A ship navigating a stormy sea, representing SME restructuring challenges and leadership direction.

Navigating Financial Storms: How Your Leadership Style Impacts SME Restructuring

Rhea Morgan in Business & Economy December 2025 • 4 min read.

"Unlock the secrets to successful SME restructuring by understanding how key leadership traits—like tenure and education—can make or break your approach."

Every business faces challenges, but for small and medium-sized enterprises (SMEs), financial distress can feel like a particularly turbulent storm. The decisions made during these critical times can determine whether the company weathers the storm or succumbs to the pressure. While external factors certainly play a role, a growing body of research suggests that a key element in successful navigation is the leadership style of the manager at the helm.

Think of it as steering a ship: the captain's experience, knowledge, and risk tolerance influence every maneuver. In the context of SME restructuring, a manager's characteristics—such as their tenure, education, and even their gender—can significantly impact the choices they make between in-court and out-of-court restructuring processes. Understanding these influences can empower leaders to make better, more informed decisions.

This article explores how different manager characteristics affect SME restructuring decisions, drawing insights from a recent study that examined the choices of 342 managers of financially distressed French firms. We'll break down the key findings, offering practical advice and actionable strategies to help you navigate your company through tough times. Whether you are a seasoned executive or a budding entrepreneur, understanding these dynamics can be a game-changer.

Decoding the Manager's DNA: How Leadership Traits Influence Restructuring Choices

A ship navigating a stormy sea, representing SME restructuring challenges and leadership direction.

The study, rooted in the upper echelons theory, posits that a manager's characteristics act as a lens through which they view and respond to challenges. This perspective shapes strategic choices, including the critical decision of how to restructure a financially distressed SME. Let’s delve into the specific traits that the research highlights.

The research revealed some interesting insights about the connection between a manager’s characteristics and their restructuring preferences:

Tenure Matters: Managers with longer tenures are less likely to opt for in-court restructuring. Why? Because they often possess a deep understanding of the company, strong relationships with stakeholders, and a greater ability to negotiate privately. Longer tenure often correlates with a preference for resolving issues outside of the courtroom.
Education Plays a Role: Higher levels of education correlate with a decreased likelihood of choosing in-court restructuring. This suggests that managers with more education may be more comfortable analyzing complex information, assessing risks, and making informed decisions outside of the formal court system.
Age and Gender? Not So Much: Contrary to some expectations, the study found that age and gender do not significantly affect the choice between in-court and out-of-court restructuring. This challenges conventional wisdom and underscores the importance of focusing on cognitive traits and experiences.

These findings have significant implications for how we understand leadership during times of financial distress. They suggest that the best approach to restructuring isn't just about external factors but also hinges on the unique skills and perspectives of the individuals at the helm.

Turning Insights into Action: Practical Strategies for SMEs

Understanding the influence of manager characteristics can empower SMEs to make more effective restructuring decisions. Here are a few practical steps to consider: Self-Assessment: Take an honest look at your own strengths and weaknesses. Recognize how your tenure, education, and risk tolerance might be shaping your approach to restructuring. Seek Diverse Perspectives: Surround yourself with advisors who bring different viewpoints and experiences to the table. This can help you overcome personal biases and make more well-rounded decisions. Tailor Your Approach: There’s no one-size-fits-all solution to restructuring. The best strategy will depend on your unique circumstances, leadership style, and the specific challenges facing your company.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2402.18135,

Title: Manager Characteristics And Smes' Restructuring Decisions: In-Court Vs. Out-Of-Court Restructuring

Subject: q-fin.gn

Authors: Rachid Achbah

Published: 28-02-2024

Everything You Need To Know

How does a manager's tenure influence the choice between in-court and out-of-court SME restructuring?

Managers with longer tenure are less inclined to opt for in-court restructuring. This is because their deep understanding of the company, coupled with strong stakeholder relationships, allows them to negotiate and resolve issues privately, avoiding the formal court system. Their experience provides them with a degree of influence and trust that can facilitate out-of-court settlements, a resource less readily available to newer managers. However, it's important to note that a long tenure might also create biases or resistance to change, which could negatively impact the restructuring process if the manager is unwilling to consider new or unconventional solutions. It is vital to find balance and consult outside advice.

In what ways does a manager's education level affect SME restructuring decisions, particularly concerning in-court versus out-of-court options?

Managers with higher levels of education are less likely to choose in-court restructuring. Their education equips them with the skills to analyze complex information, assess risks thoroughly, and make informed decisions outside the structured environment of the court system. This does not mean that less educated managers are incapable, rather that higher education can provide a framework for more independent decision-making in complex scenarios. However, education alone is not a guarantee of success; practical experience and other personal traits also play significant roles. The absence of either extensive real-world experience or strong advisory support structures could offset the advantages conferred by education.

The study mentioned that age and gender don't significantly affect restructuring choices. Why is this surprising, and what does it imply for SME leadership?

It's surprising because conventional wisdom often associates age with experience and maturity, potentially influencing risk aversion or strategic thinking. Similarly, gender stereotypes might suggest differing approaches to negotiation or decision-making. The finding that neither significantly affects restructuring choices underscores the importance of cognitive traits and experiences over demographic factors. This implies that SMEs should focus on identifying and leveraging the skills, knowledge, and perspectives of their managers, regardless of age or gender. It also challenges any preconceived notions about leadership capabilities based on demographic traits, promoting a more inclusive and merit-based approach to leadership selection and development within SMEs. However, it's important to acknowledge that these are broad findings, and individual experiences may still vary.

How can SMEs practically apply the insights about manager characteristics to improve their restructuring outcomes?

SMEs can start by encouraging self-assessment among their managers, prompting them to recognize how their tenure, education, and risk tolerance might be influencing their approach to restructuring. It is also important to build diverse advisory teams to provide different perspectives and counter personal biases. Each approach to SME restructuring should be tailored to unique leadership styles and the specific challenges the company faces. By acknowledging both the strengths and weaknesses inherent in their leadership's characteristics and seeking diverse advice, SMEs can make more informed and effective restructuring decisions. However, it's crucial to recognize that these traits are not deterministic; they represent tendencies that can be managed and mitigated through awareness and strategic planning.

What are the implications of 'upper echelons theory' for SMEs facing financial distress, and how does it connect to restructuring decisions?

Upper echelons theory suggests that a manager's characteristics—such as their tenure and education—act as a filter through which they perceive and respond to challenges, influencing strategic choices like how to restructure a financially distressed SME. The theory emphasizes that these characteristics shape strategic decisions, including the choice between in-court and out-of-court restructuring. For SMEs, this means that understanding the leadership team's traits is crucial because these traits influence the direction and success of the restructuring process. This theory does not negate the importance of external factors, but rather highlights the critical role of internal leadership in navigating financial challenges. SMEs should, therefore, consider leadership development and team composition to ensure a well-rounded and effective approach to strategic decision-making during times of distress. It is important to acknowledge that the upper echelons theory is just one perspective; other organizational and environmental factors also significantly contribute to strategic outcomes.