DYNAMICS OF RESTRUCTURING

In an incisive study on corporate restructuring covering a number of companies over an extended period of time, Gordon Donaldson examined the dynamics of corporate restructuring.

He tried to look at issues like why corporate restructuring occurs periodically, what conditions or

circumstances induce corporate restructuring, and how should corporate governance be reformed to make it more responsive to the needs of restructuring. The key insights of this study are described below:

1. Even though the environmental change, which warrants corporate restructuring, is a gradual process, corporate restructuring is often an episodic and convulsive exercise. Why? Typically, an organisation can tolerate only one vision of the future, articulated by its chief executive, and it takes time to communicate that vision and mobilise collective commitment. Once the strategy and structure that reflect that vision are in place, they acquire a life of their own. A constituency develops, with a vested interest in that strategy and structure, which resists change unless it becomes inevitable. As Gordon Donaldson says: “Hence resistance to change often preserves the status quo well beyond its period of relevance so that when change comes, the pent up forces, like an earthquake, capture in one violent moment, a decade of gradual change.”
2. The conditions or circumstances which seem to enhance the probability of voluntary corporate restructuring, but not necessarily guarantee the same, are:
   (a) Persuasive evidence that the strategy and structure in place have substantially eroded the benefits accruing to one or more principal corporate constituencies.
   (b) A shift in the balance of power in favour of the disadvantaged constituency. 
   (c) Availability of options to improve performance
   (d) Presence of leadership which is capable of and willing to act.
3. Corporate restructuring occurs periodically due to an ongoing tension between the organisational need for stability and continuity on the hand and the economic compulsion to adapt to changes on the other. As Gordon Donaldson says: “The ‘wrongs’ that develop during one period of stable strategy and structure are never permanently ‘righted’ because each new restructuring becomes the platform on which the next era of stability and continuity is constructed.”