Legal Definitions - clean house

To clean house refers to the act of making significant changes by removing existing elements, typically in a decisive manner, to make way for new ones. This term is commonly used in two main contexts: organizational restructuring and financial portfolio management.

• Organizational Restructuring: When a new leader takes charge of an organization, they might decide to clean house by replacing a substantial number of existing employees, particularly in management roles, with new personnel. This is often done to introduce fresh perspectives, improve performance, or address systemic issues.

  Example: After a major airline reported several quarters of significant financial losses and customer service complaints, its board of directors appointed a new CEO. The new CEO promptly announced a plan to clean house, replacing the entire executive leadership team and several regional managers with individuals known for their turnaround expertise and customer-centric approaches.

  Explanation: This example illustrates the organizational meaning of "clean house" because the new CEO is discharging a considerable number of existing management employees to bring in new talent and implement a new strategy to revitalize the struggling airline.

• Financial Portfolio Management: In the context of investments, an investor might decide to clean house by selling off a significant portion of their securities (such as stocks, bonds, or mutual funds) that no longer align with their investment goals, risk tolerance, or performance expectations. This action is taken to rebalance the portfolio or free up capital for new, more suitable investments.

  Example: An individual investor, nearing retirement, reviewed their aggressive growth stock portfolio. Realizing that many of their tech stocks had become highly volatile and no longer met their need for stable, income-generating assets, they decided to clean house by selling off those high-risk holdings and reinvesting the proceeds into more conservative dividend stocks and bonds.

  Explanation: This scenario demonstrates "clean house" in a financial context, as the investor is selling securities that no longer meet their revised investment requirements (stability and income), making way for a portfolio better suited to their current financial goals.