Does Your Client Have A Cleopatra Syndrome?
by CRP Partner Gene Baldwin
There are many common elements in turnaround situations. Chief among those common elements is management's attitude of denial when things are not going well. Every profession has its technical terms. For this situation, we turnaround professionals call this problem the “Cleopatra Syndrome”. You remember Cleopatra from the stories of ancient Egypt or the movie by the same name starring Elizabeth Taylor. She was the Queen of “De-Nile”.
Let's look at this hypothetical situation. Cleopatra's Beauty Salon is a very profitable 75-store retail beauty supply chain in the Southwest. The Beauty Salon business is very profitable and on a fast track of expansion with five salons under construction. For reasons that seemed good at the time, the Board of Directors and senior management decided to expand into a new concept called Cleopatra's Bronze Salon (a tanning salon). Management promotes a young regional manager from the Beauty Salon division (the President's son-in-law) to be the division's CEO. The new CEO is charged with building 10-20 Bronze Salon facilities each year.
The CFO lines up a bank facility to pay for the Bronze Salon expansion and the new division is launched. FAST FORWARD EIGHTEEN MONTHS. The Bronze Salon division has 20 stores open and three of them have slightly positive cash flow, two stores are operating at breakeven and 15 stores have severely negative cash flow. The real estate locations are just fair and the costs of land, building and equipment are excessively over budget. Management misjudged the margins in the Bronze Salon business. Bronze Salon is much less profitable than projected in the business plan and it will never be as profitable as the Beauty Salon division.
Customers are confused about the new concept because the names are so similar. Sales in the Beauty Salon business have declined slightly for the first time in three years. The bank loan is now in default because of the cash flow losses from the underperforming Bronze Salon stores. Expansion of the Beauty Salon division has been put on hold because the bank credit facility has been frozen. Senior management is spending 80% of its time trying to fix the problems in the Bronze Salon business. Morale in both divisions is suffering. The bank and trade creditors are running out of patience and want a different business plan to fix the problems.
You can easily see there are multiple levels on which there can be denial relating to the Bronze Salon division:
- The Board of Directors could deny they made a mistake in diversifying into the new business.
- The President could deny that his son-in-law was a poor choice to manage the division.
- The CFO could deny that he ever signed off on the profitability projection
- The marketing department could deny they had anything to do with the name of the new division and the related customer confusion which is affecting Beauty Salon sales.
- The real estate department could deny they had the proper input into site selection, building plans and equipment order.
- The operators in the new division could deny that the division will never be profitable.
- Management could deny that something needs to be done quickly to stem the losses in the new division. They could hold fast to the notion that the new division just needs more time to mature while the operations problems are fixed.
The facts that cannot be denied are that the bank loan is in default and expansion of the Beauty Salon division is being choked by management's preoccupation with saving the Bronze Salon division.
It is at this point that turnaround consultants are typically invited into the process. The first step is to stop denial throughout the organization. Once those in top management remove denial from their attitude, a plan to fix the total business can be implemented. For some in leadership positions admitting mistakes can be very difficult. Some will never admit errors and will need to be removed. Others will leave voluntarily rather than face the tough issues that lay ahead. A small group of managers will embrace the process and help make the appropriate changes before it is too late.
The Cleopatra Syndrome is very dangerous. Typically, it infects top management first. If left unchecked it can, and very often does, spread to the entire organization. Many times it takes strong medicine to get rid of these unhelpful attitudes and some people do not survive. With an appropriate plan and cooperation, a turnaround strategy can be applied in time so the company can quickly recover and continue to grow.