Only three months ago, Critical Path appeared close to collapse. With its reputation in ruin after an accounting scandal, its shares trading as low as US$0.24 and a debt of US$300 million, the once highflying provider of corporate e-mail systems appeared ready to join the many remains of failed companies strewn along the Internet's trail of busted dreams.
But Critical Path may be on the comeback path. Under a new management team, the company has quietly settled more than 50 shareholder lawsuits, brought in well-respected financiers and nursed its balance sheet closer to health.
The leaders of the revival are David Hayden, the founder and executive chairman, and William McGlashan, a venture capitalist and turnaround specialist who accepted an interim executive role shortly after the scandal broke in February last year. McGlashan was to shed the term ``interim'' from his title yesterday, when the company announces that it has named him full-time chief executive.
"We made it through the valley of the shadow of death," McGlashan, 38, said in a recent interview at the company's headquarters in the South of Market neighborhood of San Francisco, which was once filled with dotcom companies.
Critical Path's quarters, a four-story converted warehouse with exposed brick walls and wood beams, will soon be part of the company's dark history. The company leased the building -- for US$47 a square foot -- only a month before the accounting irregularities became known. Now, as part of its efforts to reduce operating costs to less than US$30 million a quarter, half the rate of last spring, Critical Path will soon move to the sixth floor of a more staid corporate building nearby -- for US$35 a square foot, reducing its rent by US$1.6 million a year.
The move is just one of many ways the company's executives have tried to correct the management mistakes of the past two years. Since March, Critical Path has shed half its work force as it has withdrawn from weak businesses, most of which the company entered through a dozen acquisitions that pulled it further and further from its original vision: running e-mail systems and large data directories for corporations.
"What 2001 was about was re-establishing the company's financial credibility and balance sheet," said William Ford, a new member of the Critical Path board. "This coming year is going to be about growth and market leadership."
But before that happens, Critical Path must continue to convince customers and investors that its business model is strong. More important, it must win back the trust it so badly damaged.
Once a Wall Street darling, with its stock soaring as high as US$119.50 in March 2000, Critical Path screeched to a halt last January when it widely missed its earnings projections. Instead of the profit long promised by the company's management, Critical Path posted a loss of US$0.16 a share.
But the bombshell hit two weeks later. On Feb. 2, the company suspended two top executives and started an internal investigation into its financial practices after questions arose about the way executives reported revenue from several sales contracts. The Securities and Exchange Commission began an investigation, the stock plunged, and Wall Street analysts and investors began accusing Critical Path of deliberately cooking its books under heavy pressure to turn a profit.
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