Management News

A Fresh Lease of Life

An underperforming company is one in which return on investment drops below the cost of capital, and shareholders rightfully ask whether the enterprise should be wound up, assets sold, and the freed capital be invested in more lucrative opportunities. Recent amendments to bankruptcy laws in India to tackle NPAs suggest empowering asset reconstruction companies to act like receivers who focus on winding up operations, lay off staff, and auction off saleable assets to pay off creditors who rarely get more than a few cents for every dollar due. Unfortunately, closure of large companies goes beyond hurting only their shareholders and employees. Other stakeholders in the company’s ecosystem— ancillary companies, their employees and families, the infrastructure support system to service this mini universe, markets, schools, entertainment centres, hospitals—become equally vulnerable. I argue that an attempt to turnaround underperforming companies should be mandated in an economy which can ill afford to write off assets to merely pay creditors (primarily banks who are often guilty of ‘crony capitalism’). The need of the hour is to create asset management companies staffed by turnaround experts who are entrepreneurs at heart, managers by training and experience, and committed to make companies in distress not only viable, but ready for sustainable growth. ... Page 59