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Article:

How to Effectively Manage a Company Restructure

01 October 2020

The first thing to know about a company restructure is that, while redundancies can occur during a restructure, it is not a mechanism for eliminating problem employees. Restructures are a key tool in many business recovery strategies, and are designed to minimise employee fallout while maximising business return.

At its core, restructuring is a tool used by business owners to alter their operation to fit a new business plan, new goals, or unexpected circumstances. Whether those circumstances are caused by gaining a significant client, the loss of a foundational market, or a global pandemic, restructuring is a way to assess your business and evolve it into something new.

Initiating, managing, and successfully completing a company restructure can be a herculean task, and a daunting one at that. Employees tend to associate the process with redundancies and lost opportunities, and many employers don’t take the time to understand and implement the process correctly, which can damage but company morale and KPIs.

If you take the time to properly execute a restructuring process, however, you can achieve the best possible results for your business and for your people, as it helps you go in the right direction while maximising return and minimising damage. In the age of COVID-19, it is particularly important for business owners to understand this process. To that end, we at BDO are going to guide you through the restructure process and discuss its purpose, potential profit returns, and essential considerations.


What is the purpose of a restructure? 

Whether your company is a large conglomerate or a small, local enterprise, your goal will be success in your industry. If that industry has changed in some way, or if you find your company is not progressing in the direction you desire, it is up to you to alter your company to suit the new conditions.

That is where a restructure comes in. Again, don’t use it as a tool to remove underperforming employees. It’s about taking a holistic look at your company to see where you can adapt, which roles you can change or shift, and how you can use the various skills of your people to course correct.

The most important thing to remember is: A restructure is all about the duties and responsibilities within your company, never about the individuals.

A company may need to undergo a restructure for a range of reasons, which include but are not limited to the following:

  • The introduction of a new system or technology
  • Branch closures
  • Contracting out/outsourcing
  • Redirection of the business’ goals
  • Rationalisations to increase efficiency (retrenchment)
  • Partial or full sale of the company
  • Company mergers

Let’s look at an example—picture an electrical repair company that’s just taken on a big client. This new client requires more in-depth IT knowledge and less practical electrical work. So, to keep them on board, you need to change your company’s skill concentration. This is the ideal scenario for a restructure. In this case, you would assess:

  • your current setup and your team’s capabilities to understand what you need to diversify and whose backgrounds can be utilised,
  • whether you need to introduce new roles to accommodate this shift, and
  • whether your business can financially handle the necessary changes.


Restructuring in the Age of COVID-19

With a pandemic knocking on everyone’s door, it’s crucial for employers to take an active role in their employee’s wellbeing throughout a restructure by connecting them to sources of career, mental health, and financial support.

The New Zealand Government has many programmes that support employees who have lost their jobs due to COVID-19 downsizing, so the load is not entirely on you as an employer.

In terms of support for your business, it’s crucial to attempt to access financial support from the New Zealand government prior to restructuring because of COVID-19. Legally, this justifies your choice to restructure the business should the financial support be insufficient. Organisationally, this could prevent the occurrence of a restructure in the first instance.


Increasing Profits with a Restructured Business

COVID-19’s impact on the business world is unprecedented, presenting a challenge to all businesses: evolve quickly, or fall behind. Consumer behaviour has significantly shifted, with most consumers across all age groups migrating to online purchasing.

Remote work practices have gained credibility, e-commerce is booming, and local companies are now more supported by their communities than ever before. Rather than failing to adapt your business to these changes, now is your chance to re-evaluate and re-orient your business plan.

Perhaps some brick and mortar stores may now be redundant, and you must restructure towards online skillsets for an e-commerce arm. Maybe work from home practices are more effective for your company, allowing you to access highly skilled employees no matter where they are in the world. Increasing profitability at this economic juncture is a balancing act, but it can be done if you identify the niche your business can move into and act.

BDO’s business advisory services are ideal for such a situation, as we have many years of experience in managing the intricacies of financially based restructures.


The Structure of a Redundancy Process

Properly executing a restructure is essential to the wellbeing of your business and your employees. The following process is constructed to ensure procedural fairness, a legal term denoting the fair and consistent treatment of your employees during the restructuring (and potential redundancy) process.

Employees will often feel destabilised when a restructure is announced, and that lack of security is an emotionally difficult thing to process. The manager’s role in this scenario is to provide as much assurance, communication, and foresight as possible. That’s where this structure comes in.

Step One: Creating a Business Case

Before beginning the restructure, the very first thing that needs to be done is the creation of a business case. From a legal standpoint, this is the document that justifies all decisions you make throughout the restructuring process, including any disestablishments or redundancies. From an organisational perspective, this step is all about conceptualising where your business stands in relation to your business plan.

Don’t be afraid to utilise “blue-sky thinking”; how far can your business go, what direction do you want to take it in, and what can you do to get it there? In the case of recovery from COVID-19’s impact, you might ask what is necessary for your business’ survival.

Here are some surface-level questions to ask yourself in the creation of your business case:

  1. How long ago was your business established, and why did you choose its current structure upon establishment?
  2. Why are you considering changes now? E.g. Sub-par workflow, technological integration, external circumstances.
  3. What has been done to avoid making significant changes to the company’s structure? E.g. marketing tactics, product additions, market expansion
  4. What is your vision for the business’ future?
  5. What must change for that vision to become a reality?
  6. Which roles have been selected for disestablishment?
  7. Are there potential re-deployment options for your employees? Can they upskill or adapt?
  8. Are there any potential redundancies? Who are they, and why?

Step Two: Consulting with Affected Employees

Under the Employment Relations Act 2000, the concept of “good faith” rules all employer-employee relationships. Executing a restructure with good faith entails consulting with any employees in your business whose employment status will be affected by company changes. This includes a changing role, altered responsibilities, or redundancy.

Under New Zealand case law, there are two fundamental stages to the consultation process: the proposal, and the consultation meetings.

A proposal of the company’s changes is issued to each affected employee prior to the announcement of a restructure. The employee is given a period of time (anywhere from a few days to a few weeks) to review the proposed changes, then they are provided a space to give their input or ideas on different ways the company could handle changes to their role. Regardless of whether you take their suggestions on board, it is your duty as an employer to listen to your employee’s suggestions with an open mind. Finally, you meet with your employee to convey your decision to them, and the reasons you have or haven’t taken their ideas on board.

This part of the process ensures your employees feel heard and seen, which is very important when conveying their value to your business!

Step Three: Disestablishment

Disestablishment: When a role’s responsibilities are no longer relevant to the company’s direction, it is disestablished. This occurs when the final structure of the company is decided, and implementation is communicated to those affected.

Disestablishment can take anywhere from two days to three weeks, including meetings with affected individuals and updates to internal documentation. Crucially, the disestablishment of a role is not the same as making the employee holding the role redundant. Employees can be upskilled, transferred, or assigned to a newly relevant role within the new business plan! This is called redeployment.

Step Four: Redeployment

If an employee with a disestablished role can transition to a new role within your company, this is called redeployment. As an employer, it’s your job to work with any disestablished employees to investigate redeployment options within the company, whether that’s transferring them to a new branch or adopting a newly created role for which they have the skills.

It is important that a fair and transparent process is followed, so ensure you’re in constant communication with your employees as to the progression of the redeployment.

Note: An employee can volunteer to miss the redeployment stage and go straight to redundancy. However, this must be requested by the employee.

Step Five: Redundancy

If an employee cannot be redeployed to a position within the company, then that person is made redundant in the final step of your restructure process. During this step, it is crucial to treat your employees with care and consideration. Offer counselling, career consultation and advice, access to financial support (if appropriate), and re-training.

Employees should be informed of their redundancy in accordance with the redundancy clause in their employment agreement (usually via a formal letter and a formal meeting). Ensure you follow this to the letter while providing them with as much notice as possible! This smooths their transition out of the company.

One overarching rule for your restructure is: act with integrity and authenticity. If you demonstrate care and consideration for your employees, act from a place of progression, and keep all your moves legal, your company can come out of a restructure on top of the world.

 

Find out how BDO can help you with your restructure.

At the core of restructures lies statistics, corporate finance reporting, and business assessments. The team at BDO has years of expertise in all three realms and will provide you with expert, tailored advice to manage your restructure effectively.

Reach out to the BDO team for tailored, professional, industry-leading business advice and accounting advisory services.

 

Important: Information in this article should not be a substitute for legal advice. We advise our readers to obtain independent legal advice on restructuring a business.