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 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.
(Mohan
Babu is a software consultant based in Colorado Springs, USA. E-mail:mohan@indusdemographics.com)
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