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Fall of American
corporate icons
As the global
economy becomes more intertwined with national economies, the crash of a
corporate giant in one part of the world will have strong repercussions
around the globe. Mohan Babu writes about the fall of American icons
like Enron, Kmart and Global Crossing
The biggest
tree makes the most noise when it falls. The reverberations of Enron’s fall
are still being felt and I don’t think they will subside anytime soon.
Thousands of American companies declare bankruptcy every year. Last year the
bankruptcy saga was glamorised by the crash of dotcoms and Internet
startups. Why then all the brouhaha over Enron, Kmart and Global Crossing?
The downfall of American icons, Enron and Kmart, is sending shivers down the
corporate boardrooms across the country. The main reason is the attachment
most people have to large corporations. Dotcoms and Internet startups did
not evoke the same passion in the hearts and minds of people as do
conventional giants. Most people are wondering, if a large energy trading
giant (till two years ago the seventh largest American company)—can file for
Chapter 11 (a kind of legal bankruptcy filing)—and a 100-year-old retailer
can flip like a pack of cards, what is to prevent others from sinking? When
bankruptcy is filed by a large company it’s not just its closure, but loss
of faith in the business, idea and market, not to mention loss of thousands
of jobs, careers and dreams.I presume that the readers by now are aware of
the drama behind the fall of Enron, Kmart and Global Crossing and am not
going to dwell on the details of their crash. However, one thing is certain:
fall of three of America’s largest companies, due to very different reasons,
within months of each other, goes to prove the fallacy of the system. Most
companies in America have one main goal—maximising shareholders wealth. The
moment the companies fall short of this goal, the stock market mercilessly
pounds them, testing the core of the management’s resolve and resilience.
Caught in-between all this drama are the employees, customers and investors.
Kmart: The
company had been around in business for over a century when it filed for
chapter 11 during the middle of January. The reasons for this move are quite
complex but the key factor is change in competitive landscape, which is much
more sophisticated than it was 40 years ago when discount stores (including
Kmart) started sprouting all over American suburbs. Another key reason is
because Wal-Mart, the Arkansas based supermarket chain, using sophisticated
supply-chain systems and data-warehouses, started wringing profits out of
competitors including Kmart.
Enron: Until
two years ago, Enron was the seventh largest American corporation employing
an army of brilliant MBAs from top schools, who sliced and diced through
complex energy trading issues. Indians also recall Rebecca Mark, the
take-no-prisoners executive who was able to cut through Indian bureaucracy
like a hot knife on butter. The company also had the best political
connections that money could buy, especially considering the fact that it
was the single largest source of campaign funds for President Bush,
contributing over $623,000 directly to him through out his career. Even as
management gurus around the world are scratching their heads over the fall
of Enron, one thing is certain, the worst victims of the saga were the
employees who had invested most of their retirement savings in the company
stock.
Global
Crossing: It becomes the latest causality to stumble under a high debt load
and flagging stock price, making it the biggest crash in the telecom bust so
far and the fourth-largest bankruptcy in US history. Once considered the
strongest of the challengers taking on established telecom operators who
were too slow to cater to New Economy demands for more bandwidth.
After decades
of working for corporate America, helping companies chase the bottom line,
even employees are realising the futility of putting all their eggs in one
basket. For example, the fall of Kmart alone will lead to the closure of
thousands of superstores around the country where employees have spent years
building their careers, moving up the Kmart corporate hierarchy. Same goes
for Enron and Global Crossing. Having industry specific skills, living in
small communities across the country, they will find it hard to uproot their
families and move to other places to market themselves. Crash of large
companies affects all the divisions and even techies are not immune. Scores
of Indians working for Enron and Kmart are already out looking for next jobs
and assignments, a tough spot to be, especially in the current job market.
Lessons from
the downfall of these and other companies are too many to even enunciate in
an article. A number of case studies will emerge and these companies and the
managers will be studied in microscopic detail. However, one thing is
certain—the lessons are universal. Indians, even those working in high-tech
sector will do well to pick up a few business magazines and journals and
study these stories. As a lifelong student of business and technology, I
will continue to study the little I can. As the global economy becomes more
intertwined with national economies, a crash of a corporate giant in one
part of the world will have strong repercussions around the globe. Welcome
to the global economy of boom-and burst.
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