1. STEVE TOMS University of Nottingham Business School and IGOR FILATOTCHEV Bradford University School of Management Corporate Governance and Financial Constraints on Strategic Turnarounds

2. Presentation Overview The paper aims to fill a gap in the theoretical literature on turnaround research by addressing –governance, which has been partially neglected especially accountability, and –financial performance, which has been neglected more in a integrated framework, followed by an empirical vignette

3. Model Development Retrenchment (Robbins and Pearce, 1992) is an essential feature of the turnaround process Governance arrangements may enhance or restrict managerial ability to conduct retrenchment strategies crisis and the need for retrenchment alters the basis of asset valuation

4. Strategy: Entry Asset valuation base: replacement cost RC Strategy: Do nothing Asset valuation base: profits from continued use (economic value) EV Strategy: Exit Asset valuation base: realisable value RV Financial performance P Governance and accountability P/RC P/EV P/RV

5. Hard financial constraints on turnaround: An empirical vignette British cotton textile industry in 1919: some key facts The industry crisis The strategic options Triumph of ‘do nothing’ and failure of second stage solutions

6. Conclusions Retrenchment is not an automatic option available to managers. It may be restricted by governance arrangements, which are more likely to operate where: –financial claims are based on inflated values and or there is a serious loss of capital –deployed assets are highly specific –there is [iterative] over-capacity (that may feature firm/industry conflicts) Making stabilisation and recovery impossible without external intervention Investment in fixed cost assets is the source of competitive advantage (RBV) and as this paper shows, extra risk