The Worst Business Decisions of All Time
In the long history of poor management decisions made at major American companies, only a few proved to be fatal. It is hard to ruin a company with a single decision. That is especially true when the company has the advantages of huge market share, large and rising revenue, and a history of success. But not all bad decisions are created equal. 24/7 Wall St. set out to identify the worst business decisions of all time. These decisions cost these companies billions of dollars and, eventually, their independence.
Bad business decisions result in financial loss. The worst business decisions lose companies billions in revenue. Our editors relied on Fortune magazine’s annual list of the largest 500 companies ranked by revenue to identify the companies that were the biggest in America and, as a result, capable of losing the most money.
To make the initial cut, companies had to be on the Fortune 100 list for at least 10 consecutive years and then drop off the top 100 ranking for good. We then looked for the companies that made a single identifiable decision that cost them significant revenue and ultimately led to their decline. Based on this cut, 24/7 Wall St. identified the eight companies that suffered from the worst business decisions of all time.
Inclusion at the top of the Fortune 500 is hard to get, but, once won, it is also hard to lose. Nearly three-quarters of 2012’s 100 largest companies have been in the top 100 for at least a decade. This includes 23 that have been there for a quarter century, as well as 13 companies that have been on the list since it debuted in 1955. Even if a company falls out of the top 100, it usually remains a large company for a long time. Seventy companies from the original Fortune 100 are still somewhere on the Fortune 500 list.
Most bad business decisions are not fatal. General Motors Co. (NYSE: GM) has made several mistakes, none as harmful as the decision to continue to manufacture large vehicles when the market was trending toward smaller cars. These poor judgment calls led to GM’s bankruptcy in 2009, but with the help of a government bailout it remains in the Fortune 100 today. This is not the case with the companies on this list. The decisions made at these companies eventually ruined each of them.
The worst bad decisions fall into three categories. The managements of Lehman Brothers and Firestone were simply reckless. Leading up to the housing collapse, Lehman executives overleveraged the investment bank, far more than any other large financial institution. Firestone hastily tried to expand into production of a new kind of tire. Both companies ignored internal warnings that their decisions were highly risky.
In the case of Kodak and Motorola, management missed tectonic shifts in their industries until it was too late. Motorola held on to its old cellphone business too long, failing to leverage its Razr brand or couple it with a smartphone until the brand had lost its relevance. Kodak, which actually held a patent for digital cameras well before they were mass produced, eventually was left behind by other digital camera manufacturers like Fuji and Sony Corp. (NYSE: SNE) that moved quickly to establish market dominance.
Kmart, meanwhile, showed a general lack of foresight. The retailer failed to create modern supply chain management that could support an increase in customers, something it should have expected following its price war with Wal-Mart Stores Inc. (NYSE: WMT) and aggressive advertising.
To identify the worst business decisions of all time, 24/7 Wall St. reviewed all Fortune 500 companies since 1955 that have, at any point, been in the top 100 for at least 10 years, but were no longer among them in 2012. A company needed to have either filed for bankruptcy protection or been acquired. The declines in the company’s fortunes also had to have been traced to one identifiable bad decision. For each of these companies, 24/7 Wall St. reviewed revenue and sales data, obtained from Capital IQ, as well as stock price performance.