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In high times, the Czech economy had no demand for certain well-compensated adventurers, brilliant negotiators, butchers unafraid of painful decisions. Now, crisis managers represent collapsing companies’ last hopes.

“This is a wonderful time – brutal, but fair,” Václav Novák says. “Much fairer than the seven previous years.” Novák has a mythical reputation in Czech business. Since he returned from exile in the 1990s, he’s managed to rescue several companies burdened with multibillion-crown debts. The younger crisis managers who worked with him then still get occasionally get called “Novák’s children”. However, during recent years of plenty, his experience seemed unnecessary. Last autumn, everything changed. “I get about one call a week: heads of companies, shareholders, creditors or banks,” Novák says. “My rule is to at least meet them and give some advice. But I carefully choose the businesses I rescue in the end. At the moment, I’m negotiating six offers.”

Experts estimate the economic crisis will make more than 1,600 businesses insolvent this year, 25% more than last. Recession diminishes orders, production slows or stops, and banks pressure firms to settle loans. After unpaid invoices, suppliers stop co-operating; employees fear they’ll lose their jobs. Nobody trusts the old management, talks with creditors stall, and debts grow markedly. External rescuers step in as a last resort. Firms need managers who don’t bear the burdens of bad reputation and blame for previous failures, bosses capable of risks and sharp cuts. “As recently as last year, clients typically sought CFOs who would introduce shares on the stock exchange,” says Jan Bubeník, head of a headhunting company. “Now they want crisis managers to cut costs and rescue companies.”

A simple idea
When Václav Novák escaped communist Czechoslovakia, he sought adventure, so he went to northern Canada, where he taught children math on an Indian reservation for two years. He finished business studies at 35 and returned here just before he turned 40. “I had a simple idea: to manage the biggest problem available,” he says.

He offered to fix companies’ problems, but nobody seemed to need his services. “I saw that firms were unhealthy, but management didn’t realize it,” Novák says. “So I waited. After all, when you’re struck by a tram and lying on the traffic island in a pool of blood, your willingness to do what the doctor says increases.” His first major opportunity came late in the 1990s with the engineering company Stavostroj heading toward bankruptcy. Within two years, he cut costs considerably and production resumed. The plant was sold to a supranational company. This made him a sought-after crisis manager and a candidate for the biggest Czech restructuring project at the turn of the millennium: the rescue of state-run Vítkovice Steel.

“People from the ministry offered several times for me to take charge of the company, but I said no because they wouldn’t give me enough power,” Novák says. “To do your job well, you need almost dictatorial powers early on.” The government finally gave in, and Novák moved to Ostrava to become the crisis director of a company with 12,000 employees and CZK 15 billion in overdue debts.

“Crisis management is not nuclear science,” Novák says. “You can come up with solutions using common sense. You have to have a plan, set clear rules and persuade people. You need a story to tell them. Rescuing a company is about selling a story that is always painful, but you have to promise that something good will come. People usually like their companies and will tighten their belts for the firm. They accept bad news very well if they get it beforehand and if good news follows.”

He called employees to the local stadium and told them what would happen. “You must be brutal in the beginning because there’s no other choice,” he says, “but never tell lies; otherwise, you lose people’s confidence and it’s over.” Almost half the workforce had to go, and he sold off some assets and subsidiaries. The hardest part was persuading suppliers and banks that they’d never get 100% of what Vítkovice owed, but, if they resumed shipments and loans and didn’t force the company into bankruptcy, they’d eventually get part of their claims. Crisis managers don’t carry the burden of previous failures, so creditors trust them. In two years, Vítkovice made it through the worst, and many regard Novák’s involvement as a textbook example of well-done transformation.

A fast fall
Crisis managers get generous pay. “It’s multiples of standard managerial wages, though, of course, it depends on what companies can afford,” Jan Bubeník says. “They come for limited times, and remuneration often depends on achievements: maybe a percentage of savings, profit or company shares.” Risk abounds, and crisis managers only have their reputations, so high pay makes sense.

Abroad, crisis managers mainly comprise older experienced businessmen who no longer work day to day but enjoy temporary adrenaline tasks to liven up financially secure existences. The Czech economy does not yet have this type of boss because of short free-market experience. “They’re people aged between 50 and 70 who experienced the business cycle several times, so they can recognize a storm when the first cloud comes,” Bubeník says. “Here, those with experience did restructuring of industrial companies in the 1990s or worked in cyclical sectors like the paper industry. That’s also why companies are now inviting crisis managers from abroad.”

For many managers, the recession represents an opportunity to test skills. Triton’s Miroslav Hudeček originally studied teaching. However, working for trading companies for years, he found his way into the position of a turnkey manager that his parent company lends to other businesses for various tasks. Over a decade in this job, he has established Czech branches of an Austrian bank, advised the head of a US telecommunications company and helped transform the Česká spořitelna bank.

Three months ago, he became a crisis manager for an engineering company with 40 employees that manufactures machine components and closed-circuit television cameras; it lost a key customer when the automotive industry fell and began to experience problems. “This happens with small and midsize firms,” Hudeček says. “They rely on key customers, and, when they lose them, they go down immediately.” Owners of small businesses have a more difficult time acting resolutely and come less-informed about the market. 

They also fear letting outsiders into the companies they’ve built. After a few days, Hudeček won the owner’s confidence and they worked out a plan. They had to dismiss some employees and create a strategy for acquiring orders. “The firm didn’t have an efficient promotion policy or its own business plan,” Hudeček says. “Now, we call about 40-50 firms a week, which leads to about 10 meetings and one or two orders. We’ve decided to focus on the food industry, which needs machinery and hasn’t been hit as much by the crisis.” After three months, Hudeček finds himself mid-mission and thinks he’s basically won: The company is talking with 15 new customers about supplies worth CZK 20 million.

Tough times as opportunity
It doesn’t always work so well. Companies can fall past the point of resuscitation. The break-even point is hard to guess, and analysis is as important as intuition. “I don’t fight to lose, but to win,” Václav Novák says when asked why he refuses a great deal of offers.

Last year, he refused to take over management of a printing house that ran debts and had to stop production. Soon after, managers from Boston Venture looked at the company. Tomáš Lhoták and his American colleague Mark Sanders worked for a government restructuring agency and managed the transformation of Tatra Kopřivnice and Zetor, for instance. They agreed with the printing house owner to buy two-thirds of its shares for a symbolical price of CZK 3.

“We had to fire 200 people immediately,” Lhoták says. “The firm hadn’t calculated what pays off and what doesn’t, there was enormous waste, and a large portion of the output was defective products.” A 90-page analysis of opportunities helped convince banks and creditors to give the company a chance. Customers accepted that they would only get 30% of claims (better than none), and production partially resumed.

It has become popular to seek opportunities in the crisis, and looking at how troubled businesses are managed suggests one possible answer. Bad times teach managers forethought and efficiency. “Czech firms and banks typically wait terribly long before dealing with problems,” Václav Novák says. “They simply think problems will fade away somehow. But they won’t.” 

The crisis works as a remedial treatment that not everyone survives and that might seem unfair fair because it hits some sectors entirely, and no cure exists for that. “I see this time mainly as an opportunity that companies, which have no right to economic life, will cease existence because managers didn’t want to notice problems and deal with them,” the headhunter Bubeník says. “And the supply of people, money and raw materials will be redistributed in a better way.”

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