In December 2002, the CFO of Castle Precision Industries, a local aerospace manufacturer, abruptly left the company which was experiencing severe fallout from the Sept. 11 terrorist attacks. “Things were really bleak here,” said Christine Riedy, “and the previous CFO just threw up his hands and left and said, ‘you need to file for bankruptcy.'” The owners of the company didn’t see that as an option, so they called Riedy, who had worked for the company for two years in the late ’90s but had left to open her own business in the Midwest. “I said I would come back for a little while and help out, and now it’s been six-and-a-half years,” said Riedy with a laugh. Two weeks after she came back, she said, “the Valley Economic Development Center really saved the company by giving us an emergency loan.” But then things went from bad to worse. In February 2003, Riedy said, she called the bank to get some money from their revolving line of credit and was informed that the FDIC had seized the bank and there was no more money to be borrowed. That’s a dramatic example of how badly things can go wrong, but not terribly unlike the situation, Bob Hudson, CFO of Henry Mayo Newhall Memorial Hospital found himself in when he was brought aboard to deal with a sinking ship. The hospital was $12 million in debt, said Hudson. “We had no cash, a whole bunch of unhappy creditors and real poor morale throughout the organization.” Even banks can have these types of problems, as was the case at California Oaks State Bank in Thousand Oaks in 2003. Cole Minnick was brought in as the chief executive officer to help right the bank after it was put under a cease-and-desist order by the federal government due to practices by its former chief financial officer. The first thing he did was ask a CFO he had formerly worked with, Jerry Smith, to help him get things back on track. “He was very instrumental,” said Minnick about Smith’s role in correcting the problems. They were required to raise an additional $2 million in capital and then comply with a host of regulations requiring revamping of the bank’s management practices and reporting standards. Recovery All three of these organizations were able to recover from their trauma, thanks largely to the efforts of their chief financial officers. But it wasn’t easy. Each of these CFO’s faced similar challenges angry vendors, demoralized employees and nervous clients. And all say that staying focused as one of the keys to their turnarounds. “When things look their worst,” said Hudson, “you’ve got to focus on what’s most important Get rid of the extraneous stuff, don’t let people distract you, and above all else, cash is king.” In Riedy’s case, the company’s vendors and the sales team were not happy when she tightened up credit terms. “I had to be the bad person to say to the people here, ‘you can’t take business from this customer because we can’t take any chances they won’t pay,'” she said. One of Hudson’s first decisions after evaluating the situation at Henry Mayo was that the hospital should file for bankruptcy protection. “I was the one who made the decision to go Chapter 11,” said Hudson. “It absolutely was the right decision but if I had another 90 days I could have avoided it.” He cautions others who are considering the option. “The one thing I can say about Chapter 11 is avoid it at all costs,” he emphasized. “Figure out a way to work it out if you can, because the attorneys, the accountants and the consultants all get rich off of you and they get paid first. There’s no way around it and once you start down the path you lose control.” Motivating the troops Transparency and teamwork was important in each turnaround as well. At Cal Oaks, Minnick said he immediately got all of the management team together and told them what was happening. “We didn’t hide anything at all,” he said. “and we told them what we were going to do to fix it.” The fixing took a lot of hard work and extra hours, Minnick said. Monthly staff meetings kept people on track. Even the lenders participated, he said, staying late and coming in on weekends when needed. “We didn’t really get rid of a lot of people,” said Minnick. “By all respects, we just gained their trust and confidence that we would rebuild the bank and it wouldn’t get any worse.” They also gave stock options to some of the key players which became more valuable as the bank recovered. Castle Precision’s CFO also identified some internal assets that might have otherwise gone untapped, such as using the sales manager to make collections calls. “That shouldn’t have been his role,” Riedy said, but she knew he was very good on the telephone so Riedy asked him for help and he started making “lots and lots of phone calls,” to help bring in money from the accounts receivables. To help morale at the hospital, Hudson said he walked around a lot, made sure everybody got paid on time, and, he added, “I never made a promise I couldn’t keep.” The good news As the aerospace industry improved, so did Castle Precision. They successfully restructured their debt and now have a revolving line of credit and a term loan with California United Bank. “We were down to 90 employees then,” said Riedy, “and now we’re up to 150 and back up to where we were pre-9/11 in terms of sales.” The California Oaks turnaround took about six months, said Minnick, going “from basically a failed institution to one that passed with pretty good ratings.” Jerry Smith, the CFO Minnick brought on, continues there in his capacity. He did not respond to an interview request. And Henry Mayo Newhall Memorial Hospital is doing so well it is qualified for a $75 million bond and is investing in major improvements and an expansion of the medical center.
