Dr. József Magyari

Interview

(October 2, 2009)

Bankruptcy does not necessary mean the end, the irreversible failure – says József Magyari PhD, economist. He believes that a new start, a chance for something new is an equally important aspect of crisis management. Closing something down is easy, the real challenge is to help something to get back on its feet.

In my opinion, a good crisis manager believes in the operation of production factors, regardless of the owner. If something works well, it results in employment, tax revenues, and benefits for its environment.

Still, people think of the crisis manager or liquidator as someone who closes down unsuccessful companies, factories, or, horrible dictum, in some cases even a successful one. It seems that emphasis is always put on broader aspects, but little attention is given to the people affected.

With more than 3000 cases behind me, I strongly disagree. I even received letters of acknowledgement from a trade union, because we guided a company through the liquidation process with the result of partial continuation of its activities. Furthermore, we paid the salaries for more than 6 months, to make sure that these people could support themselves.

Can you tell us where this happened?

Usually I do not like to, since one of the basic principles of this profession is confidentiality, but in this case, long time has already passed; the Szekszárdi Húsipari Rt is an example.

So you say, that liquidation and crisis management can go along with emotions and humanity– that is certainly not the aspect commonly highlighted, or the general opinion of crisis managers either!

Not really. However, it is not true either that everything has to be or can be implemented without any emotions. This topic has serious literature under the term “emotional intelligence”. But going back to the previously mentioned example, this step also had concrete benefits and was rational decision, since our partners valued this later.

How would one become a liquidator? Although you mentioned generosity before, this profession probably requires very strict human qualities.

I suppose as a child noone dreams of becoming a liquidator. Liquidation organizations and their employees work as crisis managers. Actually, the accurate definition is insolvency expert. I believe in and also teach my students that our task is to identify, consider and enforce interests. It is similar to operating a tumor to save the patient’s life; the surgeon will consider the pain caused by the operation as secondary aspect. The goal is to save what you can. If saving the company is not possible, and this also happens, the key task is to minimize the losses associated with the withdrawal of the company from the market. People working in this field need to have knowledge in a wide range of areas; finance, accountancy, organization, legal aspects, even psychology. This is a multidisciplinary profession, and this is the real challenge in it. A crisis manager often bears the sole responsibility for decisions on the company’s future, employees, creditor’s rights, financial settlements; so many aspects have to be considered to reduce the number of people losing at the end of the day. The point is that when a crisis manager finishes his job, and people say “you should have come earlier” that is already a positive feedback. The professional and his work have to be evaluated at the end of the process.

I suppose the losers do not appreciate this.

Well, yes. The question of crisis management is whether the debtors and creditors are willing to undertake previous losses in order to keep the company, or part of it, in operation. Even the law gives preference to certain creditors, and ranks them in order of satisfaction. There are various interests, and the best possible compromise is to be found. In the past twenty years I have been involved in over a hundred privatization consultations and more than three thousand liquidations, and it happened only once that someone expressed dissatisfaction, and debtors have never complained. This is not a bad ratio.

You were accused of trying to influence a judge.

No official charges were filed, but I was informed of the accusation. However, at the end, the prosecutor dropped the charges, so the end was satisfactory.

Going back, we must admit that crisis managers, bank representatives and liquidator’s are rarely welcome.

Appearance of the crisis manager is no fun, on the other hand, this is not a cause but the effect. The first step is the insolvency of the company, this is followed by the official declaration of bankruptcy and the liquidator organization comes only after this. In the best case the company does not get this far. I have been emphasizing prevention for years now. My basic principle is that if partners were together “in good times”, they have to solve the problems together, (or at least try to), instead of focusing on minimizing their loss on each other’s expense in the end game – when the willingness to cooperate is declining and possibly even friendships end. Using banking terminology, I could call this approach “London Rules”, recommended by international financial authorities to the banking sector. The basic priciple is that if a debtor gets into a difficult situation, one cannot blame just one party and make him bear the costs of problem solving. A recent well known example is the situation of people having foreign currency-based loans.

Can you recall your first case?

Of course; during 1994, in Kiskőrös, an agricultural machine factory went bankrupt. Everyone thought it would need to be closed down and liquidated; that it would be pointless and inefficient to carry on operations. But that was not our opinion. In cooperation with the creditors and authorities involved, we managed to reorganize the company. We were able to keep 110 people out of 170, and I think the factory has been operating eversince.

Does crisis management have political aspects, or is it a purely professional decision? I mean, decisions on liquidating or saving something were not based on rational economic aspects in all cases.

Generally they should be, but exceptions occur.Usually when it is associated with high level economic policy or raises employment or social questions. Therefore, politics might influence a liquidation procedure, but in this case, the liquidating organization or other stakeholders have to be provided with the support for the reorganization.

Can you give an example?

We propose a procedure on a professional basis only, but decision makers are entitled to have other considerations. Obviously, I cannot talk about cases where I am bound by business or bank confidentiality and especially not about ongoing cases. But one example already covered by the media is the Transelektro case. They had a production culture that was worth saving, and a three year government guarantee was provided. I don’t want to keep repeating myself, but my principle is that it does not matter who owns a given company, or this is just a secondary issue. The key point is, if something is working, save it, if not, make it work.

You have played an important role and given interviews as an expert concerning many cases that attracted media attention. Does this publicity help or hinder crisis management or the liquidation?

Transparency is of great importance in these cases. We have to pay attention to the interests of parties involved. In all cases, we have to find solutions with the workers, the local communities, the creditors, after this, solutions can be presented to the public. Transparency is a basic rule, especially when it comes to taxpayers’ money. For example, the insolvency of Transelektro, two out of the four companies of the Group could be saved completely, and a third one could carry on its activities within a new framework, with the help of an investor. These are our success stories!

Being a successful crisis manager, have you ever been approached by politicians? Have you ever considered becoming involved in politics?

I think of myself as an economist. I haven’t been approached so far, and I am not considering it either. I will carry on doing what I am good at.

But you have changed, as it seems that liquidation activities are not in the foreground of your activities anymore. Have you had enough?

Yes. One can say, I went over to the creditor’s side. I made this decision in 2000, but I needed 2 to 3 years for the implementation of this idea. I switched to independent problem-solving activity. Staying in a liquidation organization would limit my opportunities. I thought I can utilize my experience in crisis prevention. Now I am much more interested in the question of how one can start a business and achieve the best possible results while minimize the risks of failure.

So, your aim is to give less work for your old colleagues in the liquidation sector?

No, I don’t want that either. As long as there are 1.7 million enterprises in Hungary, winding-up experts and liquidation organizations will have work. During a recession they have work, but also, during economic growth, they deal with companies that could not keep up with competition.

You were born in Csíkszereda, studied in Bucharest, and then you moved to Hungary, where you have had a successful career. Was it an advantage or a disadvantage in your career?

I would say it is an advantage. I had to adapt to new circumstances several times. Even today I have excellent relationships in Romania. I see opportunities for Hungarian investors in Romania and vice versa. Obviously, local knowledge and language skills are advantages. Here, at home (since now I am a taxpayer in Hungary) I acquired a broad prospective. Here I feel at home, but I never forgot where I came from. I always contribute where I can; I teach, or give presentations if they call me. My personal social responsibility is connected to issues in Transylvania and Romania as well. I have to give something back from all the things I received there, primarily professional and moral support.

You climbed the entire career ladder, from the university in Bucharest to the position of chairman in large companies. Was this your plan?

I consider myself a self-made man, and I am very proud of it. I have always been keen to study and excel. Yes, I belong to those very few, who were able to make their childhood dream come true. Originally, I was going to be a pilot, but since I wore glasses, I was left with my other dream; becoming an economist. My other big dream also came true, which is teaching. I have always wanted to do this, and I still do. I give lectures at the Corvinus University in Budapest. I always try to incorporate real-life issues into the teaching materials. That’s what makes sense!