Corporate distress may appear to come on quickly and with little warning. In most cases, however, management ignored one or more of these warning signs.

Incompetence reigns and reality is ignored. In one recent case, $30 million in quarterly losses were generated because the wrong products were sold in the wrong markets against entrenched and sophisticated competition. Management's solution was to eliminate first-line supervision, creating anarchy on the shop floor, and cut direct labor, crippling the ability to make product. The operating statements showed that reducing direct labor to zero would have almost no impact on loss reduction, yet management was frozen in a state of indecision, unable to address the central strategic issues and change the flawed business model.

Misjudgment is rewarded and failure is celebrated. Because neither can be seen for what they are, sycophantic worship of those at the top is seen as loyalty, speeding corporate decline.

Reckless spending on technology goes on and on, without clear goals, in an attempt to find that magic elixir that will make up for dismal leadership.

Employees have been reduced to ciphers through overuse of statistics and management by often meaningless numbers, stifling human creativity, ingenuity and the critically important feeling of participation.

Bringing a troubled enterprise back from the brink is not easy and, in many cases, it is attempted too late. When hope does exist, a good starting point for recovery is developing realistic and critical answers to these key questions.

• Does the operation have the necessary management strength and focus to solve problems and move forward successfully?
• If not, what changes in management-including changes at the top-are necessary to allow the operation to move forward successfully?
• Does management understand market conditions and competitive pressures? How is management using this information to better position the company?
• How can the company reduce cost, maintain product quality and generate cash in the short term, while developing and implementing the structural changes necessary to return it to good health in the long term? Answering this question usually requires creativity and some difficult and unpleasant decision making.
• Can products and services be simplified to reduce business complexity and cost, while still maintaining an effective market presence?
• Has business expanded to the point that it can no longer be effectively managed? What actions must be taken in the short and long term to correct this situation?
• To what extent has reckless spending contributed to financial problems and how can it be eliminated?
• Are facilities, equipment and processes delivering products and services, effectively and efficiently?
• Is business planning a normal part of the business process? How effectively have plans been implemented, monitored and updated?
• The most valuable players in the turnaround effort are often the first to jump ship. How can key employees be retained during this time of stress?

If top management can ignore its vested self interests and insecurities, and act effectively with wide employee participation, there is some hope that answering these questions will identify the corrective actions that must be taken to restore a troubled company to good health.

Needless to say, this negative assessment of management does not apply to all management teams. There are management teams that combine the best of leadership, wisdom, and good judgment, and have left arrogance and greed behind. Unfortunately, they are too few. Fortunately, management teams that invest the time and effort to conduct this very difficult self-appraisal can join them and, in so doing, garner big dividends by either bringing a troubled company back to health or heading off severe corporate distress.

What's your opinion? Whether you agree or disagree, Fred Kessler will welcome your com- ments. You can contact him via the Bourton Group's Web site. Just point your browser to www.bourtongroup.com and click on Contact Us.