What Clients Should Know About Navigating Zombie Firms

How to help clients navigate zombie firms, illustrated by young zombie man and woman working in an office setting.

How prepared are you to explain the term “zombie firm” to your clients? Can you describe a zombie firm’s implications on their career growth and success? A zombie firm is a company that is unable to stand on its own feet. It either relies on bailouts or manages to stay afloat by dealing with lenient creditors. It may also refer to a firm that is unable to reduce the principle on what is owes, but can repay the interest on its debts. However, if interest rates rose, it would probably cease functioning as a business.

This term has recently gained attention in both academic and government policy circles. In Canada, the number of zombie firms is steadily increasing. These companies perform poorly over a long timeframe, without actually closing. If you have a client who is employed by a zombie firm, read on to learn how you can help them navigate the situation.

Origin of the Name “Zombie Firm”

The term “zombie firm” was first created to describe declining businesses during the post-bubble economy of Japan in the 1990s, when such firms were sustained by government and bank loans. Examples of zombie firms in the US include Macy’s, General Motors, and American Airlines. Other examples are BSNL, Exxon Mobil, and airline companies, such as Delta and Boeing.

A firm that shows a negative net income for three straight years and higher debt than its equity is a zombie firm. A company that fails to gather enough cash to cover its basic costs, or turn a profit, are indicators that it’s a zombie firm. Surprisingly enough, 5%–7% of Canadian businesses overall fit the description, with 18%–36% of publicly traded firms most likely to be zombified.

How Do Companies Become Zombies?

A business can become a zombie firm for one or more reasons:

  1. Marketplace changes, such as new competition, or a decrease in consumer demand for products/services.
  2. Incompetent management.
  3. High debt, causing even more financial hardship if interest rates rise.
  4. A period of very low interest rates encouraging the accumulation of even more debt.
  5. Borrowing in another currency, making the company vulnerable to a devaluation of that currency.
  6. Outdated technology leading to unfulfilled consumer needs, unsold products, and wasted capital/labour investments.
  7. Deflation, which forces the company to cut prices, making repayment of their debt increasingly difficult.

Impacts of Zombie Firms

Canadian studies affirm that zombie firms thwart national productivity, constrain wages, and limit growth of healthy firms by hoarding labour and consuming resources that could be put to productive use elsewhere. In essence, with the present labour shortages and uncertain economy in Canada as it recovers from the pandemic, zombie companies may be hindering the ability of healthy firms to fully recover.

Along with lowering the productivity of healthier firms, zombie companies have been performing worse, with their “productivity” having declined by approximately 10% in the last 21 years.

Will zombie firms survive? Will their numbers increase? Research suggests that higher interest rates will spell fewer zombie firms, which will enhance overall productivity and growth. Underperforming firms will be forced out of the market and the long-term economic view will improve. Zombie companies will be forced to restructure and/or revitalize their performance — or go out of business.

While we can discuss zombie companies in detached economic terms, it’s important to remember that there many people and careers impacted by an employer’s failure to grow and turn a profit. We probably all know individuals and clients who could benefit from the support of a compassionate career pro as they navigate their way through a zombie firm.

Our Role as Career Professionals

There are zombie firms that are profitable. However, the caveat is that their profits are usually being leveraged to boost other parts of the business that are losing money. This vicious cycle can be challenging to break out of, but is possible with a few helpful strategies.

How can we, as career professionals, empower our clients to navigate zombie firms and perhaps even play a part in reviving their profitability and stability?

  1. Educate clients on the reality of zombie firms and their impacts. Zombified companies are often unstable and end up restructuring. If your client senses that something is amiss, they may need coaching on assessing and navigating their position in the firm.
  2. Support clients in exploring how, if possible, they can make a difference by helping to generate new revenue sources. On the flip side, as career professionals, we need to let our clients know that they are not responsible for keeping the company afloat. Sometimes our clients are loyal to the zombie firm, contrary to their best interests, which may result in long-term career risks and missed opportunities.
  3. Encourage the client to serve as a trusted business partner or advisor to the firm by enhancing their skills.
  4. Offer the client ideas for improving efficiency and saving costs by adopting best practices.
  5. Champion the client to support management in identifying and prioritizing high-value tasks.
  6. Motivate your client to think creatively in helping the company to develop new, innovative, and cost-saving measures (i.e., lean manufacturing) or forward-thinking products and services.
  7. Encourage your client to think outside the box. If they are in leadership or executive roles, they have the authority to implement more effective measures. For example, they might consider moving projects in-house to cut costs, downsizing by restructuring essential functions, exiting low-growth markets, outsourcing production to cheaper locations, or negotiating with suppliers for discounts on materials and equipment.
  8. Remind your client about the importance of maintaining a “living” résumé and protecting the equity in their personal brand.

The best option may be to simply enlighten your clients about the possible future implications and let them decide on a “stay” strategy or an exit strategy. Personally, having once worked in a zombie firm taught me the value of harnessing creativity, being proactive about sound career planning, and monitoring labour market trends and developments.

The Human Reality

Zombie firms often become trapped in a vicious cycle of stagnation, never growing or becoming truly productive. Sometimes zombies are just surviving because the owners/management fail to make changes, yet their livelihoods depend on the company. So, they continue with a skeleton staff, independently take on a lot of work, and struggle for years in accessing appropriate resources to help the business limp along, all while failing to acknowledge that mere survival is their main objective. Instead of belittling zombie firms for surviving, let’s be empathetic in understanding that the hopes and dreams of company founders and employees may be on the line.

The Bottom Line — The Importance of Staying Agile and Resilient

Your client is the “CEO” of their own brand and their career. They cannot afford to be complacent and rely on a zombie employer to take care of their needs and career goals. Coach your client to take the initiative in helping the company, or make a plan to exit sooner rather than later.

Stay agile is important. The world is constantly evolving. Companies and individuals unable to adapt to change and economic/market forces are at risk of becoming extinct. To avoid this predicament, it’s essential to stay ahead of trends and be agile and resilient.

For more information on career and labour market trends, enrol in CPC’s courses.

Lori Jazvac is a passionate, award-winning Master Certified Résumé Strategist and Certified Employment Strategist through Career Professionals of Canada. As a multi-certified Master Résumé Writer and Certified Career Transition Coach, she specializes in helping clients navigate challenging career transitions. In 2013, an empowering vision inspired Lori to launch Creative Horizons Communications, a holistic career services firm where she virtually supports jobseekers around the globe to embrace their next career milestone. In her spare time, Lori enjoys dance, blogging, watching comedies and reality shows, yoga, and taking long walks in nature.

Conny Lee is a Certified Holistic Narrative Career Practitioner, Online Business Manager for coaches, Certified Career (CCS), Employment (CES), and Résumé Strategist (CRS), Trauma of Money Facilitator, and Sacred Money Archetypes® Coach. She focuses on supporting people to create the career, business, and life they truly desire and love. To learn more, visit Conny’s website at connylee.com. When she isn’t working, Conny enjoys reading, listening, learning anything related to personal development, spending time with her family, and working out.

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