The GM Turnaround

No, I am not making an early call as to the turnaround of GM. I don’t comment as to the prospects for any specific company on this blog.

The turnaround that I am referring to is the encouraging signs out of Washington that, finally, sick companies are going to be treated with the same tough love that every Restructuring professional knows is key to saving the patient, assuming it is savable. The replacement of the GM CEO with one that espouses a restructuring plan that goes “deeper, harder, and faster” is encouraging.

Although I am hardly a fan of heavy governmental involvement in running businesses (Washington has hardly demonstrated it can run its own business well), I am at least encouraged to see what I hope is the end of bailouts to companies that then operate, more or less, with a mindset of business as usual.

Equally importantly, we are finally seeing evidence of dealing with both short term liquidity needs and longer term viability. Meeting the short term liquidity needs of a business is obviously important, but only if there is a sound plan demonstrating longer term viability.

I am increasingly convinced that as problematic as liquidity issues are, equally problematic is the inability of companies and their constituencies to get any comfort with long or even medium term viability. Most of us in the Restructuring profession grew up in the business fixing sick companies during relatively predictable market and economic scenarios.

Today, the Restructuring professional must deal not only with a sick patient, but also with a sick and seemingly unpredictable environment.

That squares, if not cubes, the difficulty of the turnaround.

Planning for uncertainty requires new skills, processes and paradigms. I have previously written about the thought provoking work of Dr. Paul Schoemaker in this area. Schoemaker not only believes company’s must plan for uncertainty, he goes a step further and argues that company’s can profit from uncertainty.

I have become a big believer that winners among the Restructuring advisors will be those firms developing an additional core competency around planning and managing in uncertain times. Hence, my desire to try to better understand Schoemaker’s work and that of his boutique consulting firm, Decision Strategies International ("DSI"). So, I carved out some quality time to meet in Philadelphia with Schoemaker and DSI CEO, Scott Snyder.

Coming next: One thought leader’s perspective on dealing with uncertainty. In my next post, I will share Dr. Schoemaker’s concept of a “Strategic Compass” for uncertain times.

Changing of the Guard

News out of San Francisco this week that the bankrupt estate has only been able to collect $8 of $77 million of Heller Ehrman receivables in the ninety days since their filing is likely to have a major impact on the competitive landscape of Restructuring practices at law firms across the country.

Let me connect the dots as to how see this event is likely to impact the competive landscape in the next ninety to one hundred twenty days.

My surmise is based on the lender blood I have in my veins from having been, early in my career, head of work-outs for a major bank (back before the upgrade to "special assets"...as if the borrower doesn't know where he is at with that nicer label). And, my surmise is reinforced by input I have gotten from the market.

There is a long history in lending of a bad result by a borrower or two in an industry quickly leading to changes in lending practices for the entire industry. With financial markets as skittish as they currently are, I fully expect that long pattern of quick adjustments to continue.

The collection rate on the Heller Ehrman receivables is dismal. (I am not commenting on the job being done by the Estate, I am commenting on the bottom line result.) Now, the rate is not necessarily out of line with what I expect from a law firm meltdown, especially in this type of economy. But, when compared to advance rates, implicit or explicit, that lenders have been using for law firm receivables, the result does not bode well for how lenders are likely to look at receivables risk with lines of credit of law firms, large or small. And, many of those lines of credit are coming up for review in the next sixty days.

So what is the lender to do who finds himself with a large line exposure, backed primarily…in essence…by receivables? The lender has to be careful less they trigger a meltdown, ala what is playing out in Philadelphia at Wolf Block. But, on the other hand, the lender can’t just ignore the problem in view of the current regulatory environment.

You can expect lenders to increasingly demand that partners back up the lines where the law firm is (relatively) heavily leveraged. Lenders have already begun asking for guaranties or sureties in cases where the firm is leveraged or a poor earner.

But, here is the real rub. The variance in the financial health of partners is immense. Some law firms might be surprised as to how many of their partners are insolvent on a balance sheet basis, especially in some of the states most deeply impacted by the downturn. While other partners have managed their personal affairs more conservatively and still have significant net worth’s.

So what happens when the lenders request updated financial statements of all those being asked to guarantee? How soon before lenders are routinely demanding joint and several sureties?

Woe be to the 45 year old Restructuring star who is at a financially leveraged firm and has managed his, or her, financial affairs conservatively.

No one wants to desert one’s partners in tough times…but no one but a fool wants to become the party to whom the lender is looking for a disproportionate share of the lender's risk mitigation.

I have already seen movement of Restructuring aces where these scenarios have been at work. You can expect to see much more movement. Like in the corporate world, those firms with pristine credit will have incredible opportunities (to attract top talent). Those firms with weak credit will quickly see their superstars bolting for the doors, before being asked to sign guaranties. And, they will bolt before the guaranties are requested, because -- once asked for -- the meltdown will be on. And, any Restructuring lawyer worth his salt knows full well that insiders are frequently at the mercy of aggressive trustees.

As this scenario plays out in the coming months, you can expect to see the changing of the guard.

New Restructuring market leaders will be emerging!

One year from now, you can expect to see Chambers listings of top Restructuring legal practices looking much different.

And, let us not forget that this phenomenon is not likely to be limited to law firms. All manner of professional service firms playing in the Restructuring arena will be impacted.

Change presents such great opportunities for the focused, the agile, and the speedy!

Want to understand more about the changing face of law firms, read the recently completed five part series, Law Firm Alert, which begins here. Do you have a friend that is at risk due to this scenario, share this post with him or her. They will be eternally grateful.

Wolf Block Closing

Monday's official announcement that venerable Philadelphia firm Wolf Block is closing is a sad exclamation point to my five part series on the importance of a robust Restructuring practices to full service firms.

My business career was launched in Philadelphia and I have long respected the firm and many of the fine lawyers of the firm. Like with the closing of San Francisco's Heller Ehrman, this closing is a clear warning shot that in this economy firms of all size are vulnerable, as discussed in the lead article in the just concluded five part series: Law Firm Alert.

I will leave to others to analyze all of the reasons for the demise of Wolf Block. As Gina Passerella of the Philadelphia Legal Intelligencer wrote, There Are No Easy Answers. But, it is worthy of note that Wolf Block was not listed as having a top rated Restructuring practice in Chambers. In other words, they did not have the strong engine that could help carry them through tough times.

Chambers has long recognized noted Wolf Block bankruptcy attorney Michael Temin as a Senior Statesman. However, their practice group is not rated. Now, Chambers' ratings are not perfect. But, I find them to be a relatively accurate barometer of market perception.

One fine bankruptcy attorney does not necessarily make a great Restructuring practice...a fact that many firms will, regretfully, soon see.

Have you taken my ten point test for law firms as to the likely success of your firm's Restructuring practice. The test will take you less than ten minutes to complete and will give you valuable insights into whether your practice will likely be one of the winner. The test starts here.

Winners in the Battle for Restructuring Legal Work - Part II

In the previous post, I identified five characteristics that I am seeing impacting which law firms are jumping out to an early lead in the battle to lead the way among bankruptcy and reorganization practice groups. Below is the second group of five.

Again, you can use the ten characteristics to score yourself, as well as a competitor(s), by using a ten point scale for each area. Of course, for the scoring to be of any value, you need to be honest about your own practice and objective about that of your competitor(s).

6. Aggressiveness of Pursuit of Niche Markets

The national legal market for bankruptcy, reorganization and restructuring services is very, very large. As such, it is comprised…like any large market…of many sub-markets, or niches. The winners will be those firms that proactively target worthwhile niches and aggressively pursue becoming the market leader in those niches. Changed market conditions are presenting all kinds of relatively new niches (e.g., Municipal Restructurings, purchased of toxic assets through innovative private/public “partners, “etc.) and those that penetrate new markets first (and serve them well) will be able to sell subsequent assignments based on their on-point experience in an industry, or with a certain kind of restructuring. Those who wait for the business to come to them are going to be disappointing their fellow partners and their managing partner. Disappoint big time!

7. Skilled at New Business Pursuit

Because of the speed and suddenness with which cases will close-up, the winners will have the discipline to be continually market focused (#5 from the previous post). And, they will hone their business development skills. The business is out there, but the competition will be as ferocious as ever seen. The survival of firms will (sometimes) be at issue. The winners will be using all the latest tools and techniques, the losers will be doing dinosaur dances to get new matters.

8. The New "Power Differentiator"

In a recent post geared to all types of Restructuring professionals, I wrote about how I see an emerging trend that client and matter selectivity will be a power differentiator. Investment bankers, consultants and lawyers, all need to be skilled at selecting the cases they will accept. All business is not good business. The key is to backstop aggressive marketing with very smart intake controls (including careful conflict analysis [desperate people will fight desperately]).

9. Provider of Great Service and Great Value

Winning new business is great. But, for that winning to really pay-off, the service after the sale must dazzle clients, and the other parties involved in the case (each of whom is a potential future business generator). I am amazed that in this economy there are restructuring attorneys who are frustrating their clients with their lack of responsiveness (seemingly not understanding that client communication expectations have changed since the last downturn due to technology changes).

And, great service is only half of the challenge. The winners will also dazzle with respect to value. They will understand how the client perceives value and will then be proactive in exceeding client expectations. The losers will milk the cases that they have out of fear they will not get additional cases, thereby creating a self-fulfilling situation. Show me a restructuring lawyer worried about his chargeable hours, and I will show you someone who will not be adequately focused on the cost/value being experienced by the client.

10. Focused, Agile, and Fast

In every industry, markets are changing rapidly. Any business using an old playbook is in deep trouble. These are unique times.

The winners in the legal restructuring market will, like in every market, be firms that are focused, agile, and fast. Focus is needed because the buying patterns and even the buyers are changing so quickly. Without focus, a practice group will miss emerging patterns of where the business is and how to best get the business. Agility is needed because of the speed at which matters will come to an end, submarkets will change, competition will change, etc. The winners will be those that are fast and that can adjust quickly. The losers will be those dinosaurs talking about cases they did ten and twenty years ago, or the way things were done in the last downturn.

* * * * *

Some of the ten characteristics have long defined the winners in the legal restructuring market. Some are new. Few firms will score well on each and every characteristic, but those that score well in most of the characteristics will enjoy the fruits of a strong market.

So how does your practice group score? And, how do you compare to your prime competitors? More importantly, what are you and your colleagues prepared to do to elevate your game?

For all but the few remaining bankruptcy boutiques, the quality of the performance of a law firm’s restructuring practice will have a very significant impact on the performance of the firm for the next three to five years. Full service law firms without strong restructuring practices are in for some tough, tough sledding. On the other hand, a great restructuring practice will enable a firm to rebuild their other practice groups for the very different economy that will emerge with the next upturn.

Lions and dinosaurs. Firm winners, and firm losers.

The choices are yours! Choose wisely!!

This concludes this five part series that started here. If you have a friend(s) practicing at a Restructuring legal group, you may want to share this series, which will either be comforting or a helpful wake-up call. I believe strongly that this country badly needs the entire Restructuring profession shining. Washington just does not have all the answers! Some might even question whether they have any of the answers.

Winners in the Battle for Restructuring Legal Work

No one has a crystal ball when it comes to this downturn. Every day, more and more of the "experts" are admitting that they have never seen anything like this before. I know that I haven't previously seen anything like this. Nevertheless, I do see emerging signs as to the likely characteristics of the winners in the battle for market leadership in the restructuring legal market.

Below are ten characteristics that I believe will be present in the winners. You can use these ten to score yourself, as well as a competitor(s), by using a ten point scale for each characteristic. Of course, for the scoring to be of any value, you need to be honest about your own practice and objective about that of your competitor(s).

Here are the first five, with the second group of five to be in the next and final post in this five part series:

1. Quality and Depth of Your Practice Group

A practice with a single star is never going to be a restructuring market leader in a major market. And yet, the practices at so many firms have just a single star. Truth be told, many stars just aren’t comfortable being surrounded by other stars (ouch!).

So just how good is your #2? Your #3? Of course, an easy answer to this question is to see how an objective evaluator like Chambers views your practice. It is easy to argue with individual ratings of Chambers, but overall I find that they do a very credible of rating leading bankruptcy lawyers. Score yourself well if you have a high percentage of your team highly ranked in Chambers.

2. Ability of Your Group to Operate as an Effective Team

Just as in sports, having a team of stars is only of value if the stars work well together. And, here is the Achilles heel for many talented restructuring legal teams. Many firms have stars that just don’t plain like and respect one another. They delude themselves into thinking that the dislike is not apparent to the market. Seldom is that the case! And, some firms sub-optimize their performance by putting up with one or more techno-bullies described so well by Seth Godin in his blog yesterday. The market, and these times, are just too damn difficult to prosper with a team that really doesn’t like working and winning together.

3. Extent of Leveraging of Other Firm Resources

Is your practice an island in your firm? Or, is your practice that gains leverage from the marketing efforts of others in the firm outside your practice group. And, do you return the favor by leveraging service through talent beyond your practice group. I am a big believer that life is a two way street. If you want to get, you first have to give. Is your practice a “giver” to other practice groups in the firm? Does your group regularly draw on other technical resources in the firm, or does your group more often do tasks that could be better done by lawyers outside your group in order to maximize chargeability of your group?

4. Extent of Leveraging of External Restructuring Resources

Winners leverage not only internally, but also externally. The winners have two way street relationships with the leading restructuring advisory firms, whether consulting or investment banking. These firms have an abundance of choices as to whom they refer into a situation and, not surprisingly, they direct their referrals to quality firms that have done well by them. Is your practice on the top of the referral list of the leading national and regional advisory firms? And, how active are you at referring these firms into cases, or helping them in other ways?

5. Continually Market Focused

One of the many changes in this market, in this downturn, is the speed with which cases end. For a variety of reasons, many cases go from very active to shutdown, in a heartbeat. The result is that the peaks and valleys of the rollercoaster of business are more severe. The winners will be those firms with the discipline to market continuously…even when they are full bore busy. Let’s be honest with ourselves, we all find the time to do the things we like to do. For example, even when we are very busy on client matters, we find the time to eat. Because many practioners don’t like marketing, they use client service as an excuse for not doing that which is critical. Winners have the discipline to do what is important. Losers have excuses.

So, how is your score at the midway point of this ten point list? (Give yourself a score from one to ten [ten high] for each of these points.) And, have you taken the time to score your leading competitor?

Coming next: This five part series concludes with a look at the remaining five characteristics of the winners in the battle for market leadership in the restructuring legal market. The series started here.

The Challenge for Law Firms with Restructuring Practices

Over the last three decades and a handful of economic downturns, law firms of all sizes have come to the realization that a good bankruptcy/restructuring practice provides countercyclical earnings protection. As a result, the legal market for bankruptcy/restructuring market has become very fragmented with many law firms having relatively small practice groups, at least relative to the size of their firms. For most medium and large size firms, the practice groups have evolved to be a size that they could offset a slowdown in traditional downturns.

The meltdown we are experiencing today in this country, and in fact around the world, is obviously not a traditional downturn. It will be deeper and it will last longer (as I predicted some five months ago in a series on my Prospering in Tough Times blog, Why the Recession will Be Deeper and Longer than Expected).

Law firm managing partners with restructuring practices are likely to soon be very disappointed with the ability of their restructuring practices to offset the downturns in other practice areas. Through no fault of their restructuring practices, the downturn in demand in other practice areas is so great that it is unrealistic for restructuring practices to be a complete offset. BUT, something for which restructuring practices are likely to be taken to task is their inability to grow the market share of their practices amidst the greatest market opportunity in many decades.

The challenge for leaders of restructuring practices is that the market, albeit larger, is very, very different than in past downturns. (This is the case beyond just law firms.) The nature of assignments has changed. Buying patterns have changed. And, practice economics have changed.

Woe be to the restructuring practice leader that has merely dusted off his or her playbook from the last downturn.

And, even more woe to the law firm managing partner lulled to sleep (really to “inaction” as I don’t know many law firm managing partners sleeping well these days) by the thought that he, or she, has a restructuring practice that will be effective at capturing a fair share of this very different market.

Like in other segments of the restructuring profession, the law firm market is quickly becoming a two tier market. A handful of firms understand the new market dynamics and are building their practices to capture high market share in the changed market. The rest are growing modestly, but are largely just waiting for the boom times to come. They wait with their old playbook on their desk. In some cases they wait with a higher ratio of dinosaurs than of lions eager to get after capturing the new market segments. And, in almost all cases they spend a fair amount of time putting on their game face so they can...with a straight face... tell others that “we are busy.”

For practice area leaders at firms which fully understand the new dynamics of the restructuring market place, these truly are the best of times.

For practice area leaders who don’t understand the new dynamics, they will quickly come to understand that merely being personally busy will not earn them the respect or the big bucks from their partners. In fact, given that ours is a society that likes to put fingers at others, I expect that many restructuring practice area leaders will soon be the target of scorn (or worse) from their colleagues who will not understand why their restructuring practice is not growing dramatically and generating spillover work for other practice areas.

Fear not, soon a headhunter will be calling as the musical chairs of practice area leaders accelerates fueled by managing partners looking for an easy solution to the problems with their restructuring practice and by headhunters benefiting from churn. In fact, I fully expect that we will see an individual or two who does a three-peat, i.e., practices at three different firms within this downturn in an effort to stay one step ahead of the word getting around that they play the game with an out-of-date playbook.

These are such interesting times! Change provides such great opportunities for those that understand it, embrace it, and act on it.

Coming next: This five part series concludes with a look at the likely characteristics of the winners in the battle for market leadership in the restructuring legal market. The series started here.

The Challenge for Law Firms without Restructuring Practices

The challenges facing law firms across the country, of every size and shape, are well documented. We have seen a couple of the giants close their doors. Fine firms are laying off attorneys in numbers unlike anything seen in many decades, if ever. And, many firms are beginning to feel significant financial stress.

The reasons for these difficulties are well known. Law firms are being impacted by the same ripple effect of the recession, which is impacting all kinds of other businesses. Clients are being lost to businesses closing. Collection problems and the resulting bad debt expense are increasing. And, clients are pushing back on pricing, and are delaying work wherever possible.

Then there are the industry specific problems. Transactional work of all types has plummeted as the overall lack of liquidity makes transactions difficult, if not impossible, to finance. Disputes are being settled more quickly by parties that can't afford protracted litigation. And foreign investment and the resulting cross border transactional work has slowed dramatically.

When dispute resolution and traditional transactional work slow dramatically,

most business oriented law firms are going to feel pain. And, most have begun to feel real pain!

I am pleased to see that most are also reacting quickly by making the cuts in staffing levels and expenses that other businesses are making.

The problem is that seldom is just cutting the solution for any business. Cost cutting is an important tool for skilled managers, but ultimately success comes from growing one's business. And, that is what has almost every managing partner without a restructuring practice looking at getting into that practice area by recruiting a restructuring pro.

The challenge for managing partners is that the restructuring market for law firms has changed dramatically from the last downturn. The nature of the business and the sources of the business have changed from historical patterns. And, perhaps most importantly, the leverage for other practice areas has changed.

Compounding the challenge for the managing partner of a law firm without a restructuring practice is the fact that there are many fine bankruptcy attorneys; the number of restructuring practice builders is a small subset of that number. And, supply and demand has driven up the cost dramatically of attracting a restructuring pro, many of whom would only come to a firm without a practice if they can bring a couple of supporting attorneys. In a major city, the cost of entering the restructuring market can easily require a seven figure investment. And in NYC, Chicago or Los Angeles, one can easily be looking at a multiple seven figure investment!

Here is the real rub. That kind of investment may well buy a dinosaur or two. There are fine bankruptcy lawyers who are having difficulty keeping themselves busy…truth be known…in these changed markets. Woe be to the managing partner who chooses wrong. And, woe be to the bankruptcy attorney who accepts the gold but doesn’t have a solid understanding of the new dynamics of the business. Or if he (or she) does have the requisite understanding, he lands at a firm where the slide to dissolution is so far along that no restructuring practice could develop and prosper in such a firm. “Saviors” that don’t save can well see their reputations trashed in this day and age where law firm failures are so often accompanied by a ton of very public negative publicity.

Never before has there been a greater need for skilled due diligence, on both sides. The challenge is succesfully doing such diligence when the subject matters lies beyond one's expertise.

Coming next: This five part series continues with a look at the second scenario, law firms that currently have a restructuring practice. The series started here.

Law Firm Alert

With each passing day, it becomes ever more apparent that law firms without the right practice area balance are headed for tough, tough times, if not outright failure in some cases.

Most law firms have spent many years fine tuning the composition of their practice areas, as well as of their geographic locations. Unfortunately for most firms, the assumptions under which such fine tuning occurred are now trash. Many formerly attractive practice areas are now of little value. Similarly, many formerly attractive geographic locations are now of little value. And, if the practice area and location mix were not enough of a problem, many firms have capital structures that reflect the overleveraged scenario that so many companies and individuals are now working through.

You know the world has changed when you see some law firms admitting partners primarily so that they can build their capital base. Yes you read correctly; I am seeing firms giving lawyers they de-equitized in good times the “wonderful” opportunity to now become an equity partner…if they will just write a sizable check or sign a large promissory note. My how the world has changed!

Although much of my work for law firms has long been on strategic portfolio balance issues, this blog is focused on restructuring. So, I want to address the issue of the importance of a law firm's restructuring practice to its financial health. And, I want to do so at a level of detail such that this will be a four part series.

Now, even the most casual observer of law firm management knows that having a restructuring practice is beneficial at a time when the economy is down. It is even more important to have one in the free fall we are currently experiencing in this country. But, a more careful analysis would highlight that many law firms with seemingly good restructuring practices are still experiencing problems. How and why this is the case is among the issues to be addressed in this four part series.

The potential importance of having a primo restructuring practice has not gone unnoticed by the attorney recruiters who are matchmaking like busy bees. Even mediocre restructuring practice builders are being inundated with calls. (Note, I did not say mediocre restructuring attorneys but instead mediocre practice builders.) Tragically, many law firm managing partners are ill equipped to know who are today's restructuring lions as opposed to restructuring dinosaurs that have seen their best days.

One wrong "bet the ranch bet" on a new restructuring practice area leader could easily become the final nail in the coffin for a law firm.

And, for the restructuring attorney that accepts the golden offer from a desperate firm, they could easily find their reputation dragged through the mud of an ugly law firm dissolution (and they are getting uglier almost by the day). In the finger pointing that goes on in today’s dissolutions, not even the best attorney is immune from getting shot at in the cross fire of dissolution.

So much is at stake, both for law firms and for restructuring attorneys. The waters are shark infested. None of us have a crystal ball. Few of us even have a map reflecting the current environment. So much has changed, and is changing. It truly is a whole new world!

Coming next: We begin our look at three different law firm scenarios with a look at law firms that don’t currently have a restructuring practice.

Brain Surgeons, Coroners & Undertakers

As I continue to get data points from the field as to what is really happening in the Restructuring market, I am developing a picture of a three tier market - in each and every one of the types of "restructuring" professionals (i.e., among lawyers, consultants and financial advisors).

Based on what I see in the field, there are a lot of professionals that...truth be told...are working on liquidations. To me, doing this work is kind of like doing the work of an undertaker. Work that is important to our society, but hardly is a part of shaping the better future we all so need.

There are also a lot of professionals working on forensic analysis. Where did all those billions go...and not just from the Madoff style out-and-out fraudsters? This work kind of reminds me of the work of coroners. Work that is important because by learning how and why the patient died, society hopefully learns the mistakes to avoid in the future. These lessons can have value. And, so too can recoveries from the wrongdoers (although I believe these will generally be for a net recovery of pennies on the dollar in our current downturn). Society certainly benefits more than just shoveling dirt over the body.

And, then there are a relatively smaller group of professionals who are making serious efforts to transform companies and industries. Kind of reminds me of the work of brain surgeons. Tough, tough stuff! One wrong move and the patient can die. (Coroners and undertakers are not known to kill patients). One or two right moves and the patient not only lives, but hopefully becomes a productive part of our future. The benefit to society is significant.

Just between you and me,

what is your practice really about? Is your current role the best use of your talent? Is your current firm the best platform from which to practice your craft?

Oh...for those readers who like to be well paid for the vocational effort they expend, any idea who makes the best money of these three vocations; the brain surgeon, the coroner, or the undertaker?

In thinking through that question relative to the Restructuring profession, don't forget that the true transformational advisor...whether legal, operational, or financial...is creating a potential long term client.

The law of supply & demand, and the fundamentals of value creation have brain surgeons and transformational restructuring professionals pulling down the big bucks, having the most rewarding careers, etc.

These times are so interesting!

PS One of the most dangerous career moves, in any line of work, is to put yourself in a vocation at which you are not really good. Much better to be a top coroner than an incompetent brain surgeon! And, a top coroner...or even a top undertaker...who knows how to leverage himself (or herself) with "juniors" can certainly make some very nice money.

Restructuring Municipalities

As the ripple effect of the meltdown spreads, state and local governmental entities are hardly immune from the financial squeeze. At the state level, California's financial problems have gotten the most press. But, every state is being impacted heavily, just at different speeds. And, local entities are the next ripple.

Counties, cities, towns and all kinds of special governmental entities are caught in a vicious squeeze. The one-two punch of reduced valuations on residential property and now on commercial properties is decimating the tax base. Unpaid taxes are increasing as properties are abandoned. Federal and state support is getting cut back (notwithstanding the impact of the Stimulus program for some entities). And, user fees are declining as both companies and individuals are more judicious about their spending, even for necessities such as water.

At the same time, demand for free services/assistance is increasing what with a population severely impacted by job losses, home equity losses, and investment losses.

Governmental entities of all kind have, like much of America, had a mind set of ever increasing revenue funding ever increasing spending. Those days are over! And, in my opinion, not just over in the near term.

Just like corporate America needs effective restructuring assistance, so too does the municipal world.

But just like the corporate world, many municipal entities will regrettably seek help too late to effectively utilize the full panoply of restructuring alternatives. Regrettably there will be more bankruptcy filings, ala that of Vallejo, a Northern California city that filled bankruptcy in May of last year.

When municipal entities do start reaching out for help...and they will, who will be the market leaders in serving this unique subset of the restructuring market? Which law firms will lead the way? The traditional leaders in restructuring, or the leaders in municipal finance, or innovative combinations of these two highly specialized areas?

Likewise with consulting/advisory firms. Who will lead the way?

The market is wide open. This area is such a great opportunity for firms to establish preemptive market leadership. Who will do so? Too early to identify the firms, per se, but the leaders will undoubtedly be firms that:

1. Understand and fully appreciate the legal and operational differences between a corporate restructuring and that of a municipal entity,

2. Are skilled at negotiating between constituencies with very different interests (without using the hammer of "well we will just put you out of business."),

3. Are comfortable with the transparency that comes with a restructuring in the municipal world,

4. Are able to create appropriate urgency in an environment that generally moves at a much slower pace than the corporate world,

5. Are adept at operating in a political environment, and

6. Are skilled in navigating the sometimes tricky waters of governmental procurement.

As with my recent post about nonprofit restructuring needs, let there be no joy in Mudville at yet another support structure of our society being devastated by this economic meltdown. The cutbacks in government services that will be part of successful restructurings will impact all of us. As such, let us all hope that some of the best minds in the Restructuring profession are attracted to this market opportunity.

Let Us Not Forget the Non Profits that so Need Restructuring

As Restructuring professionals, we can never forget that the long term health of a Restructuring business is dependent on a good economy. Oh sure, there are deluxe profits to be made in dealing with the meltdown that is currently occurring. But, if one cares at all about humanity, one cannot have any joy about the prospects of another 3-5 years of the kind of misery that is evolving. It is not joyous to see people losing their homes, retirement accounts being decimated, etc., etc.

The pain in the streets of America is severe and getting worse.

Part of the pain that I see playing out is the terrible squeeze on our non-profit sector which plays such an important role in supporting the needs of our society that are not adequately addressed by governmental programs.

Non-profits have had their endowments crushed by the stock market declines. Private sector giving, at both the corporate and personal level, is declining. Governmental support is being quickly reduced. And, all this at a time that demand for assistance is climbing rapidly.

As an industry poised to benefit from the downturn will the Restructuring profession lead the way in supporting our non-profits? Or will the profession, by and large, be focused on maximizing personal wealth and then hoarding that wealth?

All of us need to consider how we can help these organizations. Beyond money, more than ever they will need volunteer labor. And, these organizations will also need talent that can help them restructure, and do so quickly.

This is just another area where the Restructuring profession can be instrumental in making a difference. But, will they?