed most was the day following one of Gregg’s board meetings in Italy.   We had a joint venture with Thorn in a manufacturing company there and Hamish, the Thorn MD, would usually succeed in winding Gregg up with a pack of half-truths or downright lies about our UK business.  I would then get a call the following day that interrupted my lunch in the staff canteen and would have to suffer Gregg for the next half hour bellowing down the phone at me on some issue that had been fed to him.

Being promoted ahead of my colleagues within the company I had worked within for years was a new situation.  All of my peers knew me well but not as their boss and I realised that, even putting the situation with Martyn to one side, they may not have welcomed my appointment.  I decided that this was irrelevant as my new role required a fresh start.  I had admired Brian and worked hard for him but I had to pursue my own style.  The first change I made was in not moving into Brian’s old corner office suite but staying put in my own.  Our margins were under pressure at this stage and it provided me with an excuse to not replace my previous position of Marketing Director.  The format of our management and board meetings I changed and was scrupulous in playing the role of chairman / facilitator.  I found that, with a combination of ensuring everyone’s full contribution and a variety of problem solving tools, we could resolve previously difficult issues with the team invariably making a unanimous decision without me having to reveal an opinion.

Worried about morale within the company, I instigated a company wide climate survey.  Results showed that the number one issue was a distrust of management, with a widely held belief that employees were not being consulted or informed on key issues.  Following discussion amongst my senior team, we agreed that I should speak to the entire company, share the survey results and ask for volunteers to join teams, to address each of the key issues (they had all recently been trained in problem solving techniques).  On the day of the meeting I made the assembled employees a number of promises.  Firstly, I would only hear the findings or recommendations at the same time they did.  I would also agree to any recommendation the teams made so long as the cost did not exceed our local country budget level, or contravene international corporate policy (if a recommendation did, I undertook to sell it to our company president).

I seemed to hold my breath for the next month, staying away from any of the team meetings and did not quiz any of my direct reports as to progress.  We assembled in the staff canteen on the day the results were due and the atmosphere I can only describe as electric.  Would the employees pressure for unrealistic changes?  Would my team leaders have handled the process democratically?  One by one each of the four teams presented their analysis and their recommendations.  I need not have worried.  The changes requested were surprisingly modest and reasonable and after asking further questions I was delighted to say, “OK, go ahead and implement everything and you will all receive regular feedback on progress.”  I learnt that together we could build a much more decentralised style of management, enabling us to make significant progress.  It also taught me a lot about trust and it taught me to empathise more with the feelings and views of the entire company.

We made rapid progress and my first year as MD ended strongly and over budget.  The new structure within the sale team seemed to be working better and emphasis on refining the customer groups we worked with was producing improved margins.  However, despite this and the more harmonious climate amongst the management team, I was sad to receive Martyn’s resignation.  He had received a good offer and had made up his mind to go; all I could do was to wish him well.  I missed him but it was almost fifteen years before we met again and resumed our friendship but that’s another tale.  Sad as I was to see Martyn depart another event proved shattering and changed me forever.

Despite battling on and regaining some semblance of normality following her operation for a brain tumour, Jean had entered a slow decline.  One Sunday morning driving herself back from church just half a mile down the road she lost control of her car, hit the kerb and came back complaining of severe pain in her neck.  Urgent investigation showed that the cancer had spread to multiple sections of her spine, which then severely restricted her ability to be mobile.  We made enquiries and managed to move Jean into a Marie Curie hospice a short distance from our house where she spent the remainder of that summer.  The staff were angels, caring for her constantly but her decline was relentless and one night in late September whilst I was by her side she passed away.

We had been married for twenty years and neither my two children nor I knew how we were going to face life without her.