compensation and success fees and
their impacts on client outcomes. In
addition, individuals hold varying points
of view about whether professionals
can really separate themselves from the
manner in which they are compensated.
Does full disclosure and advising a
client to consult his legal counsel
effectively cure all potential ills and
prevent ethical transgressions? Based
on my interviews, it appears to me that
the jury is still out on that question.
continued from page 25
Renee Fellman, CTP, winner of the 1997 TMA
Small Company Turnaround of the Year Award, has
been interim CEO for 19 companies nationwide.
She specializes in restoring profitability through
operational improvements and keeping companies
out of Chapter 11. Fellman’s industry experience
includes construction, health care, manufacturing,
medical devices, packaging, printing, professional
services, restaurant, retail, technology, transportation,
and wholesale distribution. She can be reached at
firstname.lastname@example.org or (503) 223-6300.
Last, but definitely not least, developing
a carefully conceived, outcomes-based
code of ethics is just plain difficult. The
issues are complex. For instance, most
people do not consider hourly billings
to be “incentive compensation.” But
as Shapiro pointed out, such billings
create “a perverse incentive” because
the more hours a professional works,
the more money he or she makes.
On top of all of that, given the diversity
of TMA’s membership, it is difficult to
develop a one-size-fits-all code. The
organization has changed significantly
over the past 20 years. Originally,
most members were turnaround
practitioners—people who focused
on restoring profitability to struggling
companies. Today, more than half
are attorneys, lenders, investors,
and other related professionals.
Workout lenders and portfolio managers
can now become CTPs. But their
objectives may differ markedly from
those of people leading turnarounds.
The definition of what constitutes
success for each group of professionals
can vary significantly. A lender’s
success, for example, might well be
a turnaround professional’s failure.
Can one code fit all? Probably not.
Time to Act
All of this illustrates why in my
opinion it is time—past time—to
review TMA’s Code of Ethics to
address areas of disagreement,
omission, and inconsistency.
The existing code provides inadequate
guidance on incentive compensation.
Financial incentives such as
compensation based on a percentage
of a sale and wearing three hats—
turnaround practitioner, lender, and
buyer/equity holder—may affect the
behavior of professionals and client
outcomes. Yet, the code falls short
in providing details about which
forms of incentive compensation
are acceptable and under what
circumstances, and which are not.
These issues have consequences
both for clients and the profession.
What is legal is defined through
legislation and litigation. Standards for
what is ethical, however, are defined
by an industry’s code of ethics.
As a result, the corporate renewal
industry’s reputation depends on the
standards set by TMA’s Code of Ethics,
in addition to work performed and
results achieved by TMA members.
Such standards and performance
impact what stakeholders see and
what referral sources seek and expect.
Kathy Tomlin, immediate past chair
of the National Association of Credit
Managers (NACM), said that credit
managers often do not trust what they
hear from turnaround managers. What
does that say about the industry?
John Fraedrich, the James N. Jannetides
Professor of Business Ethics at Southern
Illinois University, summed up the
challenge: “What is legal,” he said, “is
the floor, not the ceiling.” As the leading
association dedicated to turnaround
management and corporate renewal,
I believe TMA has an opportunity and
an obligation to examine the current
floor and reach for the ceiling through
its Code of Ethics. Given that TMA is
filled with exceptionally bright, strong-minded members, the discussions
will undoubtedly be spirited. J