Corporate Death Spiral

A few weeks ago, I received an interesting email from a former colleague at my former former workplace. He came across a news story about the possible sale of our former former workplace.

Though from a reputable media outlet, the article was based on “anonymous sources close to the situation.” In other words, this is mere speculation at this point. Who are these sources? What do they have to gain by leaking this information? Who knows if and when the sale will ever take place? I’m not saying the story is untrue. But like alien sightings and George Clooney marriage rumors, I’ll believe it when it actually happens or when I see it for myself.

Nevertheless, this rather flimsy article reminded me of a phenomenon you see quite often in the business world, and one that I have witnessed firsthand. I call it the corporate death spiral.

It goes something like this: A company encounters revenue shortfalls; maybe it even files for bankruptcy protection (as my former company did). They cut staff and product lines. When that fails to boost profits, the CEO is fired. Of course, oftentimes the company never says he or she was fired; just that he or she left to “pursue other interests.” Pursue other interests?! HA! The company fired your sorry butt, now get the heck outta here.

Then, a new CEO is brought in to basically clean up the mess. Think of a mop-up relief pitcher brought in during a blowout loss in the middle innings. He’s not there to win the game that day. His only job is to minimize the damage so the team can fight another day. (Insert NY Mets bullpen joke here.)

That’s not to say the new CEO isn’t an intelligent, experienced executive. No doubt he or she comes in enthused and with great ideas to somehow elevate revenues. Only…sometimes those grand schemes don’t work out and the company is still bleeding cash.

So the new CEO resorts to the familiar tactic of slashing staff and products in a desperate doggy-paddle to save the company, himself and his cronies. When that fails to move the needle, the CEO throws up his arms in disgust and says, “Uncle! Let’s sell the damn thing!”

Remember, about six months before the article about the possible sale of my former former workplace was published, the company cut over 30 employees. At my former workplace, the CEO sent around a cryptic note alluding to rumors about a possible sale of the company. (I didn’t see anything in the press about it.) Soon after, four others and myself were shown the door.

So you see a pattern here. A company in fiscal straits cuts staff/products, brings in a new CEO, cuts more staff and then puts itself up for sale.

It’s similar to when a homeowner decides to sell their house. They paint and spruce up the bathrooms to make it more attractive to potential buyers. In the corporate world, companies slash a third of their workforce. Gah!

All I can do is shake my head in bitter resignation. For all the hyped-up plans that went bust, for all the people they put out of work, for all the lives destroyed, all those companies did was buy a bit of time and temporarily stave off the inevitable, which is the ruination of a once thriving company. What a sad waste of money and talent. Instead of creating a credible blueprint for success, these companies are barely treading water. They might as well have flushed all that money down the drain, along with a lot of good people who may never see a steady paycheck again.

Another example is the retail stalwart JCPenney. About two years ago, it tried a new pricing method to bring in shoppers. When that failed, it brought in a new CEO, who restored its previous sales pricing system. It also announced a slew of store closures. Recent reports have the chain holding its own. But how long will it survive?

Likewise, how long will my two previous workplaces survive? Will a new buyer snatch them up at bargain prices? Will that new owner embark on a program of staff reduction (as they did at my former former workplace)?

What if no buyer is found? Will both companies be shut down, thereby completing the inevitable corporate death spiral?

Stay tuned.