- 2 years ago
Some of the most notorious business disasters were caused by a single individual's reckless decisions. From corporate fraud to catastrophic mismanagement, we'll explore how one person's actions can bring down an entire company and change the business landscape forever.
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00:00After more than 62 years in the airline business, Eastern Airlines is grounded for good.
00:06Welcome to WatchMojo, and today we're counting down our picks for the most cautionary downfalls
00:11of companies under the mismanagement of malpractice of a single employee.
00:14It's very easy for me to get on with people, but I don't necessarily have to like you
00:20or any of the people that I work with to get on with them.
00:24Number 10. Gerald Ratner, Ratner Group.
00:26We sell gifts as well as jewelry. Things like a teapot for two quid.
00:32Or we've got this imitation book that you lay on your coffee table.
00:36Pages don't actually open, but they're beautiful curled up corners with imitation antique dust.
00:42Gerald Ratner grew his family's modest jewelry brand into an empire on the philosophy that
00:47the loudest voice commands the most business. He learned the hard way that it's sometimes
00:50best to shut up. While speaking at a convention in 1991, the Ratner Group CEO joked about his
00:55company's cost-effective mass production. He said the jewelry is so affordable because it's
00:59total crap. I know you might say it's not in the best possible taste, but we sold a quarter of a
01:05million of them last year. His company's stock plummeted as insulted customers lost faith in
01:10the quality of Ratner products. The company won them back after the CEO's resignation and a
01:14rebrand. Today's Signet Jewelers is one of the biggest names in the industry. As for their old
01:18one, the consequence of a business rep getting too candid is called the Ratner effect.
01:23It was only when you read the tabloids the next day that it did look terrible. But I mean,
01:28as I left the Albert Hall, I didn't think anything was untoward. And I don't blame the press because
01:34the press, you know, always do that. They're disingenuous and, you know, good luck to them.
01:39That's what they want to read about. You know, they want a story that's exaggerated somewhat.
01:44Number nine, Ike Batista, OGX Petroleum. I think one of the reasons of our success
01:49is that all our projects, they start from the beginning by sharing. See,
01:55when you develop billion dollar projects, new business men developing projects should
02:01take care of the surrounding environment because I will affect several communities.
02:05Energy industrialist Ike Batista quickly went from being one of the world's richest men to a
02:10negative network. As hard as his companies were hit by his gambles, OGX Petroleum was
02:14particularly devastated. Batista got lucky when the company discovered major crude oil reserves.
02:19The parent company, EBX Group, spent the next few years driving Brazil's infrastructure and energy
02:24before finally going bust in 2012. Thousands of jobs would come to this area of Rio de Janeiro,
02:29and this whole area around me was to be developed into a new massive business park.
02:35But with so much uncertainty about the empire, indeed about Ike Batista's own personal wealth,
02:41many of the big assets are now being sold off, including the port here at Assu.
02:46Batista over-promised, under-delivered, and over-spent on other ventures and an
02:50extravagant lifestyle. OGX then filed for the biggest bankruptcy in the history of Latin America
02:54under new leadership it rebranded as Domo Energia in 2017 and was sold to Petro Rio in 2022.
03:01Meanwhile, the ever-reckless Batista was sentenced to 30 years in prison for corruption.
03:05Brazilian oil and mining magnate Ike Batista has left prison for house arrest ahead of a
03:10trial on corruption charges. He's accused of bribery and hiding illegal funds offshore,
03:15but denies any wrongdoing. He was arrested last year after spending four days in New York as a
03:20fugitive. Number 8. Martin Shkreli, touring pharmaceuticals. Now you guys have said that
03:25the reason you increased this price so much after acquiring the drug was in order to do
03:28the research and development to develop a better version of Daraprim. I just got off the phone with
03:33an HIV doctor who told me they don't need a better version of this drug. What are you doing here?
03:37Yeah, that's not true. There's a recent paper that suggests that two patients died due to
03:44autoimmune encephalitis from toxoplasmosis. Touring Pharmaceuticals broke out in 2015
03:50with several major manufacturing licenses. Then Martin Shkreli raised the price for Daraprim,
03:54an antiparasitic used to treat HIV, from $13.50 per pill to $750. This reprehensible price hike
04:02made the so-called pharmabroa pariah. The company's reputation was further damaged by
04:06his callous social media presence and dubious pledges to make treatment more affordable.
04:10What do you say to that signal pregnant woman who might have AIDS, no income?
04:18She needs Daraprim in order to survive. What do you say to her when she has to make that choice?
04:25What do you say to her? On the advice of counsel, I invoke my Fifth Amendment,
04:29privilege against self-incrimination, and respectfully decline to answer your question.
04:32Shkreli claims the controversy prompted investigations into a potential Ponzi scheme
04:37and misappropriation of funds for his company Retrophin. He was ultimately convicted on
04:41securities fraud and conspiracy in 2017. Touring maintained ties after rebranding as
04:46Viera Pharmaceuticals that year. But with Shkreli's audacity leaving the company in
04:50a financial and legal mess, Viera filed for bankruptcy in 2023.
04:54To sort of engage in that kind of conduct while you're in a criminal trial is a bad idea,
05:00because you once you get to sentencing, you basically have an audience of one, the judge,
05:06and the judge is going to be looking at him and trying to evaluate what kind of person he is.
05:10Number seven, John Merriweather, long term capital management.
05:13John Merriweather is best known or rather notoriously known for his hedge fund long
05:18term capital, which back in 1998 lost more than 90 percent of its assets. They were valued at
05:25about four point eight billion dollars. And this all took place in the weeks following
05:28Russia's currency devaluation and bond default. Scientific strategy and secrecy made long term
05:34capital management an anomaly on Wall Street. For all of John Merriweather's brilliance,
05:38his leadership methods were not a long term investment. His hedge fund saw three years of
05:43unrivaled profit before taking a hit for the 1997 financial crisis in Asia. After Russia defaulted
05:49on its debts the following year, LTCM lost billions in months. And turns out that his
05:54next venture off to that J.W.M. Partners is not faring much better. That's according to people
06:00familiar with the matter, although the decline there did play out over months. Its main fund
06:05lost 44 percent from September 2007 to February 2009. The decision to publicize some closely
06:12guarded trading methods further shook potential investors faith. The next close to ordeal was for
06:16a bailout, but LTCM dissolved in 2000. Experts blame Merriweather's very foundation of a fund
06:22that trusted the numbers and subverted trends, thus alienating potential partners. It would
06:26unfortunately not be the last time market volatility bested Merriweather's rationalist
06:31strategies. Bloomberg News has learned that J.W.M. Partners is shutting down its relative value
06:36opportunity second fund. Now, the fund lost 44 percent of its value from September of 2007 to
06:42February of this year. Since the fund opened in 1999, it has returned an average of less than
06:491.5 percent a year. Number six, Adam Neumann, WeWork. The young CEOs of today are afraid of
06:55going public. I think two things change. One, there's never been access to private capital
06:59like this. So I'm not sure if we would see some of the largest companies in the world today. If
07:03they were starting today, I'm not sure you would see them going public as soon as they did. They
07:06had no other choice. The workspace design company WeWork was ironically felled by unprofessional
07:11leadership. Publicly, CEO Adam Neumann's eccentric image and excessive office culture undermined the
07:16company's credibility. Privately, he overindulged in illicit substances. He also directly manipulated
07:21business ties to serve his personal life and lofty ambitions for WeWork. Most companies in the world
07:26run their company with earning quarterly earning reports. And when I'm going to make a decision,
07:30this is true about life and true about a business. When I'm going to make a decision based on three
07:34months forward, I'm not going to make the right decision. Massey is very famous for making a 300
07:38year plan. If you want to start thinking forward, you really have to think really far away. Finally,
07:42in 2019, controversy over the business model and Neumann himself prompted him to delay the
07:47IPO launch. The CEO then voted himself out as the company became a laughingstock. WeWork is now
07:53considered a cautionary tale about giving too much power and agency to the head of an office.
07:57Even after COVID-19's impact on workspaces led to bankruptcy in 2023,
08:01WeWork continues to reject Neumann's efforts to buy it back.
08:04Remarkable to see Adam Neumann back at the table, of course,
08:08has the backing. His firm, Flow, has the backing of Andreessen Horowitz,
08:12who put in $350 million into that. And now it appears that he's teaming up with Dan Loeb
08:17as well. So far, it appears that the advisors to WeWork are giving him the Heisman. We will
08:24see whether now that some of this is public, whether that changes.
08:38We're raising the bar and fueling lives all around us.
08:42The future and opportunity for our country starts with our drill bit.
08:46Innovations like fracking turned Chesapeake Energy into one of America's most powerful
08:50natural gas companies going into the 2010s. But CEO Aubrey McClendon's own prosperity was partly
08:56based on financial creativity. In 2012, it came out that he was financing operations with personal
09:01loans from his company's own lenders. After his dismissal, McClendon was sued by his old company
09:06for selling data, then investigated for market manipulation.
09:09Aubrey McClendon, one of the best known architects of the U.S. shale boom,
09:14indicted by a federal grand jury Tuesday on conspiracy charges linked to rigging the price
09:18of oil and gas leases in Oklahoma. Mr. McClendon is the only person named in the indictment for
09:23activities which date from 2007 through 2012 when he was chief executive of Chesapeake Energy
09:29Corporation. Forbes wasn't kidding when it dubbed him America's most reckless billionaire.
09:34Before these revelations, McClendon's schemes and downfall severely damaged Chesapeake's value.
09:39They experienced years of financial volatility before rebranding as Expand Energy Corporation
09:44following a merger in 2024. The day after he was indicted in 2016, McClendon died in a car wreck.
09:49Yeah, police telling us that he was northbound here on Midwest Boulevard. You could actually
09:54see the tire marks that lead right into the crash site. You can see the blackened
09:58out area from the fire and you can also see a memorial there starting to form.
10:03Once firefighters put out the fire, they found a mangled 2013 Chevy Tahoe and the driver,
10:09Aubrey McClendon, dead.
10:20It has the intelligence you require with the beauty you desire.
10:23The all-new BlackBerry Curve from AT&T, the world's leading provider of BlackBerry service.
10:29In new colors, titanium and red. AT&T, your world delivered.
10:33Mike Lazaridis and initial partner Doug Fregan essentially reinvented the cell phone with the
10:38multi-purpose device BlackBerry. Unfortunately, he was less smart about business. That is where
10:42Research in Motion co-CEO Jim Balsillie came in, but he too downplayed the introduction of the
10:47iPhone in 2007. Despite the BlackBerry's superior engineering, other smartphones,
10:52marketing and technical innovations convinced RIM to adapt.
10:55We've got a lot of listeners and viewers in the Middle East and India. You can confidently tell
11:01them they're going to have no problems with being able to use their BlackBerry and you being able
11:05to give them assurance that everything is secure. That's over. Interview is over.
11:12Please, you can't use that, Rory. That's just not fair.
11:14It was too late, and the two CEOs resigned shortly before the company was renamed BlackBerry Limited
11:19in 2013. They would both become cautionary figures for failing to recognize market trajectory.
11:24However, Balsillie and Lazaridis himself later acknowledged that it was the latter
11:28who fought the principles of restructuring.
11:30The struggling BlackBerry Limited discontinued its namesake product in 2022.
11:34This isn't a shock because they let everyone know in 2020 that this was coming. In 2022,
11:41these services were going to be shut down. So things like texting won't work. Data won't work.
11:46You can't call 911. Nothing will reliably still be working on these phones. So we're going to
11:51have to put them to bed and have little funerals for our BlackBerry if you're still using them.
11:56Number three, Frank Lorenzo, Eastern Airlines.
11:58Eastern's management has made preparations that if there isn't an agreement and if there is a strike,
12:04has made preparations to be able to operate the airline in that event. But naturally,
12:10the company needs to have its pilots, needs to have its flight attendants,
12:13needs to have its non-contract employees come to work.
12:17An industry staple for almost seven decades, Eastern Airlines struggled to adapt to that
12:22industry's deregulation in the 80s. Powerhouse manager Frank Lorenzo of Texas Air was poised
12:27to revive the company. The first order of business was a labor dispute, which Lorenzo
12:30actually made worse with harsh policies and deals. Pilots and flight attendants
12:34joined the labor strike and the FAA issued a massive fine over safety violations.
12:39Ultimate stability and no furloughs, et cetera, is profitability and a vibrant company. That's
12:45the only ultimate guarantee, because as we all know, there ain't no Santa Claus.
12:50Three years ago, when we proudly announced the acquisition of Eastern Airlines
12:56at a press conference, I never believed that we'd be here today.
13:00By 1991, Eastern was completely out of money. Lorenzo's folly would go down as a tragedy of
13:05aggressive management. The punchline is that he bounced back after selling off Eastern's assets
13:09to his other companies. Revivals of the airline have since failed to get off the ground.
13:13Official word from Eastern Airlines public relations wire is that the airline will
13:18officially discontinue all scheduled operations beginning at midnight tonight.
13:23Number two, Nick Leeson, Barings Bank.
13:25It wasn't a money thing. I could have stayed at Morgan Stanley for an extra five grand,
13:29but if they've stopped me doing something once, who's to say they're not going to do it again?
13:34And so I moved to Barings. At that stage, I probably
13:38would be happy to say that I'd never heard of Barings.
13:42But it was a famous old bank.
13:45So.
13:45It took Barings Bank 233 years to become one of the world's leading merchant banks.
13:50It took Nick Leeson three years to tear it down.
13:52And you were creating a large amount of profits.
13:56Fictitiously, yeah.
14:04But they were also paying me an awful lot of money that they couldn't justify.
14:07The derivatives trader was transferred to the company's Singapore office after he was denied
14:12a U.K. broker's license for failing to report a legal issue on his application.
14:15In 1992, he invested Barings' own money in futures without authorization,
14:20hiding shortfalls in an error account.
14:22Finally, the 1995 Kobe earthquake destabilized Asian markets and led to the discovery of
14:27Leeson's no longer lucrative corruption. He ultimately cost Barings almost one billion
14:31pounds before the ING Group bought the company in 1995 for a single quid.
14:36Meanwhile, Leeson got four years in prison,
14:38his banking career killed alongside his centuries-old financial institution.
14:42I hate to use the word business advice. Unfortunately, I'll be remembered for the
14:46loss of 862 million pounds and the collapse of Barings Bank. So, you know, trying to give
14:51business advice is a little bit fraudulent as far as I'm concerned.
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15:111. Bernard Ebers – Worldcom
15:14Global network access? Good. Massive security breach? Bad.
15:22Preventing the former from becoming the latter. Worldcom.
15:26Want confidence? You'll find the path very clearly marked. Worldcom. The leader in
15:31globally managed VPN solutions on the world's most scalable global IP network.
15:36Telecom cowboy Bernard Ebers' company was one of the biggest in its industry. It turns out this
15:41was not accomplished honestly. Worldcom filed for bankruptcy in 2002 after Cynthia Cooper's
15:46internal audit revealed extensive accounting fraud to bolster the company's stock. Up to
15:51$11 billion in overstatements were ultimately reported. Ebers ousted his fellow executives,
15:56but investigations and convictions framed him as the mastermind.
16:00The Wall Street Journal is reporting that telecommunications giant Worldcom
16:04may declare bankruptcy tonight. The company's board of directors has been meeting all day.
16:10It would be the biggest bankruptcy filing in history. The company is more than $30
16:15billion in debt and is reeling from an accounting scandal.
16:19He had already fallen out of favor with the company over his lack of strategy following
16:23a failed merger with Sprint. The disgraced, financially devastated Worldcom would eventually
16:27be sold to Verizon in 2006 under the name MCI, Inc. And in the years since his downfall,
16:32the once-renowned Ebers is synonymous with executive incompetence and corruption.
16:36The former bouncer has withered to 160 pounds, these court filings say. And 13 years into his
16:42sentence, his daughter is appealing for his release. Joy Ebers Bourne telling the court
16:47that it is evident to her that her dad's days on earth are short and she fears
16:51he may only have weeks to live. What are some other memorable
16:54company catastrophes based on human error? Drop a tip in the comments.
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