The term Chief Restructuring Officer (“CRO”) is frequently used in the bankruptcy, insolvency and turnaround management community. Often, however, the numerous stakeholders on a restructuring, such as the company’s management, board of directors, lenders and legal counsel(s), lack a common understanding of the CRO’s intended function.
For lawyers, CROs are thought of as appointed senior executives that are given the power to restructure all aspects of a company’s finances and operations in order to deal with a court driven bankruptcy or insolvency,
In the turnaround world, we think of CROs more broadly, to also include turnarounds and restructurings outside of a formal court action. For us, a CRO is a person or firm that comes into the business to lead a turnaround, crisis management and/or restructuring process for a limited period of time, and then leaves. Synonymous titles to CRO would be Interim Executive or Chief Transformation Officer.
To help understand the various roles of a CRO, and to drive the discussion when considering choosing a CRO, we have found it helpful to categorize these turnaround professionals into five types:
- The Turnaround CRO, almost always required in mid market and smaller turnarounds, is a true turnaround professional (as opposed to restructuring) and is an expert at driving change within an organization. This CRO’s mandate may be as much about changing culture as it is financial engineering.
- The Exit CRO’s job is to keep its fingers in the dike while simultaneously selling or refinancing the business – usually in a hurry. This CRO should have investment banking experience, specific to troubled companies.
- The Restructuring CRO is there to lead the company through, and keep management from being distracted by, a formal balance sheet restructuring. This CRO should be an expert in bankruptcy and insolvency.
- The Our Guy Inside CRO is expected to play a dual role: assisting management, while also monitoring the company and reporting developments to a key stakeholder, such as the lender. This CRO faces difficult conflicts and, because they are unable to gain the trust of management, often fail at the actual turnaround.
- The Consultant CRO is a financial advisor or bankruptcy professional that provides an advisory service (do this, not that) and expects the advice will be implemented by existing management. This is not a helpful service in most instances because troubled companies already know the right answer; they just can’t do it. They need help driving change.
Each situation obviously requires some unique combination of the five types, but you will usually find that one of these types dominates the mandate. Understanding that will significantly improve your discussions with stakeholders and will influence your selection of the CRO / turnaround advisor.