We now come to our fifth and final installment: Capitulation to Irrelevance or Death.

“Irrelevance” is a subtle touch.

It’s a fair bet that not too many readers of Adam Smith, Esq. see themselves as, or would be content to be, spending their working hours at an “irrelevant” firm. On a certain view, a firm’s “death” might even be preferable, having the virtue of clarity and forcing one to move on. Biding one’s time on the marginalized fringe isn’t my idea of a career, or a life, but I would invite you to ponder for a moment the various ways inertia, familiarity, distractedness, short-run ease, and subconscious reluctance to venture forth can effectively sentence some to that fate.

In a way, “irrelevance” is what’s afflicting a formerly iconic Silicon Valley company much in the news this very week—I refer of course to Yahoo, which back in its heyday was as much in the forefront of Americans’ online life as Google, Facebook, Amazon, and Netflix are today. Who would want to work there? Who among those who deem themselves in the cognoscenti would want to have an email address “@yahoo.com”?

Collins identifies two “basic versions” of stage 5: (1) those in charge come to believe that capitulation is more realistic than continuing to fight; or (2) they continue the struggle in desperation until they flat run out of options and the firm either collapses utterly or pales into (you guessed it) irrelevance. This is what Collins has to say about firms that get all the way to stage 5:

No company we studied was destined to fall all the way to Stage 5, and each company could have made different decisions earlier in the journey to reverse its downward slide. But by the time a company has moved through Stages 1, 2, 3, and 4, those in power can become exhausted and dispirited, and eventually abandon hope. When you abandon hope, you should begin preparing for the end.

Hope is great, don’t get me wrong. (I’m a blue-blooded American, after all.) But to paraphrase, “that and a Metrocard will get you on the subway.” In other words, you also need resources, namely cash. Bill Lazier, the late legendary Professor at Stanford Business School and then at Stanford Law School, taught a course, “What Lawyers Should Know about Business,” where he would push students to identify the “central issue in the case” of a failing company. Answers along the lines of “strategic choices,” “developing the brand,” “delivering value,” etc., were typically offered up until an improbably contrarian student would finally volunteer something to the effect of, “I’m not sure this is what you’re looking for, but they’re going to run out of cash.”


But the lesson of Stage 5 is not just one of a brutal end when the cash dries up and the lights go out. The real lesson is how to keep from getting to the point where you have run out of options.

To demonstrate, Collins contrasts Zenith, the once-upon-a-time iconic US TV manufacturer, with Xerox, the once-upon-a-time iconic US copier manufacturer.


Had you invested $1 in Zenith in 1950, by 1965 it would have been worth $100. The company owned the US black and white TV market and soon overtook RCA to also be the #1 manufacturer of color TV’s. Entering “hubris born of success,” however, they dismissed the upstart entrants from Japan. (Collins reminds us of their famous slogan, “Zenith—the quality goes in before the name goes on.”)

They entered Stage 2 in the late 1960’s, investing in such an enormous increase in manufacturing capacity that their debt:equity ratio rose to 100%. Stage 3 was next, denial of risk and peril, when they suddenly found they had excess capacity, dropped prices in a battle for market share, took on more debt, and blamed their plummeting profit margins on everything from supposedly unfair Japanese trade practices to the 1973 Arab oil shock.

Stage 4, grasping for salvation, came in the late 1970’s when a senior Zenith executive told Business Week, “If we have any plan at all, it’s that we’ll take a shot at everything”—and they did: VCRs, videodiscs, telephones linked to TVs, cable TV boxes, PC’s, and more.

Salvation almost materialized: Jerry Pearlman, a cum laude Princetonian with a Harvard MBA (top 2% of his class), led the brand new Data Systems division to #2 maker of IBM-compatible PCs and even staked out a lead in the novel market for laptops. During the decade of the 1980’s, Data Systems’ revenue grew thirtyfold and accounted for nearly all the company’s profits. Unfortunately, the company had never jettisoned or simply shuttered the TV business. Cash on hand fell to under 5% of current liabilities and Pearlman (by now CEO) had no choice but to sell the computer business to French Bull Corporation—whose CEO later commented that when the deal was struck, Pearlman looked exhausted and relieved. After five CEOs in the next 10 years, Zenith collapsed into bankruptcy.


Anne Mulcahy became CEO of Xerox in 2001 and described the company’s situation as “terrifying:”

  • Its stock had dropped 92% in less than two years, destroying $38-billion in shareholder value;
  • Its most recent fiscal year result was a $273-million loss;
  • Its debt:equity ratio exceeded 900% and its bonds were rated junk;
  • It had $19-billion in debt and only $100-million in cash;
  • The SEC had just commenced an investigation into its books, which foreclosed any outside market fundraising;
  • And the supposed superstar CEO Richard Thoman had just been deposed after only 13 months.

Mulcahy, a Xerox lifer of 25 years in sales and HR, never even dreamed she would be considered and was, as she later confessed, “the board’s last resort.”

According to Collins, she faced a choice: Whether to “grasp for salvation” by trying to revolutionize Xerox (if you’re thinking Carly Fiorina here, you’re on to something), or to figure out how to “bring the [Xerox] culture with me—it’s all about Xerox, not me.” Mulcahy declined an interview with Newsweek and Collins reports he could find only four feature articles about her during the entire first three years of her tenure—almost impossible to believe for a woman CEO of a high-profile Fortune 500 (and if you’re thinking of Lou Gerstner here, you’re right again). Mulcahy simply buckled down and worked seven days a week for the first two years of her tenure.

Mulcahy made some very difficult decisions and readily admitted they were hard on her: “I don’t think I want them to get easy:”

  • Cutting $2.5-bilion/year out of the cost structure
  • Greeting any mention of Chapter 11 with silence
  • Refusing to even consider cutting R&D despite repeated advice to do so

And by 2006 Xerox’s profit was over $1-billion and its balance sheet restored to sanity. Chief Executive magazine named Mulcahy CEO of the year in 2008.

I’ll conclude with a few thoughts on all this.

First, let me start with a perhaps contrarian observation. You have now finished a five-part series exploring modalities and trajectories of failure, complete with heroes and villains, visionaries and blind men, utterly unnecessary self-inflicted wounds and impossible recoveries against seemingly insurmountable odds. We all know who to root for in these stories, don’t we?

Not so fast. Not every firm deserves to survive. Sometimes the economy and, yes, society, benefits from shedding organizations that no longer serve their function or are simply ongoing pools of frustration, misery, and aborted careers. Firms have no entitlement to immortality, and it’s mawkish to assume otherwise.

Of course, we’re all emotionally tied to our firms: So stipulated. Is there, then, any more objective way of assessing when a leader ought to pull out all the stops to survive (Mulcahy) vs. when it’s time just to call in the Chapter 11 team (Zenith)?

Collins suggests there is, and if I disagreed with him I’d let you know, in words of one syllable. But I do agree with him, and the perspective he expresses here (I borrow liberally) is one we’re increasingly incorporating into our work with law firms far and wide:

If you cannot marshal a compelling answer to the question, “What would be lost, and how would the world be worse off, if we ceased to exist?” then perhaps capitulation is the wise path. But if you have a clear and inspired purpose built upon solid core values, then the noble course may be to fight on…

The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches, and does so with such superior performance, that it would leave a gaping hole—one that could not be easily filled by any other institution—if it ceased to exist…

This requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than survival and larger than themselves while also maintaining the stoic will needed to take whatever actions must be taken, however excruciating, for the sake of that cause.

Do you note what I do about Collins’s use of language here? He uses words with incorporeal overtones: “a cause larger than survival,” “stoic,” “noble,” “retain faith,” “for the sake of that cause.”

This the language of stewardship, at the very least, and spiritual meaning if pressed to its farthest extrapolation. I told you I think Collins is right.

Do you?


Related Articles

Email Delivery

Get Our Latest Articles Delivered to your inbox +

Sign-up for email

Be the first to learn of Adam Smith, Esq. invitation-only events, surveys, and reports.

Get Our Latest Articles Delivered to Your Inbox

Like having coffee with Adam Smith, Esq. in the morning (coffee not included).

Oops, we need this information
Oops, we need this information
Oops, we need this information

Thanks and a hearty virtual handshake from the team at Adam Smith, Esq.; we’re glad you opted to hear from us.

What you can expect from us:

  • an email whenever we publish a new article;
  • respect and affection for our loyal readers. This means we’ll exercise the strictest discretion with your contact info; we will never release it outside our firm under any circumstances, not for love and not for money. And we ourselves will email you about a new article and only about a new article.

Welcome onboard! If you like what you read, tell your friends, and if you don’t, tell us.

PS: You know where to find us so we invite you to make this a two-way conversation; if you have an idea or suggestion for something you’d like us to discuss, drop it in our inbox. No promises that we’ll write about it, but we will faithfully promise to read your thoughts carefully.