Distressed Company Management: The Crucible of Leadership
BY THOMAS M. KIM, CTP, MANAGING DIRECTOR, R² ADVISORS LLC
”Okay,” said the Wiz. “If you’ve got assets with a market value of $2.2 billion and debts of $1.3 billion, then your
net worth is $900 million, and you’re rich, right? That’s where we were in late 1989, 1990 and early 1991 even.
Okay? But if you wake up one day and the market value of your assets has declined to $1.1 billion, and you
still owe the $1.3 billion, then suddenly the paradigm has shifted and your net worth is minus $200 million,
and it’s a serious issue. And that’s where we are today. All right? In the real estate business, market values
can move up and down very fast. They’re agile, they’re flexible, they’re terpsichorean.” The Wiz made an
awkward little flutter with his fingers to indicate terpsichorean. “But debt just sits there, like a rock formation,
like a mountain. It doesn’t budge. We’re not in a cyclical downturn, Charlie, we’re in a . . . special situation.”
A Man in Full, Tom Wolfe (1998).
Distress, turnarounds, and special situations are euphemisms used to describe the very serious
circumstances that confront companies
whose business plans are not working
out. But encountering a difficult situation
should not be the end of an otherwise
economically viable enterprise.
Companies operate in all types of
economic weather. Sometimes the
prevailing economic conditions
are favorable, and only the most
incompetent fail. At other times, the
prevailing economic conditions are
not favorable, and all but those that
are best-led and best-capitalized fail
or teeter on the brink of failure.
The key determinant for success is the
company’s management team. An
enterprise that is facing a serious crisis
must be led by a team that understands
the dynamics of companies in crisis.
This article focuses on leadership at
distressed companies, particularly
those in the middle market.
particularly true when comparing
distressed situations to the
nondistressed, general business world.
This distinction is important because
it highlights the challenge facing
managers of distressed companies.
Many of these concepts have been
written about ably by others, including
Jim Collins in his books Good to
Great and How the Mighty Fall.
Success in the turbulent waters
of underperforming and
distressed companies can
On the sunny side, business
success is typically defined in
terms of profit and growth.
Some might put a finer point
on this and define success
as profitable growth while