Corporate Restructuring

Corporate restructuring is the process of reorganizing the ownership and legal operational structures of a company in order to make it more profitable, so that it is better organized than at present. It is corporate management's term for the act of partially dismantling and reorganizing a company in order to make it more efficient and therefore more profitable. It generally involves making major sacrifices by selling off parts of the company and making severe staff reductions

Corporate restructuring becomes necessary when a company must improve its profitability and efficiency. There are a number of reasons corporations require restructuring. It may be necessary due to change of ownership, buy-outs, bankruptcy or takeovers. Corporate restructuring is also described as debt restructuring and financial restructuring as it usually involves the restructuring of the company's assets and liabilities.

Restructuring can be accomplished by various methods. It can involve dismantling and rebuilding areas within the company, which requires special attention from management as well as from the CEO. Those involved in the restructuring effort usually hire financial and legal advisers to assist in the negotiations and transaction details.

An improving economic outlook and pent-up demand can create new opportunities for executives who want to improve their corporation's bottom line through corporate restructuring, mergers and acquisitions. Capturing the maximum value requires a thorough understanding of debt and corporate restructuring options. It also requires a keen ability to identify strategic opportunities to improve competitive position.

Selling off portions of the company, such as a division that is no longer profitable or which has taken too much of management's time and not letting them concentrate on their core business, can greatly improve the company's balance sheet. Staff can be reduced by selling or closing unprofitable parts of the company and by consolidating and outsourcing parts of the company that perform non-profit-producing work, such as payroll, human resources, etc.

Some characteristics of restructuring are:

• Changes in corporate management; holding on to corporate management on an "as needed" or "stay bonus" basis

• Sale of underutilized assets, including patents and brands

• Moving operations such as manufacturing to lower-cost locations, outsourcing operations such as payroll and technical support to a more efficient third party and reorganizing functions such as sales, marketing and distribution

• Restructuring with stockholder; refinancing of corporate debt in order to reduce interest payments

• Renegotiating labor contracts in order to reduce overhead

From a social point of view, takeovers create genuine suffering for individuals whose jobs are eliminated or whose lifelong careers are ruined. Entire communities can experience abrupt economic devastation. A corporation is a sociological institution as well as a collection of financial assets and, while employees understand that corporate change is necessary for corporate survival, they will not accept abrupt, radical change imposed from outside that has nothing to do with current business conditions.

Politicians are also unlikely to accept a craze for takeovers. In the United States, anti-takeover laws have been passed at the state level. The Supreme Court handed down an important securities law decision in March 1988, designed to protect investors from stock manipulation. The law prohibits a public company from making untrue, misleading or incomplete statements about facts that are "material" to its fortunes. Companies must disclose merger talks immediately rather than wait until such talks reach fruition. A wrong move can invite challenges from the Securities and Exchange Commission (SEC) and from stockholders who say they were misled. Because shareholder lawsuits are often brought as class actions, the potential damages could amount to millions of dollars.

Legislation that has been passed to restrict takeovers has been relatively ineffective. Those who support takeovers argue that such laws favor existing management no matter how inefficient or self-serving. The board of directors can hardly be expected to rectify this situation; after all it was chosen by management and will challenge or dismiss management only in the most extreme situations. Problems posed by ineffectual or self-serving management should be addressed in a manner that keeps politicians out of the process. Stockholders need protection from this type of management, and workers, executives and communities need protection from corporations being torn apart.

The process of restructuring lies in the establishment of a detailed strategy to transform the existing operations into an ideal operation. The process must be performed carefully to ensure that it will have the least adverse effect on the operation and, most importantly, on the individuals who have worked in the company for many years.

Selected full-text books and articles on this topic

Restructuring American Corporations: Causes, Effects, and Implications
Abbass F. Alkhafaji.
Quorum Books, 1990
The Great U-Turn: Corporate Restructuring and the Polarizing of America
Bennett Harrison; Barry Bluestone.
Basic Books, 1988
Mergers, Acquisitions, and Corporate Restructurings
Patrick A. Gaughan.
Wiley, 1999
Six Roundtable Discussions of Corporate Finance with Joel Stern
Donald H. Chew Jr.
Quorum Books, 1986
Librarian’s tip: Chap. IV "The Restructuring of Corporate America"
Change at Work
Peter Cappelli; Laurie Bassi; Harry Katz; David Knoke; Paul Osterman; Michael Useem.
Oxford University Press, 1997
Librarian’s tip: "The Restructuring of Organizations" begins on p. 44 and Chap. 6 "The Effect of Restructuring on Employees"
Turbulence in the American Workplace
Peter B. Doeringer; Kathleen Christensen; Patricia M. Flynn; Douglas T. Hall; Harry C. Katz; Jeffrey H. Keefe; Christopher J. Ruhm; Andrew M. Sum; Michael Useem.
Oxford University Press, 1991
Librarian’s tip: Chap. 8 "Restructuring Managerial and Professional Work in Large Corporations" and Chap. 9 "Business Restructuring and Strategic Human Resource Development"
When Firms Change Direction
Anne Sigismund Huff; James Oran Huff; Pamela S. Barr.
Oxford University Press, 2000
Resizing the Organization: Managing Layoffs, Divestitures, and Closings : Maximizing Gain While Minimizing Pain
Kenneth P. De Meuse; Mitchell Lee Marks.
Jossey-Bass, 2003
Restructuring by Design: Government's Complicity in Corporate Restructuring
Champlin, Dell P.; Knoedler, Janet T.
Journal of Economic Issues, Vol. 33, No. 1, March 1999
Junk Bonds: How High Yield Securities Restructured Corporate America
Glenn Yago.
Oxford University Press, 1991
Librarian’s tip: Chap. 7 "Leveraged Buyouts, Corporate Restructuring, and Debt in the 1980s"
Transforming the U.S. Financial System: Equity and Efficiency for the 21st Century
Gary A. Dymski; Gerald Epstein; Robert Pollin.
M.E. Sharpe, 1993
Librarian’s tip: Chap. Ten "Do U.S. Financial Markets Allocate Credit Efficiently? The Case of Corporate Restructuring in the 1980s"
Post-Industrial Metaphors: Understanding Corporate Restructuring and the Economic Environment of the 1990s
Champlin, Dell; Olson, Paulette.
Journal of Economic Issues, Vol. 28, No. 2, June 1994
Bringing "Globalization" Down to Earth: Restructuring and Labour in Rural Communities
Leach, Belinda; Winson, Anthony.
The Canadian Review of Sociology and Anthropology, Vol. 32, No. 3, August 1995
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