Corporate Governance and Turnaround: Lessons for International Acquisitions of Distressed Firms : The case of Krenholm, Estonian textile manufacturer

Abstract: Background: In the context of rapid market development and globalization, the role of corporate governance has become crucial in determining firm’s direction, control and performance. No substantial investigation has been made to explain the role of corporate governance in the context of widely used strategy for organizational growth – mergers and acquisitions (M&A). Acquisitions of distressed firms represent a particular area within the field of M&A. Distressed firms are characterized by existence-threatening decline in financial performance, and therefore, require  special attention from corporate governance actors in turning the company around from bankruptcy and resuming its normal operations. Despite the fact that a substantial body of literature has been developed on turnaround theory during the last four decades, researchers have mostly been focusing on the content of turnaround strategies and have been studying the cases of single firms. Aim: The purpose of this master thesis is to provide a better conception of the role of corporate governance mechanisms in managing the turnaround process in the context of a distressed firm after its acquisition by a foreign company, and the necessity for corporate executives in initiating post-acquisition integration between these merged companies.  Completions and results: A model of corporate governance within the context of international acquisitions of distressed firms was designed. According to the model, corporate governance mechanisms should assure close communication, clear leadership and its continuity, vision and proper choice of the corporate governance actors. Moreover, corporate governance should reinforce post-acquisition integration between the distressed company and the acquirer. It is important to find a proper level of integration according to each particular case. The major focus in international acquisitions should be on managerial and socio-cultural integration. Consequently, proper post-acquisition integration can facilitate the turnaround process and gaining synergies from combining two organizations.