Candidates for independent board of director positions must first gather basic information about the company, including an overall description of the business; a list of its locations and general operations; and details regarding the ownership and its view of the company, stewardship, and near-and long-term strategic plans for the business.
Armed with this and other information pertinent to the specific board role, a candidate is prepared to assume the responsibilities of an independent board member, which require awareness and the exercise of the duties of care and loyalty and the application of sound business judgement. An independent board member is expected to fully understand the often-limited options available to a company that is experiencing financial stress and distress.
In the case of Things Remembered Inc., an iconic retailer of gifts for all occasions, the company, in consultation with restructuring counsel, retained three independent board members who later became the members of a special committee tasked with overseeing specific initiatives. Special committees are often formed to ensure that there are no conflicts of interest in a sale or restructuring process.
The three individuals who comprised the special committee each had significant business backgrounds, with more than 30 years of experience in operations, restructuring, private equity, and M&A, along with deep retail industry experience. The special committee provided the company with objective oversight that resulted in streamlined decision making and an expedient, thoughtful process, free from conflicts of interest and made in the best interests of the corporation and its stakeholders.
Things Remembered’s past retail success had been driven by significant holiday, seasonal, and life events, such as weddings, professional accomplishments, and other occasions for recognition that usually involve specific personalized giftware purchases. As time went on, however, this brick-and-mortar retailer with an e-commerce presence found itself buffeted by an ever-changing retail environment.
Where and how consumers chose to spend their hard-earned dollars was changing, as was consumer retail behavior in general. Underperforming stores, some in less than desirable locations based on criteria determined by management and financial advisors, were in need of freshening and modernizing and were indicative of the deterioration of four-wall performance in certain regions. It became apparent to management, the board, and ownership that the model could no longer sustain itself as it had previously.
By late 2017 and early 2018, the company was reviewing and considering its strategic options and alternatives for the future. With the assistance of the board, ownership, and restructuring counsel, interviews with several financial advisor candidates were quickly conducted. The group chose an advisor who not only had industry experience but extensive restructuring experience and credibility in the specific retail market and financial community as well. With the assistance of the advisor, whose role later evolved into chief restructuring officer (CRO), and with the support of the newly formed special committee, board members reviewed the options, given the company’s limited liquidity and the compressed time frame.
Through an arduous search and the attempted placement of several credit facilities, resulting in part from the CRO’s and special committee members’ deep connections in the financial community, the company determined that while the offers appeared to provide some level of hope, the financial performance of the company at that time was lackluster. There were lenders, creditors, landlords, and other parties in interest that were interested in assisting the business but could offer only limited support.
The company’s advisors and special committee members subsequently assisted with the retention of an investment banker to further analyze options available to Things Remembered. The bankers were able to determine the level of interest of the market for a company sale, with the ultimate goal of returning Things Remembered to the position of prominence that it once enjoyed.
Exercising their duty of care, the special committee members viewed all options quickly, consciously, and responsibly. Prior to the Chapter 11 filing, the three special committee members were required to grant approvals and otherwise govern in a fast-paced set of scenarios. The committee members interacted with management, the CRO, and counsel to ensure compliance with all issues and decisions associated with what would become the prefiling process. Frequent and concise communication was key in all instances, especially with ownership, which was kept apprised throughout the process.
Paramount to the prebankruptcy process in this case were several factors: convincing lenders to provide support to the company in the near term; reviewing numerous significant iterations and analyses related to profitability by store and other metrics, including the direct or e-commerce segment of the business as presented to the special committee; preserving value; and attending to the needs and concerns of the C-suite to ensure there were few or no defections through the process. Also key to the success of the process was relying on the input of restructuring officers and other company officers regarding the retention of store managers, thereby reducing the risk associated with essential staff departing during a holiday season.
Again demonstrating their commitment to the duty of care, special committee members met frequently to review, analyze, and monitor store performance and activity; operating issues facing the CEO, CRO, and other management members; and activity at the direct and e-commerce levels. As part of the sale process, the special committee approved the retention of experienced liquidators to conduct going-out-of-business (GOB) sale activities for stores identified by the buyer as nonessential to its go-forward plan.
The diligence regarding interactions among the full board; the special committee; management, including the restructuring officers and restructuring counsel; and the liquidators for the GOB portion of the Chapter 11, along with high-touch, professional communications with judges, the creditors’ committee, and other constituents, proved to be crucial to the favorable outcome of the Things Remembered reorganization and sale. Ultimately, the Chapter 11 process concluded favorably with the successful transition of ownership.
The services of competent, experienced independent board members who were committed to the resolution of the Chapter 11 process and ultimate sale on an expedited basis provided a measurable benefit to the employees and various stakeholders of Things Remembered. The entire process on behalf of the company was a team effort, and the special committee that was formed by the board early in the process and comprised of objective, independent board members was an essential component of the governance necessary for a successful outcome.