NEW YORK–For all their accomplishments and service to members, credit unions have also had their fair share of management mistakes and poor decisions—but they are nowhere to be found when it comes to the worst business decisions of all time.
While CUToday.info readers have in recent years stepped up to share their own decision-making “turkeys” in honor of Thanksgiving, this year we’re taking a look at some of the all-time burned to a crisp corporate side dishes, where once super-successful companies managed to join credit unions in at least one (unintended) way: they turned for-profit operations into not-for-profits.
To mark Thanksgiving in 2021—as in “we give thanks that we didn’t do this and can learn from them, instead”—CUToday.info turns to some of the highlights of the lowlights of American corporate bad decisions as compiled by 24/7 Wall St. and Money Magazine. As those analyses note, the decisions represent some of the “worst business decisions of all time (that) cost these companies billions of dollars and, eventually, their independence.”
In the case of 24/7 Wall Street’s rankings, it looked to companies that were on the Fortune 100 list for at least 10 consecutive years before dropping from the Fortune 100 ranking for good. The publication said it then looked for the companies that made a “single identifiable decision that cost them significant revenue and ultimately led to their decline.”
The eight companies identified by 24/7 Wall Street for inclusion in the bad Decision Hall of Fame fall into three categories: simply reckless, ignoring internal warnings, and missing tectonic shifts in industries until it was too late.
Those eight companies include:
Motorola
Years on Fortune 500: 56
Peak Fortune 500 rank: 23 (1994)
Peak revenue: $43.7 billion (2006)
“The success of the thin and stylish Razr cellphone drove Motorola’s 22% market share in mobile phones in 2006,” said 24/7 Wall Street. “However, the company failed to launch a new generation of smartphones leveraging the Razr brand, and by 2007 the company was selling the traditional cellphone at a discount. By the time the company released a new line of Razr phones in 2010, Motorola had to compete with products such as the iPhone and BlackBerry…Between October 2006 and March 2009, the company’s shares fell more than 90% from over $107 to less than $13.”
Lehman Bros.
Years on Fortune 500: 14
Peak Fortune 500 rank: 37 (2008)
Peak revenue: $59.0 billion (2007)
“During the final few years of the housing bubble, Lehman Brothers increased the amount it borrowed to buy more mortgage-backed securities and real estate. By 2007, the company’s leverage ratio was at least 31-to-1, meaning it borrowed $31 for every $1 in equity,” noted 24/7 Wall Street. “This brought Lehman Brothers huge profits in the boom era but became a serious problem once the housing bubble burst. The firm was unable to unload those assets onto the market once home and commercial real estate prices began falling, leading to unsustainable losses…Lehman went bankrupt in 2008. A federal-bankruptcy-court-sponsored report later found that Lehman and its accounting firm partner, Ernst & Young, used misleading accounting tactics to conceal the extent of Lehman’s overleveraging, which the authors claimed was as high as 44-to-1.”
Firestone
Years on Fortune 500: 34
Peak Fortune 500 rank: 24 (1956)
Peak revenue: $5.3 billion (1979)
“Firestone began manufacturing radial tires in 1972 to lengthen the life of the products. The company used a new technique to get its tires to market ahead of competitors. That year, after Firestone’s tire was in production, company documents reported that the rubber came off the wire when the tire was in use,” 24/7 Wall Street reported. “Despite these problems, the company continued to manufacture the tires throughout the 1970s to satisfy demand from customers like General Motors. But following pressure from the government and consumer advocacy groups that were concerned about the safety of the tires, the company recalled approximately 10 million tires in 1978. Initially, Firestone blamed tire failure on substandard maintenance by the consumer. However, an investigation by the National Highway and Traffic Administration in 1980 found that Firestone was actually aware of the defective products, citing to the 1972 documents…In 1988…Bridgestone successfully bid for the company.”
Digital Equipment Corp.
Years on Fortune 500: 25
Peak Fortune 500 rank: 27 (1990, 1993)
Peak revenue: $14.6 billion (1996)
“DEC was successful because its products were priced below mainframes, which were made primarily by IBM,” the 24/7 Wall Street analysis showed. “DEC controlled the minicomputer market from the mid-1960s until the early 1990s but failed to enter the workstation and personal computer markets quickly. When DEC finally decided to get into PCs, it tried to use its own operating platform, VMS, without success. Meanwhile, companies such as Hewlett-Packard Co. and Sun Microsystems were able to gain market share in workstations by using UNIX operating system, which allowed for many more software applications than VMS. Meanwhile, computers from Hewlett-Packard and IBM, which were based on the Intel Corp. blueprint and Microsoft Corp. OS began to dominate the PC market in the late 1980s. Between 1991 and 1996, DEC lost money every year except for one, including more than $2 billion in 1992 and 1994…Compaq bought it out in 1998.”
Kmart
Years on Fortune 500: 11
Peak Fortune 500 rank: 15 (1995)
Peak revenue: $37.0 billion (2000)
“Kmart’s big mistake in the mid-to-late 1990s was to try to compete with Walmart on price. Walmart had a supply chain system known as ‘just-in-time’ inventory, which allowed the retailer to restock shelves efficiently. Kmart failed to implement a similar system, which meant consumers became frustrated when stores ran out of goods. Between June 1998 and June 2000, Walmart’s stock price rose 82% as Kmart’s fell 63%. While new management at the turn of the decade worked to improve efficiency, the company filed for bankruptcy in 2002 and shut hundreds of stores. Kmart merged with Sears Roebuck in 2005.”
American Motors
Years on Fortune 500: 33
Peak Fortune 500 rank: 38 (1961)
Peak revenue: $4.2 billion (1984)
“By the time car manufacturer American Motors was absorbed by Chrysler in 1987, the company had been on a decline for more than 20 years. American first began to report losses in the mid 1960s. At the time, it failed in its efforts to compete with General Motors and Ford Motor Co. by expanding into large cars that could generate better profits per vehicle,” noted 24/7 Wall Street. “Despite the losses, it was able to stay afloat through the next decade after it bought the Jeep brand in 1970 from Kaiser. But a weak economy hurt Jeep sales and began to restrict the company’s cash flow in the late 1970s. Additionally, overseas automakers began to pose a major threat. Japanese auto companies, which began to heavily market small cars in America, manufactured them in Japan where auto worker wages were much lower than in the United States. American Motors lost money in all but one of the years between 1980 and 1986.” American Motors shut down in 1988.
RCA
Years on Fortune 500: 28
Peak Fortune 500 rank: 15 (1968)
Peak revenue: $8.0 billion (1980, 1981)
“Consumer electronics manufacturer RCA was highly regarded through most of its history as particularly innovative — the company was the first to sell electronic televisions to a wide market. Yet, from the mid 1960s and into the 1970s, the company began to diversify beyond the scope of its traditional business,” observed 24/7 Wall Street. “Its expansion was so rapid and so far flung that the company has become unmanageable. It bought a motley collection of companies, including publisher Random House in 1965, car rental company Hertz in 1967 and frozen food maker Banquet in 1970…While it diversified, the company scaled back research and development spending on its core product lines. When these acquisitions proved unsuccessful, RCA announced that it would return to focus on its traditional products, which mostly consisted of color televisions. By then, however, the company had to compete with Asian manufacturers that made cheaper consumer electronics goods. The company was eventually sold to General Electric Co. in 1986.”
Kodak
Years on Fortune 500: 58
Peak Fortune 500 rank: 18 (1989, 1990, 1992)
Peak revenue: $20.6 billion (1992)
Among the most famous of business failures, 24/7 Wall Street noted Eastman Kodak developed the digital camera in 1975 but did not invest in the technology for “fear it would undercut sales of its film business — Kodak’s executives did not foresee the eventual decline of film. Only when film’s popularity began to wane in the mid-1990s in favor of digital photography did the company push into the digital market. But competitors such as Fuji and Sony entered the market faster and Kodak was never able to fully capitalize on the product it actually invented.
“By 2001, the company was in second place to Sony in the digital camera market, but it lost $60 on every camera sold. By 2010, it ranked sixth in the digital camera space, which itself began to dwindle with the advent of smartphones and tablets. Eastman Kodak shares peaked in 1997 at more than $94 per share, proof that it often takes a number of years for poor decisions to destroy huge corporations. By 2011, the stock had dropped to 65 cents per share, and the company filed for bankruptcy in December of that year.”
10 Worst Decisions of All Time
Money Magazine has also compiled a list of the “10 Worst Business Decisions of All Time,” and a few turkeys on its list duplicate those on the 24/7 Wall Street list.
But here are some of the others it low-lighted:
The AOL-Time Warner Merger
“It's hard to imagine now, but AOL was once the biggest name on the Internet, the Google of its day,” reminded Money Magazine. “…With as many as 35 million subscribers at its peak in 2002 AOL was a Wall Street darling, flush with investor cash and looking for a prestige purchase.
“AOL Inc. CEO Steve Case met Time Warner CEO Gerald Levin in 1999 and the two men immediately began daydreaming about a merger between the biggest names in old and new media,” Money Magazine continued. “After months of private talks, the corporate marriage was announced on Jan. 10, 2000, to ecstatic media coverage. At $350 billion, it was the largest merger in the history of the business world.”
“…Before the ink was even dry on the deal, the dot-com bubble had burst, Internet stocks plummeted, and the bottom fell out of the online advertising market. To make matters worse, increased availability of high-speed Internet access cut deeply into AOL's dial-up revenue,” Fortune noted. “About $100 billion in stock value was wiped out…Today, the AOL-Time Warner marriage is the standard business school case study for the worst merger ever.”
Blockbuster Rejects Netflix for $50 Million
“At the top of its game, Blockbuster ran 9,904 stores worldwide with revenue topping $5.9 billion a year,” reminded Money Magazine. “The secret to Blockbuster's early success was using computers to make sure that every store was stocked with the most popular movies. But once Blockbuster nailed its winning formula — charging half a billion dollars in late fees per year — it failed to adapt to the changing tastes of American consumers.
“In the late 1990s, an Internet upstart named Netflix began offering DVD-by-mail service. The subscription service exploded in popularity, and Netflix executives flew down to Texas in 2000 to make an offer to Blockbuster CEO John Antioco. For $50 million, Netflix would join forces with Blockbuster and help it launch its own online and DVD-by-mail service. Antioco laughed Netflix out of the office, seeing it as a niche player.”
Blockbuster filed for bankruptcy in 2010 and canceled its copycat DVD-by-mail service in 2013.
Coke Introduces 'New Coke'
“Coke executives worried that ‘kids these days’ were drawn to the syrupy-sweet kick of Pepsi, so they began tinkering with the recipe. For two years, Coke's flavor engineers mixed up experimental batches and tested them extensively on the soda-drinking public. The verdict was unanimous: New Coke tastes better than old Coke,” Money magazine stated.
“On April 23, 1985, American consumers popped open their first cans of New Coke. Within days, hundreds of letters and phone calls poured in to Coke's Atlanta headquarters demanding a return to the old formula,” Money stated. “People began hording cases of old Coke and selling them on the black market. Apparently, throughout its meticulous product testing, Coke failed to ask the real question: do Coke drinkers even want a new Coke. Author Malcolm Gladwell in his book "Blink" adds that the taste test was the problem – people might prefer a sip of a sweeter drink but not necessarily want to drink a whole can of it.
“On July 11, less than three months after its debut, New Coke was pulled from the shelves and replaced with Coca-Cola Classic (now just called Coca-Cola).”
J.C. Penney Drops 'Fake Prices'
In 2012, newly hired J.C. Penney CEO Ron Johnson made some refreshingly honest comments about the pricing tactics of clothing retailers, Money Magazine stated, adding that the former Apple exec admitted stores like J.C. Penney try to attract customers with a near-constant barrage of sales and "fake prices. If J.C. Penney wants to sell a shirt for $10, it tags it at $20, and then marks it down 50% during a weekend blowout sale.
“Johnson was hired to mix things up at the 110-year-old company, which had been losing market share for decades to bigger fish like Walmart. His strategy was to stop looking ‘desperate’ by clamoring after shoppers with coupons and promotions and drastic markdowns and replace that with ‘everyday low prices’ and fewer sales. He also redesigned the drab stores to have a younger, more stylish feel.
“Instead of embracing the new ‘fair-and-square’ price system, loyal shoppers missed their coupons and sales and hit the Internet to complain. Psychology might be to blame. When a shopper sees a $12 shirt, she assumes it's low quality. But if the same shirt is marked down from $35, it's now a high-quality shirt being sold for a steal,” Money continued.
Either way, CEO Johnson was fired after only 17 months on the job and J.C. Penney quickly brought back the sales and phony jacked-up prices. “In a fateful twist, the man who was hired to rehab the brand was Sergio Zyman, the former Coca Cola ad executive who saved Coke by slapping the word "Classic" on its old cans,” Money stated.
Western Union Hangs Up on the Telephone
“When Alexander Graham Bell patented the first telephone in 1876, he wanted to cash in on his revolutionary invention by selling it to communications king Western Union.
Bell asked for $100,000, a fortune at the time, and the company didn't bite,” Money Magazine stated. “Western Union execs couldn't envision a world in which people would ditch the handy telegram for expensive, grainy sounding telephones that didn't work over long distances.
“Oops. When Bell's telephone caught fire with the public, Western Union hired rival inventors, including to design a better version,” the report continued. “Bell sued Western Union for patent infringement and won, forcing the telegram giant to ditch its designs on the telephone. Bell Telephone went on to rule American telecommunications for a century.”
Excite Passes on Google for $750,000
“Imagine…how different life would be for Excite — and for all of us — if Excite had bought Google back in 1999 for the bargain basement price of $750,000,” suggested the Money report. “Google co-founders Larry Page and Sergey Brin first offered to sell their fledgling search technology to Excite for $1 million, but dropped the price further when Excite showed no interest.”
NBC and CBS Get Sacked by Monday Night Football
“In the 1960s, sports entertainment was nothing close to the 24-hour juggernaut it is today…When the National Football League approached NBC and CBS with the idea of "Monday Night Football," the networks didn't want to risk losing their audiences for the "Doris Day Show" and "Laugh-In,” Money reported. “The president of ABC Sports, however, saw the potential of turning a conventional football game into a primetime spectacle. Roone Arledge doubled the amount of cameras used during games, produced flashy graphics and created the first three-man broadcasting ‘team,’ which included the legendary Howard Cosell.
“Monday Night Football premiered in 1970, and is the longest-running series on American television. More importantly for ABC, it's also one of the highest-rated TV series on the air, especially with young male viewers, a key demographic for advertisers,” Money stated.