Restructuring can boost execs' careers

Top executives of companies that crash into bankruptcy aren't always stigmatized by the collapse. For some, it can be a career-enhancing opportunity, experts say.

Bankruptcy reorganizations frequently mean layoffs for rank-and-file workers, and they can imperil the jobs of top executives as well. A recent academic study suggests, for example, that CEOs who bail out before a business crashes fare better in the labor market than those who "stay until the bankruptcy occurs."

But corporate-turnaround experts say executives who can pull off a successful restructuring often gain long-term career benefits by sticking with a troubled company. The accomplishment can also serve to erase the stain of past executive blunders.

"To oversee a restructuring is a highly prized commodity," said Jeffry A. Davis, a partner at the San Diego law firm Mintz Levin. "If I were an executive, I'd like to have a turnaround on my resume."

Executives often fear they'll be stigmatized by a corporate bankruptcy filing. "Almost every executive comes to me with a woe-is-me attitude," said William A. Brandt, managing director of Development Specialists Inc., a turnaround advisory firm in Chicago.

"I administer a swift kick to the back of their rump and tell them, 'It's the end of the world or the start of a new galaxy,'" Brandt said.

K.J. Tjon, managing director at turnaround firm Alvarez & Marsal in Miami, knows firsthand how a restructuring can boost a career.

While working as chief financial officer of Winstar Communications Inc.'s international division, Tjon expectedly found herself in the middle of a bankruptcy when the telecom filed for Chapter 11 in 2001.

Rather than flee to a new company, Tjon stayed and later piloted segments of the company's reorganization.

"Instead of becoming part of a growing company and building an international finance group as I had expected, I ended up divesting assets worldwide," she said.

Winstar was sold to Newark, N.J.-based IDT Corp. for about $42.5 million in late 2001, saving the company from piecemeal liquidation.

Tjon was soon after approached by a private-equity group to become financial chief at Always-On Inc., a troubled information-technology company that was part of the group's portfolio. Although Always-On continued to falter, she was promoted to CEO when she helped close the sale of the underperforming company. She later joined Alvarez & Marsal as a turnaround consultant.

"Any time there is a crisis or organizational change, there is also an opportunity for people to blossom," said Tjon, who is currently directing the breakup of a major Internet company. "People have gone through hard times and become better executives."

Tjon and Davis said they've coached countless CEOs who have successfully led restructurings and benefited tremendously from the experience.

"When we go to a company, it's not very productive to sit there and start blaming people for things that may or may not have happened," said Tjon. "I have worked with numerous executives who used their experience at a troubled company to take on more responsibility, learn new skills and then go on to bigger and better things."

When Eagan, Minn.-based Northwest Airlines Corp. landed in bankruptcy court in 2005, its chief executive, Douglas M. Steenland, led the company through a tumultuous 20-month reorganization in which employees' wages were slashed and the airline's operating costs were cut by $2.4 billion.

The newly restructured airline, which emerged successfully from bankruptcy in May, awarded Steenland a staggering $26.6 million bonus package. Last month, the Northwest board voted to keep Steenland as a member.

Brandt, of Development Specialists Inc., said financial downturns are useful for weeding out mediocre executives.

"At some point, everyone makes stupid mistakes," Brandt said. "But if they turn around and handle the bankruptcy well, they'll add to their set of skills through the baptism by fire, making themselves more valuable."

Experts say a significant portion of bankruptcy reorganizations fail, and many turnaround consultants recommend removal of executives who oversaw the company's descent into bankruptcy. But despite the high probability of failure, a growing number of executives choose to stay with their companies.

A recent study by a group of university researchers found that when a large group of Texas banks failed in the mid-1980s, 67 percent of the executives decided to lead the businesses through a restructuring, while only 32 percent decided to jump ship.

But the study, by Matthew Semadeni of Indiana University, Albert A. Cannella of Arizona State, and Donald A. Fraser and D. Scott Lee of Texas A&M, found that many bank executives who attempted a turnaround were publicly stigmatized by the company's failure.

More than half of the executives who stayed with the foundering company were later demoted and 77 percent later had to change cities to find a new job, the study found.

A similar study by Harvard business professor Stuart C. Gilson found that executives are more likely to salvage their careers if they leave before the public knows about the company's problems.

"Somebody may be responsible (for the bankruptcy), but if they leave prior to the filings, it's more difficult to remember they were the ones responsible," Gilson said. "Accusations are much harder to make after the case and more difficult for people to keep in memory."

Neither study tracked whether the stigmatized executives involved had completed a successful restructuring.