Joseph Berardino is a Managing Director at Alvarez & Marsal in New York. He leads the Firm’s US Corporate Transformation practice, as well the East Region of Alvarez & Marsal’s Corporate Performance Improvement practice. He has served on several public company Boards of Directors, and is comfortable in the boardroom working with CEOs and boards to unlock shareholder value amidst complex dynamics.
Previously, Berardino was an audit partner with Arthur Andersen where he spent more than 30 years in various client-serving and leadership roles, including CEO of Andersen Worldwide.
Christopher P. Skroupa: What external forces are driving the need for transformational change in your clients’ operations?
Joseph Berardino: We see three major trends driving change across industries:
- Technology advances are ahead of us not behind us;
- Globalization; and
- Regulatory impacts
Technology is creating disruption that has forced companies to change their business models. Globalization and global trends are impacting where companies are choosing to place their next operation or expand to as countries readdress traditional ways of doing business and welcome outside investment. Regulatory changes are providing arbitrageur opportunities for different regimes as countries adapt to the increasing intersection between government and business. These massive external forces are nowhere near played out.
Skroupa: When faced with the need for substantial operational restructuring what are the key success factors for the management team?
Berardino: The key to success starts with management accepting that change is indicated and often that is extremely difficult. We typically walk the management team through detailed analyses of their business using an “outside in” perspective much like an activist might do. Sustainable change is possible once the management team truly understands the magnitude of change that is needed and how they have gotten to this vulnerable place. All too often the conversation is about who wins and loses rather than what needs to be done to fix or improve the business. Once we have that alignment, leadership needs to be prepared to lead and communicate this imperative to its stakeholders.
Skroupa: You were founded as a restructuring firm. What have you learned from that pedigree that is most important for a company in transition?
Berardino: When we are brought in to be restructuring officers, the organization has failed. When we are brought in to drive a corporate transformation, we are coming in to effectuate change and unlock value. Our restructuring pedigree give us an edge in that we fully understand that speed is a friend and that execution is the difference, not brilliant strategy.
What does that mean? When there is a sense of urgency or the need for change is so evident, we take advantage of those tight timelines to force an organization through its options more quickly and have those difficult discussions. Whatever the context of the engagement, whether a company is in crisis or under activist pressure, we challenge their thinking and put together a plan that is significantly more aggressive than anything they have seen or likely even considered.
If leadership isn’t stepping up or there is a lack of confidence in the Board or management, we drive that conversation.
On the execution side, we are dealing with businesses that are accustomed to developing three-year plans to get a perfect result. We argue that there is no “perfect” and believe that it is better to get it approximately right sooner, rather than perfect later. When a Board is under activist attack, if a CEO has been replaced or a business has missed earnings – we advise management to move quickly and get it approximately right, execute against that and then have the agility to adjust.
Skroupa: In your opinion, what impact have private equity funds and activist hedge funds made in public boardroom conversations?
Berardino: Private equity funds and hedge funds continue to challenge the discussion in the boardroom. They relentlessly focus their attention on performance. Private equity investment discussions were centered around whether a company was better off being fixed in a private versus public setting to do it right without worrying about the next quarter. Increasingly, so called activist hedge funds do not necessarily see the need to own a whole company or take it private. Rather, they emphasize the need to have a voice in the boardroom and, with enough of a voice, find they can drive change faster and with less disruption in terms of governance. They are essentially the outside influence that can question whether the right conversation is occurring and say let’s not just accept good enough.
Skroupa: How have you seen their strategies evolve over the last decade?
Berardino: Strategies are continuing to evolve based on the times, urgency and financial health of individual companies. Given the need for rapid change, funds are trying to get in the conversation in the most effective way by taking less than full control. However, given external forces at play that we discussed, the need for change is sooner and greater than most companies appreciate.
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