About CSC Capital Corporate Restructuring
CSC Capital Corporate Restructuring pioneered the restructuring-based approach to financial advisory services therefore our corporate restructuring heritage is at the very core of the firm’s strategy. CSC Capital, founded in 1992, viewed restructuring as the primary vehicle and true essence of long-term corporate revitalization. In the firm’s first brochure produced shortly after our founding the cover page stated:
“An organization’s future success requires a well formulated structure, a budgetary and management control system that fits the structure, an enforcement and evaluation system that ensures budgets are maintained, a strategy that integrates that in relation to the organization’s major policies, and top management with the talent and resources to adapt and change during and after the restructuring.”
CSC Capital believed there is nothing more rationally correct than a system for corporate change whose components – strategy, financial and operations analysis, work flow, position design and structural development, the application of budgetary controls and accountability, productivity incentives and standards, evaluation process, training and implementation management – mesh together and function as an integrated way of managing. Each component is critical to the system. By 1993 the firm starting called this system – Holistic Restructuring.
In a September 1996 article entitled “Holistic Restructuring offers answers for companies,” in the Daily Journal of Commerce, it was written:
“Corporate Holistic Restructuring as conducted by CSC Capital does not just redesign individual functions of a business such as the inventory control system or cost accounting structure. Instead, it redesigns the entire organization and the relationships between all businessfunctions.” The article continues that CSC Capital’s approach “is the opposite of applying management fads to organizational problems…it is rooted in the organizational and managerial lessons of nearly a century ago.”
CSC Capital still to this day contends that there is no substitute for the “nuts and bolts” basics to good management and organization. The firm begins a restructuring engagement by analyzing a corporation functionally, financially and strategically. Good organization necessitates specialization, division of labor, responsibility and accountability be fixed among top management as well as all employees, and a system of promotion be established that rewards performance. The firm then explores the strategic implications of the current organization and how we can most efficiently restructure the corporation to fit existing conditions as well as limitations of personnel.
After defining organizational and functional specifications, CSC Capital evaluates structural options within the appropriate strategic direction. The firm then chooses a basis of organizational structure, develop functional specifications, and then begins to design the accounting and financial mechanisms that will ensure success.
CSC Capital’s experience in the use of budgetary controls, now legendary, allows us to design a management control system that supports the organizational structure and strategy. After a thorough review and design of estimates, the firm normally recommends reformatting financial statements into profit and cost centers to aid in decision making thus creating complete transparency, allowing management to readily see opportunities or problems. In all situations the newly reformatted financial statements mirrors the newly designed organizational structure. Using the outlined organizational structure and the mirrored financial reformation, the firm analyzes past operations using the new chart and format before designing a system of comprehensive organizational changes.
After designing a comprehensive system of corporate wide budgets by each profit center, CSC Capital now re-thinks the corporate strategy in lieu of the new financial information, next formulating business plans and objectives to carry out the budgetary estimates. At this point, strategic thinking actually transforms into organizational behavior where corporations can now create the future. In short, the firm merges corporate strategy and operating management into a unity. How?
By developing meaningful monitoring and enforcement mechanisms such as inventory control and procurement systems, breakeven costing and pricing procedures, project and production scheduling requirements, performance-based incentive awards, compensation plans, management standards and objectives, variance reports, personnel evaluations, and strict budget objectives. All of the above are just a few examples of quantitative mechanisms that ensures the corporate wide budgets by each profit center are maintained and that their objectives are accomplished.
CSC Capital firmly believes that implementation is 90% of a successful restructuring and should be on-going throughout an engagement. As such, the firm develops an implementation schedule step-by-step by developing complete user procedures, integrating budgets and compensation plans, providing extensive senior executive training in management accounting, as well as assisting in executive search and employee selections. If necessary CSC Capital becomes actual interim intervention managers directing the change process. Only then does the firm consider the corporate restructuring complete.
On June 26, 1995 the following advertisement was produced in The Wall Street Journal:
“At CSC Capital, we design and implement organizational solutions in both the private and public sectors, from design to practice, the time-tested way. We manage corporate strategies as well as plan them. We build functional rather than processed based organizational structures that squarely place both responsibility and accountability on persons not committees or teams. We place budgetary and financial controls that ensure high productivity, efficiency and demand cost-effectiveness. And we design incentives, compensation and evaluation plans that reward manager and worker performance through pre-established objectives. As such we do much more than merely advise top management we conduct Holistic Restructuring, the true essence of long-term corporate revitalization.
By the late 1990’s CSC Capital had created a five-step plan for its Holistic Restructuring. In an article entitled “Blueprint for Profitable Growth,” written in August 1998 for a leading trade journal, Building Material Retailer, the editor introduced the firm as the leading industry specialist in corporate restructuring. The five-steps are summarized below for restructuring “do-it-yourselfers:”
1) Analyze your company objectively
Turn problems into opportunities by reviewing financial statements. Analyze each year’s percentage of expenses and margins to sales and inefficiencies as well as purchasing and pricing problems will appear. Evaluate inventory turns by product line and individual items. Slow turning inventory is a cash drain and sends a signal that your merchandising is not customer focused. Analyze 90 day receivables and understand if you have not collected the money soon these will fast become an accounting illusion – they are not real assets, revenue, profit or cash anymore.
Conduct diagnostic interviews of employees, how they can improve productivity and problems and see if management interviews yield the same results. If a problem or concern is brought up, ask for a solution. Finding underutilized talent and those employees who are not solution oriented is important for promotion opportunities and as well for discharge. Finally, evaluate the competition. The company cannot understand their strategy if you have no idea what it is.
2) Design the organizational structure
Start with a clean sheet of paper and concentrate on how the company should be structured rather than how it is currently structured, and align structure to strategy. Positions within the company should not be assigned by personality but by who can best do the job. Functionally-based structures are normally best because they are simple to understand and easy to manage, and they decentralize profit center responsibility and centralized cost center control. They also promote empowerment, and hold people not committees or teams accountable. Besides all that, they are the they most efficient and profit-oriented structures known to man.
But to give the positions and the functional structure meaning the creation of job descriptions are crucial because they breathe life into organizational design and as well as gives employees a road map for how to execute their jobs. Actually good employees want job descriptions. They want to know how they fit into the organization, how they are doing; in essence they want feedback. Without a job description it is impossible to give objective feedback.
3) Reformatting the Financial Statements
People forget what investment guru Warren Buffet said: “The language of business is accounting.” This means management must understand accounting and be part of a budgetary process, because the first line of communications in business are the numbers. According to CSC Capital this demands that the financial statements be formatted to mirror the organizational structure, and the financial statements should mirror the product mix. Analyzing product line sales and gross margins as a major component of sales accounts, the company can connect strategy, sales and margin management to a financial control system.
This assists in sales efforts and locating wasteful product lines as well as holding managers accountable. By reformatting statements in this fashion, a monthly budget meeting rises above a financial control session to a strategy think-tank as well.
4) Linking pay-for-performance into the financial statements
The greatest asset of a large corporation or small business in its people. Thus hiring and retaining the best employees is a company’s biggest challenge. Parting company with Human Resource theorists CSC Capital has always believed that good employees are motivated by money and productive employees should be rewarded higher than marginal employees. Therefore a pay-for-performance scheme should link incentives with results. Reward managers and employees based on a percentage(s) of their own bottom line. Finding the appropriate bottom line may be the challenge but it is worth the fact-finding. Efficient teamwork within the profit and cost centers decrease overhead which benefits all employees.
5) Implement the changes pro-actively
It is said that a lobster, when left high and dry among the rocks, has not the energy to work his way back to the sea, but waits for the sea to come to him. If it does not come, he remains where he is and dies although the slightest effort would enable him to reach the waves. The management world today is too full of human lobsters stranded on the rocks of organizational dysfunction and crisis, calmly waiting for a sea change in sales, profits, and/or the economy to lift their company back into the currents of prosperity. If these things do not occur the company will eventually die.
The pro-active implementation of a corporate restructuring is not for the faint of heart. It takes tough decisions and the tenacity to stand behind them once they are made. In the end, restructuring is a test of leadership and the communications skill to sell the reorganization throughout the entire company. But without the skill-set to implement the transformational changes pro-actively the greatest of good intentions will fail. Shaking off old habits and practices is difficult, but the implementation of new organizational solutions from design to practice is far more challenging. And if this entails a quick shift in corporate strategy as well then the odds of succeeding are further decreased. CSC Capital’s restructuring process is unique and that is why it has been so successful. The firm has always viewed strategy, structure, financial controls and budgeting as connected parts of an overall organizational framework. And when viewing it this way, implementing the parts into a cohesive whole is far more attainable.
Background from 2000 to Today
At the turn of the millennium, besides expanding into mergers and acquisitions advisory services in 2000 as well as providing a restructuring roundtable for the largest buying group in the U.S. in the same year, CSC Capital also became an economic forecasting boutique. In was August 2002 and an article entitled “Up Up and Away” published in Pro Sales Magazine, stated that the current economic bubble in the credit markets will burst thus radically changing mainstream lending, especially in housing and real estate development. Construction lending for housing will completely collapse in the near future, the article predicted. CSC Capital, ten years old, saw the zooming housing market creating a vulnerable overall economy that could not withstand the market forces of supply and demand but also a credit market gone wild. The firm predicted that only lean companies will survive the next recession but that operational efficiencies will determine the winners and losers. The article stated in part:
“There are reasons why executives should worry about the vital economic balances between home prices/values and consumer income/debt. They need to prepare for the big unknown of how much demand there will be for their products and services. They also must determine if they should hire and expand, sit tight, or lower overhead. Get it right and you make a lot of money. Get it wrong and you can go out of business. The best way to hedge against the next downturn is to keep costs, payrolls, and inventories lean at all times. Oh, and don’t forget to collect receivables!…When the economy slows, more nimble rivals will eat your lunch if you haven’t already tackled cost structures, lowered break-even points, and developed a coherent strategy to grow through tough times. And if you haven’t already started to prepare for the next down cycle, it’s probably too late.”
Several profitable companies understood the foreboding and elected to completely restructure their companies. In an open memo to his management team, the CEO of a very successful retailer, manufacture and distribution company with revenues of over $100 million states why he has engaged CSC Capital. The memo in-part states:
“I am writing to announce that, as of August 1, 2005, I’ve retained the services of CSC Capital to assist with a company restructuring. CSC Capital has assisted over 20 companies in our industry with the same service.”
“So what is corporate restructuring? It is a process to revitalize and increase the value of the business by redesigning the organization and the relationships between business functions. The basis for the organization being the customer and focusing on three inter-related areas: structure (the cost and profit centers), organization (human element – job descriptions, reviews, interaction), and finance/compensation (pay for performance).”
“As you know, I do not take decisions lightly and this one was no exception. CSC Capital and I have talked off and on for years, which lead to more serious discussions over the last 60 to 90 days. Prior to making this decision I have talked to numerous references, visited two personally, and discussed the matter with other CEO’s, my TEC group, and a former professor of mine at University of California at Davis.”
“Why CSC Capital?” Because they provide an objective view of structure, systems, financials, etc. Exposes organization to a different way of thinking. Provides impetus for change – people are forced to let go of staid habits and untouchable areas. They understand our industry, working in it for years; over 20 re-organizations in our industry. They bring best practices learned by other companies, and they sees a project through to completion which includes implementation. CSC Capital does not leave a job ‘hanging’ or throw a manual on the desk. Finally, their implementation expertise allows our managers to focus on the business at hand.”
“Why now”? Because succinctly, there is no good time… Many changes are already planned and CSC Capital would accelerate implementation. Their services would complement existing strategies pending including HR, BPI and IT. CSC Capital would provide the foundation for growth. My perception is that the geographical, profit center approach that we currently have will become unwieldy or unmanageable. Understanding what we do best and which segments provide best profitability will focus future expansion and growth opportunities.”
“Importantly, we must take advantage of the good economy (next 3 years) and present predictions (downturn in 2009). 1% increase in net profits translate into an immediate payback in 2006. Finally cultural impact is consistent with our vision. Therefore we need to restructure our company for the next 20 years and not delay because of short term views…”
The rest of the memo talks about the advantages of restructuring to the company, but what is particularly interesting is that this CEO predicted the financial crisis in 2009. In July 2006 when this memo was written that would have been a prophecy. CSC Capital not only provided the successful restructuring results, but was instrumental in providing the firm’s client CEO with the macro-economic foresight, knowledge and savvy necessary to prepare for and manage a corporation through the “Great Recession.”
By the time most business people knew that the U.S. economy was headed for a downturn, it became necessary to consider restructuring services. In an August 2007 article, “Is it Time for an Outside Opinion?” in Retailing Magazine, CSC Capital was showcased as the preeminent middle market restructuring firm in the U.S. In the article a former client of the firm stated “My biggest mistake was waiting so long to bring in CSC Capital. I should have done it a lot sooner, because the results were so positive. Like a lot of people, I thought the problems would just go away.”
In an open email written as a forthcoming article on July 8, 2008 to the editor of Pro Sales Magazine, just three months before the beginning of the financial crisis, CSC Capital again went on record sounding the alarm of economic calamity.
“Billions and billions of written off and lost dollars ago, back in August of 2002, we wrote an article in this magazine entitled “Up Up and Away,” which mentioned the housing and home construction market was going to collapse, leaving dealers in a unprecedented mess of losses and debt…Of course, that is not very promising for real estate investors, production builders, those large financial institutions that bought up mortgage back securities (who stand to lose another 600 billion dollars from the mortgage mess), regional and small banks (who will soon start getting dumped on from defaults in construction loans – the next wave of terror), many home mortgage holders, and sadly all you who are reading this article…Now some you may think even though the economic reality looks grim, ‘I just need to refinance some real estate, get better advance rates on my inventory and AR, ask Uncle Charlie for a loan, so we can weather the bad times.’ We say ‘wake up’ banks are worse off than you, and if you did get some financing, it is just a band aid – gone as fast as the money landed in your CFO’s hands, and now you have more debt. You actually are now worse off than before – because you have not fixed the real problem – your company’s structure, systems and policies…Not to be stale or boring with our advice, our solution is to completely restructure your company.”
Not only was our article not published (the editor now thought we were too pessimistic), but tens of thousands of companies in several industries related to home construction failed during the next few years. Even today while the carnage of the Great Recession still continues for many businesses in several industries, the media largely avoids discussing the hard realities of owning and managing a business in our over-regulated and over-taxed corporate environment.
Trusting completely in a free enterprise system, CSC Capital since its founding has always advocated the merits of a largely hands-off governmental approach to capitalism in general as well as to capital markets specifically. Again on the record, the firm in the academic newsletter Oxbridge NW in January 2009 stated its strong disagreement with the U.S. government’s planned bailouts of financial institutions. The editor wrote:
“CSC Capital looks at the [financial] crisis from what they call the ‘center of the storm.’ They point out there will be no bailout for smaller companies affected. But they also question whether injecting cash into large corporations is a good idea without overhauling them first. ‘Our experience is that if the company is not set up right correctly before the money is sent, the money is wasted. We do not see the people who caused the problems supplying the solutions.”