---
title: "The CEO Is the Turnaround: Why Leadership Change Decides Distressed Outcomes"
description: Discover how effective leadership changes can transform distressed companies, emphasizing the critical role of CEOs in driving successful turnarounds.
image: https://insights.axarcapital.com/hubfs/76655-%20Axar-%20Blog%20%2312%20-%20The%20CEO%20Is%20the%20Turnaround%20-%20Feature%20Image%20(1).png
---
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# The CEO Is the Turnaround: Why Leadership Change Decides Distressed Outcomes
October 26th, 2026
6 min read
By [Axar Capital Management LP](https://insights.axarcapital.com/author/axar-capital-management-lp)
.png?width=2400&height=1257&name=76655-%20Axar-%20Blog%20%2312%20-%20The%20CEO%20Is%20the%20Turnaround%20-%20Feature%20Image%20(1).png)
When Gordon Bethune took over Continental Airlines, he gathered the company's 800-page operations manual, carried it to the parking lot, and burned it. He was a Boeing manufacturing veteran with no airline experience and one goal: get the planes to arrive on time. When Continental first hit the target, every employee received a $65 check.
Bankruptcy had already fixed Continental's balance sheet. What Bethune changed was the part bankruptcy can't touch: the assumptions, incentives, and habits of the people running the company. That's the argument here. In distressed investing, the CEO is the variable that separates a financial trade from a company that lasts.
### Why a Clean Balance Sheet Isn't a Finished Turnaround
A restructuring resets what a company owes. It says nothing about why the company ended up unable to pay in the first place. A distressed business carries the accumulated results of the decisions that got it there, which are often weak incentives, eroded accountability, and a tolerance for underperformance that has become part of the furniture.
We think of the capital structure failure as a symptom and the culture as the underlying condition. Financial restructuring treats the symptom. A new CEO with a clear mandate treats the condition. The best analogy is a course of antibiotics: it only works at full dose, aimed at the right pathogen, by someone who knows what they're treating.
### What a Full Mandate Actually Means
A new CEO isn't hired to manage the existing organization. They're hired to replace its assumptions, its incentive structures, and its relationship with accountability. That only works if the person arrives with real authority, and someone has to be in a position to grant it.
Warren Buffett understood this at GEICO. Before he built his most significant position, he identified Jack Byrne, who cut the workforce, exited unprofitable states, raised rates, and negotiated a reinsurance facility that restored the company's statutory capital within a year. The investment thesis and the leadership thesis were the same thesis.
That's the standard we hold ourselves to. A distressed asset without an identified management solution is a financial trade. With the right leader installed with full authority, it becomes an institution-building opportunity. The controlling investor has to deliver the new CEO.
### Three Companies, Three Different Hires
Recruiting CEOs is part of how we invest, and the right profile depends on what actually failed. The three examples below are investments held by Axar-managed vehicles. They are included to illustrate our approach, not to suggest that every situation resolves this way.
J.G. Wentworth is the clearest case for going back instead of forward. After the company emerged from a prepackaged Chapter 11 in early 2018, we brought back the pre-IPO leadership group that had built the business, with its former CEO returning as chairman. The leadership that followed the 2013 IPO had moved away from the sales and marketing that built the brand. The fix was putting people back in charge who understood what had worked.
Everstory Partners, formerly StoneMor, had a different problem. The business, a large operator of cemeteries and funeral homes, had turnover at every level and a reputation as a hard place to work. In November 2022 the company named Lilly Donohue as CEO, a leader whose earlier company had been certified as a Great Place to Work. Her approach was phased: observe, stabilize liquidity, then reset the culture, evaluating people methodically and preserving institutional knowledge before making changes. In 2025 Everstory earned its own Great Place To Work certification, a recognition based entirely on employee feedback.
Revol One needed something else again. The company began as Pavonia Life Insurance Company of Michigan, a licensed carrier emerging from receivership with no operating business to reset. There was no culture to repair. The job was to build one. When we acquired it in 2022, we partnered with Mark Zesbaugh, an insurance executive who had helped build LifeUSA, a start-up life insurer later acquired by Allianz. He now leads Revol One Financial, a fixed annuity platform built around speed and technology.
### **How the Search Works**
We start thinking about leadership during underwriting, not after the deal closes. Who runs the company is as central to the investment case as what ultimately emerges from the restructuring. Axar investment professionals serve on the boards of portfolio companies, which gives us a close view of where leadership is working and where it isn't, and we draw on an operating network built over years to find candidates.
In our experience, the strongest candidates are rarely looking for a job. Persuading them to take on a distressed platform takes time, a credible mandate, and a clear explanation of what the company can become. That is slower and harder than hiring from a search firm's shortlist, and it is a large part of the work.
### Where This Approach Has Limits
It would be easy to present leadership change as a guaranteed fix. It isn't. Not every distressed company needs a new CEO, and sometimes the balance sheet really was the only thing that failed. Changing management also generally requires control or significant influence, such as board seats or majority ownership after a restructuring, so a minority creditor typically can't deliver it.
A wrong hire is expensive. A leader who defers to the old culture or chases scale can cost a turnaround a year or more. Even the right leader can't rebuild a business whose competitive core is gone, which is why we spend so much time on what survived before we think about who should run it. And controlling a position means concentrated outcomes. Not every position reaches the point where we grow it to full size, and some don't work.
### Questions Allocators Can Ask Any Manager About Leadership
If a manager says it is an active, control-oriented investor, the claim is worth testing. A few questions help separate a real operating playbook from a general statement of intent.
- Who finds and vets the operating executives? Is it people inside the firm with operating relationships, or an outside search process?
- What governance rights does the manager actually hold? Board seats and control are what turn a view on management into a decision.
- When has a leadership hire gone wrong? How the manager answers, and what changed afterward, says more than a list of successes.
- Is management part of the underwriting? A leadership plan that appears only after capital is committed is a hope, not a thesis.
Price explains why a distressed opportunity exists. Leadership decides what becomes of it.
This content is provided for informational and educational purposes only and does not constitute investment advice or a solicitation to invest. All investments involve risk, including potential loss of principal. References to Continental Airlines, GEICO, and other third-party investments are for illustrative purposes only and do not represent investments made, managed, or recommended by Axar Capital. References to J.G. Wentworth, Everstory Partners, and Revol One are investments held by Axar-managed vehicles, are provided to illustrate Axar's investment approach, are not a recommendation, and are not representative of all Axar investments. Axar's investments have not always achieved their objectives. Past performance is not indicative of future results. The views expressed reflect the current opinions of Axar Capital Management LP, which may change without notice.
[](https://pages.axarcapital.com/the-chopping-block-the-anatomy-of-a-great-distressed-investment)
This material is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment advisory services. The views expressed herein are those of Axar Capital as of the date of publication and are subject to change without notice.
This material is not intended to provide, and should not be relied upon for, investment, legal, or tax advice. Any forward-looking statements or discussions of potential outcomes are based on current expectations and assumptions and are subject to change. There can be no assurance that any investment strategy will be successful or that any outcomes discussed herein will be achieved. References to specific investments are provided for illustrative purposes only and do not represent all investments made by Axar Capital. Past performance is not indicative of future results.
This content is provided for informational and educational purposes only and does not constitute investment advice or a solicitation to invest. All investments involve risk, including potential loss of principal. Historical examples referenced herein are provided for illustrative purposes only and do not represent investments made, managed, or recommended by Axar Capital unless expressly stated otherwise. Past performance is not indicative of future results. The views expressed reflect the current opinions of Axar Capital Management LP, which may change without notice.
#### Sources:
Axar Capital, The Chopping Block (April 2026); Great Place To Work certification announcement for Everstory Partners (May 2025); Business Wire, Axar acquisition of Pavonia Life Insurance Company of Michigan (September 2022); company announcements for J.G. Wentworth (2018).
### FAQ Section
Why does a distressed company usually need a new CEO after restructuring?
A restructuring resets what a company owes but not the habits and incentives that led to the failure. A new CEO with a clear mandate can address those underlying conditions. That said, it isn't required in every case.
How does a distressed credit investor recruit a CEO?
The search typically starts during underwriting, using board seats, operating relationships, and a network of executives built over time. The profile depends on what failed, whether that calls for a returning builder, a culture-focused operator, or someone who can build from scratch.
What happens if the new CEO turns out to be the wrong fit?
A wrong hire can delay a turnaround by a year or more and consume capital. An investor with control or board representation can act on that, but there's no guarantee the second choice works either, which is why leadership is part of the diligence.
Does a creditor need control to change a company's management?
Generally, yes. Installing a CEO usually requires majority ownership, board control, or significant influence, which often comes after a restructuring converts debt to equity. Minority positions typically cannot deliver a leadership change.
Is changing the CEO always the answer in distressed investing?
No. Sometimes only the balance sheet failed and existing management is sound. A leadership change also can't rescue a business whose competitive core has been lost, which is why we first ask what survived.
About Axar Capital Management
Axar Capital Management LP is a $3.4 billion opportunistic investment manager focused on U.S. middle market companies with $200 million to $800 million in debt outstanding. Founded in 2015 and 100% employee-owned, Axar specializes in complex situations where traditional institutional capital operates inefficiently. The firm is headquartered at 402 W 13th Street, New York, NY.
**Disclaimer:** Axar Capital Management LP (“Axar”) has prepared this content for informational purposes only. This content is not intended to constitute legal, tax, financial, or investment advice. While all information contained herein is believed to be accurate, no guarantee, representation or warranty is made as to its accuracy, completeness or fairness. Certain information reflects the current opinions of Axar which may prove to be incorrect and are subject to change. Past performance is not indicative of future results. Investing involves a material risk of loss. Certain statements herein reflect forward-looking views, which are inherently uncertain and subject to change. Actual results may differ materially.
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