Besieged

Inside the last days before administration

My Twitter (sorry, X) and LinkedIn feeds are full of press stories this week driven by events at Wilko - the UK retailer which has been engaged in a painful restructuring effort this year after losing its way (and its credit rating) following a few years of poor trading and some unwise strategic choices.

Most of those articles are on the theme of ‘what went wrong’ and a few are about ‘what will happen next’. I don’t want to talk about either of those things, though.

(Full disclosure, I know some of the people involved in the restructuring, but I have no inside knowledge and no desire to pick over the ‘what went wrong’ bones at such a sensitive time for the teams in the business).

Instead, I want to focus on what it feels like inside a business which is in trouble. I’ve been there and thousands of Wilko colleagues are there right now. You may have been there too, but just in case you haven’t, and that you have the misfortune to end up there in future, let me explain how it feels and offer you the advice I’ve offered many retail executives in this situation over the last few years.

I think it was Hemingway to said that bankruptcy happens two ways - gradually, and then suddenly - and that is certainly true. You might have experienced a few years of disappointing trading, seen your share price drop in response to missed forecasts and generally had a fairly miserable time of it, but for most of that period there has at least been hope. You have a turnaround strategy, you are pulling all the levers that you think you can and (for at least a while) your shareholders and lenders are supportive - they can see that is at least some plausible restructured future for your business and they want you to get there.

But then, suddenly, it all changes. A key lender, in response to a failed covenant test on their debt, suddenly wants to meet you, in their offices, tomorrow. A credit insurer, spooked by bad press, announces they are pulling cover from suppliers to your business. A key supplier, perhaps with US shareholders who are both very conservative about risk and very litigious, decides to withhold their products. In response to any or all of these, the share price drops even further and the journalists start their ‘where did it all go wrong pieces’. Your mum calls you - suddenly worried by the story in her daily paper about your business. Your colleagues also start asking questions - if you run a retail business, you suddenly start getting direct emails from store teams asking what all this coverage means for their store and their jobs.

And the great paradox of this predictable, slow building and yet sudden rush of bad news is that the result of it is that your external stakeholders suddenly demand a huge amount of your time, and that of your leadership team. Banks want to send in their pet management consultants to “help”. Credit insurers and nervous suppliers want weekly and then daily meetings about your cash position. Your Board probably get pretty nervous too, which all too often means the need for 100 more slides in the weekly update pack.

After a while, you’ll realise you are working harder, and longer hours, than you’ve ever done before but almost none of your time is spent actually fixing the problems in the business. The strategy you were following is thrown to one side, trampled by the legions of 25 year old consulting ‘experts’ producing their own packs for your bank. Any part of your strategy which involved divesting profitable assets to pay back debt becomes impossible now everyone knows you are a forced seller.

Eventually, you’ll end up taking legal advice about wrongful trading. As a business gets into difficulty, this is the key test directors need to apply - if you ‘borrow’ (either literally, or by taking supplier credit or customer deposits) when you know you are going under then you are in for a lot of legal pain, including personal liability. The strategy to avoid that is superficially simple - you need to have a Board meeting every morning to review the cash in the business and to conclude whether or not you can continue to trade - but of course the result of that is even more time spent in meetings and even less doing anything that might result in customers buying more from you.

That’s why this post is called Besieged - because that’s what your team will feel like by this point in the process. The senior team in the business are huddled together, constantly in meetings and rushing from stakeholder to stakeholder, whilst colleagues in the rest of the business and in stores look on, worried for each other and for their futures and feeling like they have no idea what’s going on.

Occasionally this story has a positive end - a last minute offer for the business, a clever financial ruse to inject cash into the balance sheet, a big uptick in trade. But often it doesn’t.

A bankruptcy (or more properly an administration) doesn’t necessarily mean the end either - someone may buy parts of the business and keep it going. But it will certainly mean a huge amount of pain - for small suppliers who lose money, for colleagues who lose their jobs, for investors who lose their money, indeed for anyone with an interest in the business who was rooting for it to succeed.

So what would I say to a leadership team who felt themselves heading in this direction and could see the hostile forces lining up outside their fortress? Probably many things, but here are three:

Listen to yourselves

If there is a way through your predicament, it will most likely come from your own teams, your directors or those advisors you’ve been working with for years and trust.

There is a reason the people who work in the debt-recovery departments of banks don’t run businesses - they are not going to suddenly come up with a brilliant plan, and if they do then it may well be a plan that suits them more than it suits your investors or other stakeholders. Don’t be pulled from pillar to post by well-meaning advice from a dozen partially informed stakeholders - gather your best brains and work it out for yourselves.

Communicate more, not less

An inevitable consequence of the siege mentality is that you can realise that there are big stakeholder groups (especially your own colleagues around the country) that you are not communicating with enough.

That is made worse by some of that well-meaning advice - communications experts will often tell you to communicate less with your teams in case the bad news you are telling them becomes a self-fulfilling prophecy or leaks to the press making things worse.

My experience, however, is that the silent treatment is both strategically and morally wrong. Tell your teams what’s going on, which bits of the press speculation are true and which are false and what you are doing about it all. If you do that, you’ll be amazed and humbled by the wave of loyalty, support and goodwill that you and the business get back in return - I know I was.

This too shall pass

For anyone involved in a business in distress, from store teams to central support functions to the board of directors the experience can be a traumatic one. Attending to your own (and each other’s) mental health both during and after the experience is hugely important. If the worst happens, and the business goes under, it will feel painful, humiliating and exhausting in equal measure. Finding the space and time to process all of that is important, even as for many it will also be important to get on with the practical task of getting another job.

This week has not only seen a rush of press speculation about Wilko, it has also seen some truly remarkable evidence of the teams in the business looking after and supporting each other.

Whatever happens with that business, and whatever happens with yours, there is a lesson there for all of us. We are stronger together.

One of the most humbling moments of my life came on the eve of Game’s bankruptcy, when the siege was broken and we were clearly going under, when one of our long-standing store managers took the time out of his evening to email me. Knowing I was as much of a nerd as he was, the email was simply a quote from Theoden, King of Rohan from the Lord of the Rings films:

If this is to be our end, then I would have them make such an end, as to be worthy of remembrance.

I wish all good fortune to the teams at Wilko.