5 avoidable corporate disasters

And the lessons to learn from them.

by Adam Gale
Last Updated: 06 Aug 2020

It would be easy, at a time of unprecedented global lockdowns, to assume that the ruin of corporations typically comes as a result of some kind of external force. But history shows that businesses are more than capable of doing the job themselves.

Here are five examples where perverse cultures, structural failures or a simple error in judgement brought disaster.

RATNERS: TOTAL CRAP

Jewellery CEO Gerald Ratner revealed the awesome power of the public gaffe in 1991, when he uttered these immortal words: “People ask me how can you sell this product for such a low price. I say it is because it is total crap.” He got the chop, and the business nearly went under, having to change its name.

The lesson: Failure to think before you speak can cost you dearly. Treating your customers with contempt almost certainly will.

VW: EMISSIONSGATE

The world’s then-biggest car company hit a speedbump in 2015, when it emerged its engineers had built a mechanism into its diesel cars to cheat on statutory emissions tests. The scandal, which has to date cost the firm €31.3bn in settlements and fines, has been memorably attributed to a “culture where performance was driven by fear and intimidation”.

The lesson: Make sure you’re not inadvertently incentivising the wrong behaviour.

BARINGS BANK: ROGUE TRADER

All it took was one person to collapse a 223-year old merchant bank, or so it seemed. After early successes, Barings trader Nick Leeson made a series of increasingly bad bets with the company’s money, in an attempt to cover his losses. By the time management found out, it was too late. Barings was eventually sold for £1.

The lesson: Don’t create a culture where people are afraid to fail - and make sure you know what’s happening on the front lines.

ENRON: DISGRACE

A 2001 fraudulent accounting scandal revealed energy firm Enron to be a paper tiger, leading to the biggest corporate bankruptcy in American history, the collapse of big five auditor Arthur Andersen and jail terms for numerous executives.

The lesson: Don’t normalise bad behaviours. Don’t let people hide results behind labyrinthine financial structures. Don’t cook your books.

BP: DEEPWATER HORIZON

One of the worst environmental disasters in US history, the explosion and oil leak at BP’s Gulf of Mexico rig Deepwater Horizon in 2010 ultimately cost the firm $65bn in fines, clean-up costs and lawsuits. The White House commission investigating its causes said no individual was at fault, but that cost-cutting had contributed to inadequate safety systems.

The lesson: When the risk is high enough, you can’t be too careful.



JOHN MACDOUGALL / Staff via Getty Images

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