The term “too big to fail” often suggests some companies are so essential to the global economy their collapse would be unthinkable.
However, the business world is littered with giants that have fallen.
This debunks this myth and offers crucial lessons in economic and financial resilience, and how easily corruption can spread in giant corporations.
Lehman Brothers (2008)
You know you’re a hugely powerful bank when your collapse is the catalyst for a global financial disaster. That’s what happened in 2008 when the Lehman Brothers bank fell into bankruptcy.
The collapse was caused by overexposure to the subprime mortgage market. The collapse showed the risks of aggressive growth strategies without adequate risk management.
Bear Stearns (2008)
Another bank to collapse in 2008 was Bear Stearns, once a titan of Wall Street.
It too succumbed to the subprime mortgage crisis when its two hedge funds, overly invested in mortgage-backed securities, failed. Its subsequent fire sale to JPMorgan was a clear sign of the turmoil to come in the financial sector.
Washington Mutual (2008)
The largest bank failure of all was also in 2008.
Washington Mutual was seized by federal regulators, who then sold its banking assets to JPMorgan Chase. The company’s demise was brought on by its risky lending practices, highlighting the dangers of poor loan underwriting standards.
Enron (2001)
Enron was once a star in the energy sector. However, its executives engaged in one of the most infamous accounting frauds in history.
They used off-the-books accounting practices to hide debt and inflate profits. This led to leading to its bankruptcy and the subsequent introduction of tougher financial regulations, including the Sarbanes-Oxley Act.
A number of executives were sent to prison after the scandal.
Read the full story here.
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WorldCom (2002)
WorldCom’s bankruptcy was the result of an $11 billion accounting fraud, where management improperly recorded expenses to boost earnings. This case served as a critical wake-up call for regulatory bodies to enhance corporate governance practices.
The full story can be found here.
Nortel Networks (2009)
Canadian telecom giant Nortel struggled with a series of accounting scandals and failed to recover from the bursting of the dot-com bubble. This led to its eventual bankruptcy and liquidation, demonstrating the rapid obsolescence possible in the tech sector.
Blockbuster (2010)
Blockbuster’s bankruptcy was a stark example of a company failing to adapt to technological changes—specifically, the rise of digital streaming platforms like Netflix. Its inability to pivot from physical rental stores to an online model was a critical misstep.
Read more about its demise here.
Toys “R” Us (2017)
Heavy debt and competition from online retailers like Amazon led to the bankruptcy of Toys “R” Us. The company’s failure underlined the importance of digital transformation in the retail industry.
Sears (2018)
Sears filed for bankruptcy after years of declining sales. It failed to compete with more agile and technologically adept competitors.
Its struggles reflect the challenges traditional retailers face in an increasingly digital marketplace.
General Motors (2009)
General Motors’ 2009 bankruptcy filing resulted in a significant federal bailout to prevent the collapse of the auto industry and protect millions of jobs. GM was able to restructure successfully, shedding unprofitable brands and focusing on innovation and efficiency, which allowed it to re-emerge as a competitive force in the automotive sector.
