In recent years, a spate of meltdowns from Enron to Arthur Andersen have made turnaround experts a hot commodity. Today, Corporate America's favorite repairmen are Antonio C. "Tony" Alvarez and Bryan P. Marsal, the duo at the helm of New York-based turnaround firm Alvarez & Marsal. They're renowned for their cost-cutting savvy, ability to hoard cash and soothe angry creditors -- as well as their brashness.
Alvarez recently helped salvage value at Warnaco (WRNC), maker of Calvin Klein jeans and Speedo swimwear, while Marsal guided HealthSouth (HLSH), the embattled hospital chain mired in a $2.7 billion accounting scandal, from under its cloud. On Sept. 22, Tony Alvarez was appointed CEO of Interstate Bakeries (IBCIQ), the Kansas City-based maker of Wonder Bread and Twinkies, which filed for Chapter 11 bankruptcy protection on the same day.
Soon afterward, BusinessWeek Correspondent Brian Grow spoke with Alvarez and Marsal individually about the challenges -- both personal and professional -- of life in the corporate emergency room. Edited excerpts follow, first of the conversation with Alvarez, followed by that with Marsal.
Anthonio C. "Tony" Alvarez II, co-chief executive and managing director, Alvarez & Marsal
Q: You've said that the first week of a turnaround is always the hardest. Why?
Alvarez: The first week is always the most exciting because you're grabbing hold of a process and an organization, and trying to put some order in place. When you're going through a bankruptcy, it's a process that many people haven't been through. So, just holding the hands of the many constituencies -- employees, managers, customers -- and communicating with them is crucial to instill a sense of calm and to establish that there are people who have [been through Chapt. 11] and can explain what it means. It's not a liquidation. It's not the end of the world.
Q: What are the biggest problems at Interstate Bakeries?
A: We have three issues. First, in our bread category, there are shifting consumer habits -- moving away from white bread to whole-grain or whole-wheat bread. With Atkins [a diet that shuns carbohydrates] and the health consciousness among baby boomers and mothers, the consumer had begun to switch. The challenge for us is to capture more share of the other categories of bread.
Second, which is not unique to the bread category, all consumer products in America have had to deal with distribution shifting to mass marketers. Where they were being sold in department stores, specialty stores, groceries, a lot of that product today, whether jeans or underwear or cookies, are now being sold into the Wal-Marts (WMT) and Kmarts (KMRT). What does that mean? You just have to be more efficient. [Mass-market retailers] have more buying power -- and they're buying cheaper.
The third problem is cost structure. Our margins have deteriorated because of the shift to private label and mass markets. And our costs have not responded.
Q: You've compared the turnaround job at Interstate Bakeries to the one at Warnaco. Why?
A: The commonality is that there's a brand. It stands for something. If you look at Calvin Klein jeans, it was the iconic brand for jeans. Speedo is the iconic brand for swimwear. Twinkies is the baked-good product that everyone associates [with that snack category]. Wonderbread is the only brand people associate with white bread. They have dominance of market share --and they have challenges in how to retain that market share.
Q: You and Bryan place a lot of emphasis on family. How do you balance family with your nomadic lifestyle moving from company to company?
A: It's very important in this nomadic business to have a stable home life. You can't be fighting with your girlfriend, fighting with your wife, and you're over there somewhere in Kansas worrying about holding onto your relationship. You'll be an unhappy man.
Most of my free time is absorbed in my family. I spend some time playing golf. But my wife and I play together. My weekends aren't spent socializing.
Q: Describe your partner, Bryan.
A: He's the most direct, honest man. He's got the heart of a pussycat, but nobody knows it. He has the softest touch when people are in trouble. But he's very action-oriented and easily takes the helm and gets results.
Q: How did growing up in the Philippines affect you and affect your perspective when you came to the U.S. [at the age of 20]?
A: [In the Philippines], you have to be life-smart and street-smart. Being technically competent doesn't get you far. You have to be a people person.
Q: Did your mother or stepfather have a big influence on you?
A: If I were to psychoanalyze myself, the fact that my dad died when I was 12, I was the oldest boy, and I had to deal with it made me grow up faster. The fact that I married at 17 and had to figure out how to make money probably, in hindsight, was a good thing. It allowed me to mature faster.
Q: Why do you think you thrive in troubled waters?
A: I enjoy problem-solving in life, whether it's here [at Interstate] or human problems. I like it when you go in, and you're trying to find a roadmap and do it fast. Rome is burning, and everybody is worried. Seeing how you can energize companies is a buzz.
Q: But a lot of it's about cutting jobs. How do you deal with that?
A: Cutting jobs is not the hard part. The hard part is saving jobs. Maybe to save jobs, you have to cut. It's not a big difference, but it's a way of thinking. I don't enjoy cutting jobs. It's not what I brag about when I tell people what I do for a living.
Q: What advice would you give to Corporate America's CEOs?
A: If you look at most big companies in America today, the natural response to problems is either financial engineering or strategic reassessment. They've got consultants up the ying-yang doing these things. I would say that -- and this may be self-serving -- they have to put in people like us or like our competitors that are very used to underperfoming, troubled situations.
Bryan P. Marsal, co-chief executive and managing director, Alvarez & Marsal
Q: How did you deal with the specter of former CEO Richard Scrushy [alleged mastermind of a $2.7 billion accounting scandal] at HealthSouth?
Marsal: We tried to disassociate ourselves as much as possible from Richard Scrushy and the scandal. This was not about him. This was about HealthSouth.
Q: You did practical things, too. You used his office for three of your people. You opened up the executive dining room. Why were those steps important?
A: We had to change the culture and the perception. The culture there was very controlled, very uptight. It was the haves and the have-nots. We wanted everyone to be in this together. We were a band of brothers.
Q: What was the project prior to HealthSouth that prepared you for an environment like that?
A: Over the course of 20 years, we've seen variations of that theme. What you do is you try to absorb the things you like, and you to try to remember those things that you didn't like about your clients. And you try to apply those principals when you come to the next client. HealthSouth was a truly unique situation.
A: We'd never walked into a situation where there was $4.5 billion worth of fraud. We were told that there was $550 million in the bank only to find that $375 million wasn't there. There was a bank account where it was listed, but it just didn't exist. If you have liquidity, you have time. But we had a sort of panic because we didn't have any cash.
Q: How did you get up to speed on what is a fairly complex business at HealthSouth?
A: All I am is a manager. I'm the manager of a ball club. You have an ownership called the board. I admire Joe Torre of the New York Yankees. I wonder if you took away Derek Jeter or Alex Rodriguez how good he would be. We had a good result [at HealthSouth] because we had very supportive ownership, and we had an all-star lineup trying to fix the problem.
Q: What was the first meeting with the HealthSouth board like?
A: Typical of a workout where you have fraud: They were shocked and somewhat panicked. We told them to suspend normal behavior. In a workout -- just as in a national crisis -- you empower someone with emergency powers. That's what we get in workout: Emergency powers. And then we return the company to normal once the crisis has passed.
Sometimes that's misinterpreted -- people say, "You want to be dictator." No. You [give emergency powers] because you don't have time to debate. You have to be quick on your feet.
Q: Was this your most challenging project yet?
A: The most challenging project was Arthur Andersen because there, we were the chief restructuring advisers. It was really sad because there could have been a different answer. But we couldn't do anything about it. We were brought to the party too late.
Q: Twenty-one years on from founding the company, are you still as passionate as you were at the time?
A: I'm an engagement junkie. I love coming in and making a difference. I love to teach and to see young people advance. What we do is sort of like being a corporate doctor.
Q: Describe Tony.
A: Tony is tough, but he's fair. He's the godfather of my children and trustee in my will. I trust my most valuable assets to him. He doesn't commit the cardinal sin of recognizing a problem and not doing anything about it. He and I both have egos -- but we control the egos because we're part of a team. He has been my brother for the last 20-plus years.
Q: What advice would you give to Corporate America's CEOs or boards?
A: When you identify a problem -- and that trend continues, despite all the efforts of management -- you should bring in an outside set of eyes and be secure in that process. In so many of our cases, there's so much value dissipated because an independent, dispassionate third party isn't brought in to get the management to wake up.
Q: But don't companies have legions of consultants to do just that?
A: There are two kinds of consultants -- tactical and strategic. Alvarez & Marsal is more tactical. Our view is from 2 feet, not 20,000 feet. We don't look at how you fit into an industry. We look at what you could do better. We look at cost structure, how you're spending money, how you prioritize scarce resources.
It's a very different business than what Bain & Co. or McKinsey & Co. would offer. Most consultants will give you a nice paper and a nice bill, and they'll leave. We'll give you the paper, and we'll sit down and execute it with you.