How to Flip-Flop Your Way into Chapter 11
From a memo this winter that Reader's Digest Association CEO Mary Berner sent to employees:
As you may have seen, Bloomberg News Service has widely distributed an article reporting that RDA hired Kirkland & Ellis, a law firm that advises in bankruptcy cases and other forms of restructuring ... From this, starting with one unattributed source supposedly "familiar" with the situation, some news articles jumped to conclusions that RDA is filing for bankruptcy.
I want to assure you that this is not true.
Now it is.
RDA announced today it will enter a voluntary pre-packaged bankruptcy plan . Berner was singing a decidedly different tune.
"This agreement in principle with our lenders follows months of intensive strategic review of our balance sheet issues to financially strengthen the company. Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."
Folio had reported on Friday that RDA was on the verge of missing a massive debt payment this week. Now that will indeed happen.
The company told FishbowlNY its cash flow fell $15 million short of its annual debt obligations. Yet another case of a company in deep with its bankers -- $2.2 billion worth -- at a time when the core of its business model melts down. Already, the main Reader's Digest was cut back to 10 issues a year.
It's not a question of enough readers, just not enough of the ones advertisers are willing to pay a premium to reach.
Yes, RDA is about much more than the diminutive magazine that's been a staple of waiting rooms the world over, as Rachael Ray and Rick Warren will tell you. But as the Chapter 11 filing confirms, you need a few more tentpoles to stay solvent.
2 comments:
Mary G. Berner and the company she (at least for now still) runs, The Reader's Digest Association, Inc., like so many other executives and employers in modern America, is a classic example of "Do as I say, not as I do" in action. This is especially so when it comes to RDA's "ordinary" employees, who, with their years of effort, dedication, and sacrifice, have been and continue to be "thrown under the bus" by Berner and other RDA "leaders."
RDA's mostly overworked and underpaid employees, largely thanks to Berner and RDA's "masters of the universe" owners at the private equity firm Ripplewood Holdings LLC, in recent years have found themselves on a frightening "merry-go-round" ride in which hundreds have already been thrown off through layoffs--while Berner and her cronies at RDA seem to escape any real consequences of her own decisions.
Shame on you, Mary G. Berner. Or are you, as increasing numbers of thoughtful people fear, truly incapable of feeling shame--or anything else besides cluelessness, arrogance, and greed?
As Berner told RDA's employees in a memo on January 28, the day before about 8 percent--about 280--of them were laid off earlier this year (*on top of previous layoffs* in such areas as IT, much of which was outsourced to India):
"(W)e need to stay on track to meet our financial commitments to our shareholders and lenders who entrusted their money to backing RDA in expectation that RDA would perform. Any analysis of our current situation must start with the understanding that we have no choice (last two words underlined in original) but to keep our financial commitments, and work from there."
With RDA's filing for Chapter 11 bankruptcy, so much for keeping financial commitments.
Berner's latest antics, as detailed in an August 20 article by Folio's Jason Fell (at http://www.foliomag.com/2009/bankruptcy-reader-s-digest-ceo-cfo-sweeten-severance-packages) and in reader comments that appear with it, are merely the latest in her long series of arrogant, out-of-touch insults against the hardworking employees who built RDA. Her laying off hundreds of them, including many top performers whose efforts built RDA far more than any of her and Ripplewood's actions ever will, her freezing (actually, with furloughs, cutting) employee salaries (with no bonuses for employees this year, of course), her ending company matches to RDA's 401(k) plan, and her cutting back on severance for employees laid off after a specified future date are bad enough.
But Her Bernerness, Queen Mary, has now outdone even herself. As she told her "subjects" in her January 28 memo, "you will see that our cost-reduction moves are intended to contribute relief to the company's finances. Let me be clear: these changes will affect everyone in the company including Executive Committee members, me, and all other employees."
Bad grammar in that last sentence aside (she'd benefit from a good copy editor), her latest, shamelessly self-serving "changes" to her own salary and severance package, after pleading poverty to the very people whose hard work has made her success possible, show the *real* Mary Berner "mentality."
One good way to start restoring some sense of accountability, balance, and fairness would be for RDA employees, publishing employees generally, and white-collar workers everywhere in America to reread their American history and do as their forebears facing employer abuses did--form and bargain collectively for better treatment through no-nonsense, strong labor unions.
Absent such action, one might well wonder how much more abuse employees at companies like RDA will take before some American employees, somewhere, one day start adopting the sort of aggressive--*and successful*--tactics workers have used to resist employer abuse in such places as Argentina or, most famously, France.
(My final paragraph is clarified to read as follows--if possible, can we include it as part of the last posting?)
Absent such action, one might well wonder how much more abuse employees at companies like RDA will take before some American employees, somewhere, one day start adopting the sort of aggressive--*and successful*--tactics workers have used to resist employer abuse in such places as Argentina or, most famously, France. I hope it never comes to that in the United States. (I certainly don't advocate or hope to see the use of any tactics that are illegal.)
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