#016: The Fallen - A Look at the Major Corporate Failures of 2023

I'm back after two weeks! Had to hunker down and get a lot of assignments done - the semester is ramping up and placements are just around the corner, so breaks like this will probably become more common until the end of the year. But enough about me, let's talk about something BTTR - business failures! (Haha, sorry, bad joke there).

In today's newsletter, I wanted to take a look at some of the major company failures we've seen so far in 2023. It's been a rocky year for many businesses, and several prominent names have slipped up big time, succumbing to bad management, market forces, or just plain old bad luck. Some of these failures were surprising, while others seemed almost inevitable as the companies struggled to stay afloat. Join me as I recap the year's biggest corporate crashes - gawking at the wreckage is oddly therapeutic! From inflated unicorns to toppled giants, we'll review the major fails and discuss what went wrong. There's never a dull moment in the world of business!

1. WeWork

One of the most dramatic crashes was WeWork earlier this year. WeWork was once the darling of Silicon Valley, with its vision of transforming office rental into a tech-enabled lifestyle experience. But as we all remember, it spectacularly imploded this year after its failed IPO attempt exposed major issues with its business model and corporate governance. It was a precipitous fall for a company that was valued at $47 billion at one point!

So what exactly went wrong with WeWork? At its core, the company's business model was based on taking long-term leases for office space and renting out desks short-term, leaving itself vulnerable to fluctuations in demand. The company’s brand was strongly tied to its co-founder, Adam Neumann, who pursued swift growth at the expense of profits. His eccentric behaviour and the revelations about it led to his ouster and the derailment of an initial public offering in 2019. The failed IPO and the company’s subsequent takeover by SoftBank, its largest investor, were both facilitated by the public exposure of long-known information. The music had to stop eventually once investors took a hard look prior to the planned IPO. Its financials simply didn't support its valuation.

2. Bed Bath and Beyond

Bed Bath & Beyond made a series of fateful mistakes that led to its downfall. Most critically, it spent $11.8 billion since 2004 to buy back its own shares. This was more than twice the $5.2 billion in debt it had on its books in its most recent SEC filing. This excessive share repurchasing left the company cash-poor and unable to invest in revitalising its stores or building up competitive e-commerce capabilities.

Meanwhile, Bed Bath & Beyond was slow to adapt to the rise of online shopping and failed to give customers a compelling reason to shop in-stores. It also took on unsustainable debt loads to finance share repurchases. In its final years, Bed Bath & Beyond cycled through failed turnaround efforts like eliminating coupons and switching to private label brands. Ultimately, the company wasted billions on short-sighted financial engineering and lacked a coherent strategy to evolve with changing consumer behaviours and competitive realities. These fundamental missteps proved lethal for the once-dominant retailer.

3. GoFirst

GoFirst's downfall stems from its reliance on Pratt & Whitney engines that experienced frequent mechanical failures starting in 2020, grounding over half its fleet at times. This caused massive flight disruptions and revenue losses, exacerbated by the pandemic's hit to air travel. GoFirst alleges Pratt & Whitney failed to provide sufficient replacement engines per an arbitration ruling. However, the airline itself lacked contingency plans to address the prolonged engine issues. Its cash flow was crunched by lost ticket sales and ongoing operating expenses, plus accumulated debt.

GoFirst delayed payments to lessors, vendors and staff as losses mounted. The pandemic made things even worse. Less people were flying, so GoFirst had to ground more planes and lay off staff. Fuel prices went up too. Other airlines like IndiGo and SpiceJet saw a chance to gain customers. Ultimately, poor fleet management, an inflexible business model, and inadequate preparedness to tackle external shocks precipitated GoFirst's bankruptcy, unable to bounce back once pushed into downfall.

4. Silicon Valley Bank

Silicon Valley Bank's demise stemmed from overexposure to risky investments and insufficient cash reserves. As interest rates rose, the bank's bond portfolio declined in value. Meanwhile, many tech industry customers faced troubles and withdrew substantial deposits. This liquidity strain forced Silicon Valley Bank to sell assets at a loss to meet withdrawals.

Insufficient oversight also played a role. Regulatory changes had exempted Silicon Valley Bank from heightened scrutiny applied to larger banks, despite its massive growth. The bank's management failed to rein in risks, while directors provided inadequate oversight. Regulators missed key problems as well.

The bank's highly networked, tech-savvy customer base exacerbated matters through social media-fueled bank runs. Ultimately, flawed risk management and regulatory gaps allowed Silicon Valley Bank to make risky moves unchecked, leading to its failure. The FDIC was forced to step in to protect depositors when the bank collapsed, underscoring weaknesses in the system.

5. Credit Suisse

Like Silicon Valley Bank, Credit Suisse's failure stemmed from risky practices and oversight gaps. The bank incurred major losses from the collapse of investment funds it was heavily exposed to. It also faced reputational damage from numerous scandals involving corruption and money laundering.

Insufficient liquidity and cash reserves made Credit Suisse vulnerable when markets turned volatile and clients withdrew funds en masse. Its viability was ultimately threatened by a run on the bank. Though Credit Suisse secured an emergency loan, it proved inadequate and regulators stepped in to broker an acquisition by UBS.

At the core, Credit Suisse failed to effectively manage financial and non-financial risks. Its risk assessment processes were weak, allowing exposure to unfold unchecked. Multiple scandals eroded trust in the bank. When market conditions shifted, years of inadequate risk governance left Credit Suisse acutely vulnerable, forcing a destabilising intervention. The lesson is proper risk management and internal controls are essential, even for large, established institutions.

That covers some of the major corporate collapses we've witnessed so far in 2023. It's been an eventful year in the world of business failures! The turbulence serves as a reminder that no company is immune to failure when fundamentals are unsound. I deviated a bit from our usual newsletter format this week to do a deeper dive on the downfalls separately.

I hope these insights on prominent bankruptcies and their causes were interesting. I plan to return next week with another newsletter, schedule permitting. If my academics ramp up further, I may need to move to a biweekly cadence temporarily. But rest assured, I will be back with more interesting topics! Thanks for reading.