TIME IS MONEY, BUT CASH BUYS TIME

I was paging through the Financial Times at breakfast this morning in London. There is an article about all the actions that the current CEO, Fritz Henderson, is taking at GM. Some are saying how much more action-oriented Fritz is than Rick Wagonner, the former CEO. Al Koch of Alix Partners, the chief restructuring officer of GM, says the changes that GM has made in the past 100 days usually takes a year.

That may be true, but it is the lack of cash that drives quicker and deeper actions in a financially troubled companies. For years GM, and Chrysler for that matter, avoided taking the really hard actions because there was enough cash to delay the painful actions. Why the delay? Hope springs eternal at troubled companies. Top management hopes (sometimes believes) that next quarter, next season, next product introduction will provide the underpinnings of a substantial turnaround. And wouldn't it be terrible to make the hard, deep cuts now and then have the business turnaround.

I have seen this happen over and over again for the past 25 years. Unfortunately, many CEO's take the really hard actions only when the company is running out of cash. Why? Because only then does the CEO accept that time is running out. At that point, there is no choice. It is either the hard actions or death of the company.

My co-author worked at a company once that needed to take hard actions. She said 'the CEO should be doing this and that.' I told her she was right but that it would probably not happen until it was too late. I told her that the company had too much cash and financing available to it. As a result, the CEO had the luxury of time for the business to ride an industry turnaround when it showed up. I further pointed out that when the cash finally ran out, it would be too late to implement a turnaround. Three years after I told her that, the company filed for bankruptcy and had no choice but to sell itself in pieces.

So, I am glad to hear Fritz is action-oriented. But is it him? Or is it because the GM is out of cash and management has no choice?

Cheers, Mike