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Article by Mohan Babu


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.




About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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