10 Big Business Blunders
Ego and greed: a common recipe for executive error
Long-Term Capital Management
Too smart by half
They were the epitome of the rational man: Two Nobel Prize-winning economists, a former Federal Reserve vice chairman, and 25 egghead Ph.D.'s--all armed with banks of number-crunching computers. Recruited to join Long-Term Capital Management in 1993, they were led by John Meriwether, the legendary former Salomon Brothers bond trader and star of the book Liar's Poker . Meriwether had made billions for his former employer through trades based on computer-generated charts that plotted historical relationships between related securities, like those of merging companies. In 1993, the team pulled in hundreds of millions from wide-eyed investors too impressed to ask probing questions, then leveraged the money by borrowing billions more.
The strategy was a wild success at first, netting investors an annual return of more than 40 percent in 1995 and 1996--even after the partners had grabbed a hefty 2 percent management fee and a 25 percent share of the profits.
But when a host of unexpected events (Russia's debt default, a collapse in the market for mortgage-backed securities, and a currency crisis in Asia) sent the global bond market into a tailspin in 1998, traders stopped acting like the rational buyers and sellers the eggheads had assumed. "They had programmed the market for a cold predictability that it never had," author Lowenstein writes in When Genius Failed: The Rise and Fall of Long-Term Capital Management. "They had forgotten the human factor."
XEROX
Undiscovered treasure
It must have been a sight for sore fingers: an electronic typewriter that could display written correspondence on a screen, store it with a click of a button, then send it around the office and print out hard copies?
Demonstrated at "Futures Day" during a meeting of Xerox's top managers in 1977, the fruits of nearly a decade of study at the company's Palo Alto Research Center caught the eyes of the executives' spouses, many of whom were former secretaries. But most of their manager husbands "just didn't get it," says Douglas K. Smith, coauthor of Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer. "So Xerox turned it down."
Meanwhile, Apple Computer's founders copied much of the technology in their Macintosh PC. And Xerox researchers like Bob Metcalfe, who had invented the Ethernet local area network, left and started their own companies, leaving Xerox largely out of what would become a trillion-dollar industry.
Under pressure to produce profits, the fast-growing Xerox "didn't see PARC's innovations as adding much more than incremental growth."
Not that Xerox was the first to make this mistake. Some 35 years earlier, IBM, Kodak, and General Electric all took passes on a new technology that could reproduce paper copies within minutes. "What's wrong with mimeographs?" IBM executives are said to have asked when they turned down the chance to buy the technology that would go on to empower Xerox.
Donald Trump
Rolling snake eyes
'You're fired!" That's exactly what any sensible board of directors would yell at a chief executive who'd run his company into the ground from Day 1. But when the CEO is Donald Trump, it's apparently easier said than done.
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