How to align stakeholder interests in a financial restructuring
This article is Part 3 of a five-part series outlining key steps to assist in a financial restructuring.
Under normal circumstances, the key stakeholders in a business share a common aim: the continuing good performance of the company. Their ultimate end goals may differ - e.g., your bank may be focused on repayment of its debt, whereas your employees may be more concerned with job security - but overall, there’s general alignment.
This alignment can falter, however, if your business has become burdened with too much debt or the wrong capital structure. Without alignment, some stakeholders may make decisions that are in their own best interests, not the company’s.
The risks of losing stakeholder alignment over debt
When it becomes clear that your business has too much debt or that it will take a protracted amount of time to repay loans, one critical risk is that the management team will not be fully incentivized to drive the business forward. Even if team members are emotionally involved in the business, they may face the prospect of making significant amounts of money for other people without personally benefiting from it.
While this is only one example, a financial restructuring can help align all your stakeholders’ interests. In a successful restructuring, everyone is motivated to keep supporting the business so that it not simply survives, but thrives.
How we can help align stakeholder interests
During any restructuring, your directors and management teams will, on a daily basis, remain focused on managing and driving the business forward.
Our role as your restructuring advisors is to manage the process from start to finish. Our first step is understanding four primary components of your stakeholders: their identities, their relevant positions, their motivations and their expectations (and potentially their individual requirements).
With our extensive experience in dealing with key people at financial institutions, we’re well-suited to fully understand their positions and what may be achievable in a restructuring.