George Cloutier Tackles the Tough Stuff

The New York Times caught up with George Cloutier for a Q&A interview in today's edition. Cloutier is the savior you call in when your business is in trouble. As the head of turnaround firm American Management Services Inc., he has a no holds barred, no sacred cows approach to restructuring for survival. The Times captured his tough talking, tough love manner quite appropriately with how it titled its article: "Fire Your Relatives. Scare Your Employees. And Stop Whining."

Cloutier wrote down his turnaround game plan last year in a book, Profits Aren't Everything, They're the Only Thing [HarperBusiness]. I ran an excerpt from it in the Third Quarter 2009 edition of Directors & Boards — his chapter on facing (and embracing, with no shame) Chapter 11. Brutally realistic, it is sound advice on bankruptcy for all directors of troubled companies.

I first met George in 2004, when he was a panelist at the Weinberg Center for Corporate Governance at the University of Delaware. My close colleague and editorial advisory board member, Charles Elson, puts on superb panel discussions several times a year at the business school. This one was on "Handling the Dissident Director." I did not know George but, considering his background and expertise, should not have been surprised to find him on this panel. He was there drawing on his experience as a director of Circon Corp., a justly famous case of two dissident directors (Prof. Elson being one) who were elected to the medical devices company board and what then ensued with these dissidents in the board mix. Fascinating stuff.

Considering the fire-breathing that Cloutier brought to bear in his book and Times interview, what he had to say that day about bumping up against a dissident director sounds downright restrained. (Actually, knowing what I know about him today, I would have expected him to be one of the dissident directors involved.) You can't get much more calmly professional than this in terms of the dealing with a dissident:

“Depending on the maturity level and the rationality of the dissident directors, I think they can play a very strong role. They remind the rest of us on the board that there is another view of life, which is very important for all of us to have. Secondly, it forces the non-dissidents and the management to sharpen their attitude, sharpen their mental responses and, most importantly, to sharpen their management performance on the job. [So] I’m on the side of 'Let’s bring them on' — as long as it is civilized. Shouting, yelling, and screaming do not serve a purpose. On balance, people who are elected dissident directors are mature, honest individuals with a strong point of view. To keep them out of the process would be a big mistake.”

In contrast to the Times interview, which drew a bevy of heated comments about his no-frills management techniques, who could challenge this statesmanlike position that Cloutier puts forward for handling fellow directors who are dissenters.

As fiery brimstone as Cloutier may come across in his book and press coverage, it sounds to me like he is a pussycat compared to the other Circon dissident director talked about at that panel discussion — former Marine General Victor Krulak. Listen to this Cloutier remembrance of serving on the board with this fellow director: "Known as 'Brute' Krulak, he had served in Vietnam as the Marine commander, and he did not take any prisoners from day one. He opened each Circon board meeting with a resolution to fire the CEO, which created a certain amount of emotional turmoil for the first half-hour."

I would guess so, which makes Cloutier's approach for handling dissidents even more remarkably dispassionate.

Sam Heyman: No Gin Rummy for Him

I always thought Sam Heyman, who died on Nov. 7 at age 70, got a bad rap when he was lumped in with all the other quick-buck takeover artists roaming the land in the 1980s. The New York Times called him a "corporate raider" in its obit but got it closer to the truth when it noted that he "preferred to hold on to the companies that he bought and run them rather than sell them for a quick profit."

Mr. Heyman was not a happy man when I published him in 1986. I opened up the pages of Directors & Boards for him to rail against the slapdash restructuring being done by many CEOs in the mid-'80s. He was suspicious that much of this restructuring was being done "to perpetuate entrenched managements." I titled his article "A Nation of Gin Rummy Managers" — his term for managers who were "discarding their least attractive asset at every turn" without giving the right kind of thought to the future potential of these operations and taking the hard actions to make them profitable.

One of his critiques has resonance to today's retrenchment environment, in the way companies are handling employee layoffs. Heyman worried that the layoffs that came with all the restructurings in the '80s would "deprive these companies of their brightest and ablest executives." He suggested this:

"We must adopt instead a surgical, rather than sledgehammer, approach to employee cutbacks so as to ensure that these programs serve not only to reduce costs but to permit management the latitude to choose for itself between those it wishes to retain and the nonperformers who must be weeded out in any process of this sort. This approach will surely require that managements have intimate knowledge of their organizations and people, that decisions be made strictly on the basis of performance, and that companies assume what inevitably will be some litigation risks. But by addressing the issue in a thoughtful, carefully conceived manner, companies can avoid the otherwise disastrous consequences for the future of their organizations."

Thoughtful is indeed the approach he took with GAF Corp., the company he won in a historic proxy fight in 1983 and proceeded to reinvigorate without resorting to the slash and burn techniques of other notorious restructurers, both those operating inside the corporate walls as well as those banging at the gates on the outside. Up until recently he still held the title of chairman of GAF Corp. — now that's a long-term holding.

His legacy lives on in the governance field with the Samuel and Ronnie Heyman Center on Corporate Governance, which was founded at the Benjamin N. Cardozo School of Law in 1987, shortly after his article appeared in Directors & Boards.

[Portrait illustration accompanied his 1986 article]