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The Art of the Turn-Around

April 24, 2010

Having managed several real estate turn-arounds, I’ve learned the hard way what it takes to clean up a mess.  Usually there has been a lot of money spent, and wasted.  Usually a couple of people have done very well financially for themselves, often with little to show for it.  Usually the institution or person who has spent the money has not known what has been going on, and is reluctant to admit it.  And usually there is no vision of how things can be better, of why they should give up a moderate level of pain now for uncertain pleasure later.  I sometimes liken the job of a turn-around manager to that of the person who comes in the morning after a big bash, to pick the champagne glasses off the floor.  Some are broken, some still have champagne in them, all need picking up.

I have one primary rule for turn-arounds, and that is the “rule of three”.  Three people have to have lost their job before the owner or institution is ready for change.  Only then are they ready to “cry uncle” and give the turn-around manager the time and money they need to make the necessary changes.  Often-times the first person was part of the problem, was managing when things were particularly bad.  The second person is often times a line manager as well, someone called in to take over after Bob or Tom or Alice was fired.  They spend most of their time understanding how big the problems are, but for various reasons they put band aid solutions in place.  When they leave, the board or institution begins to look to clean up the mess, but if they don’t have a full understanding of the problem, and, even more importantly, are not yet in sufficient pain, they won’t act decisively.

That’s why there’s often a third person who fails.  Sometimes they are an up-and-comer who looks at the position as a stepping stone, underestimating the challenges.  In their eagerness to get the position, they do not bargain heavily enough for the money and time they need.  The problems are usually bigger than they’ve realized, and take longer to solve than they expected.   When they come back to the board for time and money, they use up their credibility.  Their failure educates the board in just how bad the problems are.  Meanwhile the real constituents have lost patience and ask for change, calling on the board to act.  The “tar baby syndrome” is now at work:  the longer you play with it, the more it sticks to you.

The ultimate change agent will do their homework before stepping into this situation.  They will see if the client is ready  for change and back them up when the going gets tough.  They will talk with people behind the scenes and see what they need to do.  They make sure there is a reward for what they do, and that they have the time and money to succeed.

This last involves looking at a situation and adding a large contingency, on the order of 30 to 50 percent.  Why?  Because it is always easier to give back un-needed surplus than to ask for more.  It makes you look like a hero, and when people are in pain they will pay a lot for relief.  The turn-around artist also needs license to make change.  They are going to have to fire people, to take on the people who have had more responsibility and made more money than they should have.  There may have been lack of oversight, but the odds are that those people are still there because they have survived based on their political skills.  The turn-around manager needs to replace them quickly.  Either that or those people may take them down.

So the turn-around comes down to getting the institution to recognize that it needs change, to getting the necessary resources to do the turn-around, and to getting control.  I’m not sure we have these conditions here.

First of all, I’m not sure that the current city council has control.  At least control in the operative sense of agreeing on what they want to do and firmly carrying this out.  Recently Barry Peters diverted the council from its focus with talk of a road bond, something no one I know would trust the city with now.  Peters has also been trying to keep the Utility Advisory Committee’s from considering spinning off the utilities, something that is really necessary.  Peters can try to do what he wants, but it is up to the rest of the council to keep him from getting in the way.

But the council may not yet be in sufficient pain to stay focused.  Even though the city is overstaffed by at least 20 percent, they made the last round of budget cuts without letting a single person go.  If and when the water utility is spun off, the financial problems will become greater.

My sense, too, is that the council is not yet willing to pay what it will take to get a good turn-around person on board.  This is not exactly a position with long-term job security.  The person that makes these cuts, if they make them quickly, will probably need to move on.  This is also a seller’s market for such labor, in which many of the city managers are now within five years of retirement.  Those who are not have good job security.  Why would they leave a current position and move to Bainbridge Island, which has high housing costs, for only a ten or 20 percent pay increase, for just a year or two?  Perhaps a person will come out of retirement to do this, but are those people really change agents?  In situations like this the hire is usually from afar, if only because the locals know enough to stay away.

When this council does act, it needs to be specific about what it wants.  I would like to see the council set this down performance goals that it can use to evaluate the city manager’s performance six, 12 and 24 months from now.  You get what you ask for.

I would give us about a 50/50 chance right now of getting a change agent in.  Perhaps we will get someone good that we can keep.  I am hearing through my contacts, however, that the position has not been well publicized.  Someone I know that has been interested in the position did not get word about the opening, even though they were actively monitoring listings of the key trade association.  Perhaps they simply missed the notice, but given our needs, I would like everybody in the word applying. We can’t afford to be coy or secretive about our needs.  Having too many applicants is a good thing.
Until this happens, we should continue to hope for change, but not expect much.  It may take the loss of a major lawsuit or some other uncontrollable but semi-predictable event to get us to that point.