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By Tony Wayne
September 18, 2019
As turnaround and restructuring experts, and from our experience in complex commercial and financial litigation, we have gained a valuable perspective of what can lead to trouble and how to avoid it. We have been fortunate in being to able to leverage this experience/expertise by extending our solutions to commercial lenders and private equity firms to assist in their lending and investing decisions as well as their portfolio administration.
We believe that if you want to create, harvest or preserve/protect value, then an essential element to this is sharing that value— with those who helped create it.
A couple weeks ago on Labor Day, I woke up and my thoughts turned to the two great “Jacks:” Kemp and Stack. We truly lost a great one, a real champion of compassionate conservative philosophy, when Jack Kemp left us. I have this sense that he’s really struggling with what’s going on in today’s political arena and what has happened to his life’s mission which was indeed to lift all boats for all Americans through targeted investment, liberated barriers to capital access and new wealth creation, and the sharing of that wealth with the creators themselves.
Many moons ago, I had the good fortune of taking a very, very fast ride to Springfield with my first ever client, friend and former Indy Car driver, Greg Weld. That day was pretty unforgettable for a much younger me; the interaction and discussion between Greg and Jack Stack, CEO of SRC, was nothing short of priceless: a true market-making genius in Greg, and one of the early pioneers in sharing the wealth in teaching and investing in our associates in Jack Stack. Jack authored The Great Game of Business that was pretty revolutionary and more than a little controversial at the time.
Jack has written and recently published a follow-up to that “cultish” business classic: Change The Game:
“Stack and Bo Burlingham wrote The Great Game of Business to detail the leadership system of the same name that developed out of necessity in the early days of SRC; the new book provides a ‘proof of concept’ that the Great Game system really works. Change The Game is filled with case studies of businesses in all sectors that have seen the positive effects of SRC's brand of open-book management - a system that shares financial information with employees at all levels, teaches them how they fit in to the overall performance of the company, and makes work fun and rewarding for everyone who plays, from the president down to the janitor.” (“The Answer to a Polarized America": Jack Stack, Author of Best-Selling 'The Great Game of Business' Set to Release a New Book on "the Brighter Side of Capitalism" Dallas, TX (PRWEB) August 18, 2019)
There are many, many creative and effective ways to share the wealth with those whose contributions to its creation are nothing short of essential and invaluable: stock appreciation rights, gain sharing initiatives, skill-based pay plans, non-voting shares, etc. Moreover, in a recently released study by Rutgers Researchers, funded by the Employee Ownership Foundation, it’s pretty self-evident that Stack’s life mission is still right on the money with how employees see things:
“Nearly three-fourths of respondents (72 percent) to the General Social Survey would rather work for an employee-owned company than one owned by conventional shareholders or the government”.
Providing a meaningful stake in the outcome, a la Jack Stack, also demands our associates get the teaching, coaching and timely game feedback needed to win. Not unlike the focus and training the O-line, the running backs, the wide-outs receive from the Chiefs so they can keep the Mahomes Machine humming on all cylinders.
Collateral value in the truest sense is the intangible organizational value component generated by the management capability with that collateral. A commercial lender and a private equity partner need both an assessment of and a confidence in this value to preserve and protect their capital, and to warrant putting it at risk to begin with. This methodology incorporates traditional valuation modeling, a deep dive driver analysis, and external complementary actionable enterprise valuation software tools such as Equidam and Biz Equity that provides the organizational units the unit-specific critical data to orient and align their activities to the over-reaching goal of teaching them how to win.
Unlike the highly limited value orientation from traditional attest engagements (audit, review), this type of assessment provides the insightful, time-critical feedback to develop the business team, while anticipating and tackling the needs of their third-party financial partners as well. Specifically:
- Primary enterprise value driver performance
- Benchmarking the competition
- Externally & internally focused metrics
- Productivity & efficiency
- Asset utilization & quality
- Product & customer profitability
- Customer service responsiveness & quality
- Operating & financial leverage/solvency indicators
Aligning the daily world of associates with the critical interests of ownership and those who provide capital is essential to the over-riding goal of maximizing enterprise value. THIS is the essential aspect of collateral value, not forced or orderly liquidation value in the worst-case scenario. Really, it’s all about the preventive power of enterprise value creation and preservation to avoid that outcome.
At the end of the day it comes down to the team, performance, and as the great two Jack’s have taught us, sharing the fruits through a significant stake in the outcome while teaching them to win.
Tony Wayne is President of IronHorse LLC. IronHorse is a K.C. based specialty consulting firm providing targeted, demonstrated solutions to complex legal and commercial finance problems; merger & acquisition capital sourcing due diligence, credit origination & administrative decision support, workouts & credit restructurings, commercial lending field exams & credit file ValueRange services, and complex financial, commercial and transactional expert witness and litigation support.
Oct 08 2019