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CHAPTER 5 • STRATEGIES IN ACTION 147

The largest U.S. chemical company by revenue is Dow Chemical Company, and Dow
is pursuing an aggressive retrenchment strategy. Dow recently closed 20 plants, put on idle
180 more plants, and laid off more than 5,000 employees.
In some cases, bankruptcy can be an effective type of retrenchment strategy. Bankruptcy
can allow a firm to avoid major debt obligations and to void union contracts. There are five
major types of bankruptcy: Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13.
Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees no
hope of being able to operate successfully or to obtain the necessary creditor agreement.
All the organization’s assets are sold in parts for their tangible worth.
Chapter 9 bankruptcy applies to municipalities. A municipality that successfully
declared bankruptcy is Camden, New Jersey, the state’s poorest city and the fifth-poorest
city in the United States. A crime-ridden city of 87,000, Camden received $62.5 million in
state aid and has withdrawn its bankruptcy petition. Between 1980 and 2000, only 18 U.S.
cities declared bankruptcy. Some states do not allow municipalities to declare bankruptcy.
Chapter 11 bankruptcy allows organizations to reorganize and come back after filing
a petition for protection.
Chapter 12 bankruptcy was created by the Family Farmer Bankruptcy Act of 1986.
This law became effective in 1987 and provides special relief to family farmers with debt
equal to or less than $1.5 million.
Chapter 13 bankruptcy is a reorganization plan similar to Chapter 11, but it is avail-
able only to small businesses owned by individuals with unsecured debts of less than
$100,000 and secured debts of less than $350,000. The Chapter 13 debtor is allowed to
operate the business while a plan is being developed to provide for the successful operation
of the business in the future.
More than 60 percent of Fortune 500 companies are incorporated in Wilmington,
Delaware, so this city has recently become known as the “bankruptcy capital of the world.”
More than half of all large U.S. firms that declared bankruptcy in recent years have done so
in Wilmington. Personal bankruptcy filings in the United States exceeded 1 million for the
first time ever in 2008, coming on the heels of 822,590 and 617,660 filings in 2008 and
2007, respectively.
Telecom-equipment maker Nortel Networks filed for Chapter 11 bankruptcy in 2009
as its heavy debt load would not withstand falling demand. Rival firm Cisco Systems,
Alcatel SA of France, Nokia Corp., and Avaya Inc. are sure to benefit from Nortel’s
demise. Nortel has been plagued by accounting restatements, price cutting, falling
demand, and high interest payments.
Instead of emerging from bankruptcy, Nortel Networks is considering selling its two divi-
sions: wireless equipment and telecom systems for offices. Potential buyers such as Avaya Inc.
and Siemensw AG and Gores Group LLC and even Cisco Systems are in talks with Nortel.
Pilgrim’s Pride, the largest chicken company in the United States, recently declared
bankruptcy. Large debt, high feed costs, and lower prices for broilers have crushed the
company’s operations, especially in the United States. The company’s Mexican operations
were not included in the bankruptcy filing.
Tribune Company, which owns eight daily major newspapers, including the Los
Angeles Times and Chicago Tribune, as well as the Chicago Cubs baseball team, recently
declared bankruptcy. Tribune is the nation’s second largest newspaper chain, but also owns
quite a few television stations.
The year 2008 was especially tough for many financial firms, retailers, restaurants,
and other companies. It was so rough that a record number of firms declared bankruptcy.
Table 5-5 describes some well-known firms that recently declared Chapter 11 bankruptcy.
Five guidelines for when retrenchment may be an especially effective strategy to
pursue are as follows: 18

• When an organization has a clearly distinctive competence but has failed consistently
to meet its objectives and goals over time.
• When an organization is one of the weaker competitors in a given industry.
• When an organization is plagued by inefficiency, low profitability, poor employee
morale, and pressure from stockholders to improve performance.