Sam Zell: ‘Exert control’ for winning turnaround battle

10/8/2008 - Sounding a little like Thoreau as he addressed a few hundred students during an Oct. 6 visit to the Kellogg School, Tribune Co chairman and real estate billionaire Sam Zell laid out a framework for turning around distressed companies.

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“Simplify,” he advised. “Complex strategies may be good for PhD candidates, but they are disastrous for business.” Better to “know what you got, know what you need and get rid of everything else,” he said.

The recommendation appears to have served Zell well during a long career that included the 2007 sale of his Equity Office Properties Trust to the Blackstone Group for $39 billion — at the time, the largest leveraged buyout ever.

A Kellogg benefactor who has funded the school’s Zell Center for Risk Research, Zell also emphasized other keys to turnaround success.

“The most important thing is you’ve got to change the culture. You’ve got to exert control,” said Zell, who is also chairman and president of Equity Group Investments. “The worst thing is to have responsibility without having control.”

Among the hurdles facing would-be turnaround artists are organizational challenges, including broken hierarchies that tend to diffuse or obscure responsibility, precisely the opposite of what is needed to rescue a floundering enterprise. Zell advocated flattening the organization in a way that allows leadership to identify all key decision makers.

“The worst thing is to have responsibility without having control,” said Sam Zell during an Oct. 6 discussion at the Kellogg School.

Photo © Nathan Mandell

Other concerns that merit attention, he said, include the brain drain that often occurs as top talent abandons a sinking company, leaving the new boss with a depleted staff at a time when all the best people are needed.

To meet this challenge, Zell said, requires an increase in “clear, concise, honest communication,” which includes imparting a clear mission to everyone who remains in the organization.

“You need to create a sense of urgency,” Zell said. “Companies in trouble move very slowly. You’ve got to do it today. Tomorrow is too late.”

This message, he said, is “sometimes painful, but extraordinarily important” as the leadership establishes new standards and goals. These objectives, Zell cautioned, must be achievable and realistic.

Defining that strategic direction depends upon assessing the organization’s resources and competitive advantage. “Use what you have,” Zell advised. “Don’t get caught up with mythical ideas of what you’re going to do.”

In introducing Zell, Kellogg School Dean Dipak C. Jain called him an “icon” and “a person who wants to make a difference,” including in the educational arena, where Zell has directed his philanthropy.

After his formal remarks, Zell interacted with Kellogg students enrolled in the Asset Management Practicum, a co-sponsor of the event.

Also sponsoring Zell’s visit was the Office of Leadership Initiatives and the Zell Center for Risk Research.