Kodak Bankruptcy Ruling: Lessons for Business & Workers

Perhaps the US Supreme Court was right, after all. Companies are people, too. They are not immortal, their promises can be broken, and like all fallible folks, they will probably — wittingly or unwittingly — let you down numerous times in the course of your life and theirs. Moreover, they may not honor contracts to customers, suppliers, investors, their local communities, or even employees.

Richard Diehl just found out how fickle both man and enterprises can be. Diehl, who lives in Greece, N.Y., worked 36 years for the {complink 1688|Eastman Kodak Co.} and wrongly assumed he had earned from a grateful company “retiree medical, dental, life insurance and survivor income benefits.” On Monday, Diehl and 56,000 other Kodak retirees got a rude jolt when a bankruptcy judge agreed with the company's request for the termination of those benefits, effective December 31.

Kodak in a pre-ruling statement said it could not “support continued payment of retiree benefit” even after initiating several cost-reduction actions that included laying off “nearly 4,000 employees this year and exiting or winding down several businesses and the proposed sale of our Personalized Imaging and Document businesses.”

Kodak is clearly a troubled company, and its many problems are spilling over to all employees — current and retired — suppliers, customers, and shareholders. The once-mighty photographic equipment, printing, and imaging company is fading slowly into oblivion with sales dropping sharply each of the last four years, and net losses piling up in the hundreds of millions. The company's market value has dwindled to less than $60 million, and its shares now trade as a penny stock on the PINK exchange. Sadly, the company that gave millions worldwide the photography equipment to record their memorable moments today is lacking even a smidgen of its own previous glory.

By the time Kodak emerges from bankruptcy — if it perchance achieves even this moderate goal — it would have a tiny footprint. The company's management is reorganizing Kodak as a “much smaller, leaner enterprise focused on commercial, packaging and functional printing and enterprise services.” It will also have lighter debts and a much reduced retiree obligation, thanks to bankruptcy court judge Allan Gropper who agreed Kodak should terminate many of its obligations to retirees,” according to a report in USA Today. “Individuals may see their life savings lost or lose their jobs,” the judge said. “Bankruptcy can have a particularly painful effect on retirees.”

Really? Tell that to Kodak's retirees who counted on the company to continue providing generous benefits long after they had left the company and who must now seek alternative medical and survivor obligations. Many of the ex-employees cited in news reports blamed Kodak's management for mismanaging the company's affairs and for failing to anticipate or foresee the major technological changes that ended its domination of the photography market.

The news that Kodak's current management wanted to ditch many employees and substantially cut retiree benefits hit me hard initially as I thought about all the naïve folks who based their lives on two wrong assumptions. The first was that the company would continue to be the undisputed leader in its market segment, and second, that it would unfailingly stick with the agreement to provide those benefits. They were wrong on both score.

Kodak and other troubled companies may not see anything wrong in terminating benefits to employees, but there's a larger lesson here for American enterprises and workers. While one part of me would like to side with the retirees and blame Kodak, the more enlightened part of me (thank you, Intel ex-CEO and ex-chairman Andrew Grove) remembered that employment and, unfortunately, promised benefits are “at will” in the United States. This means your employer only owes you wages for work already done and does not owe you guaranteed employment or lifelong benefits beyond what it is able to pay, even if it promised much more. Employees therefore have an obligation to ensure they secure their retirement by whatever means necessary and independent of past, current, or future employers.

Grove's observation may be coming too late for many Kodak employees, but I would like to restate the six points he emphasized in his book here for current workers. He said:

  1. Nobody owes you a career
  2. Your career is literally your business. You own it as a sole proprietor.
  3. You have one employee: yourself
  4. You are in competition with millions of similar businesses — i.e., millions of other employees all over the world
  5. You need to accept ownership of your career, your skills, and the timing of your moves
  6. It is your responsibility to protect your personal business of yours from harm and to position it to benefit from the changes in the environment. Nobody else can do that for you.

There are implications for businesses, too. Executives must understand that as Grove noted in his book Only the Paranoid Survive: How to Exploit the Crisis Point That Challenge Every Company , employees will become more mercenary in their actions and will not always put company interest first. You may not like the implications, but that's what the Kodak bankruptcy ruling has reinforced.

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16 comments on “Kodak Bankruptcy Ruling: Lessons for Business & Workers

  1. R.J.Matthews
    November 6, 2012

    Really feel sorry for Kodak and it workers Bolaji when i see a big firm like this go down it is if a bit of my past has been wiped out. I used to work for a scanning and microfilm bureau and we used to get lots of our supplies and equipment from Kodak unfortunately we were taken over by a more techno savvy outfit and everyone lost their jobs.

    Seems everyone is on a steadily speeding up technological hamster wheel nowadays and if you do not keep up either as a person or a company you are chucked on the scrap heap.

    Better stop now before i start talking about typewriters and tin baths!


  2. Daniel
    November 6, 2012

    Bolaji, Kodak has lost their business because of wrong business policy. Kodak, once pioneer in photography -film industry doesn't diversify their business after the introduction of Digital cameras. Instead of diversification, they try to continue with their old traditional business line and end up with bankrupt. Their competitors like Nikon, Canon etc had diversified their business to digital photography and movie films. So they are still in market with a strong financial background.

  3. bolaji ojo
    November 7, 2012

    R.J. Matthews, You can talk typewriters with me anytime. 🙂 I used one at an early age and even as a cub reporter years ago. By then, electric typewriters and word processors were coming up but these were way beyond my means.

    Your point both about Kodak's retirees and current employees and technology evolution and the impact on businesses is well noted. The transition isn't always successfully done by companies and employees as well as investors pay a hefty price for this.

  4. t.alex
    November 7, 2012

    This is probably one of the tough choices the company has to make to move forward. But other than this, what is Kodak gonna do ?

  5. Daryl
    November 7, 2012

    Am I stupid or what?  Why doesn't government force (yes force) these companies to place the monies for the retirement plans into trusts that cannot be touched by the company.   The company must be forced to maintain a balance to these trusts and when they cannot meet their obligations they can back away.   I think we have a part of the information here about the previous history of Kodak's retirement account.   I know of companies that had retirement accounts that were well funded and then the company sold STOCK from their company to these accounts to get “the money.”     The stock became worthless then boof … no monies.    Anyway… Kodak's retirement is now gone but I just identified how our government regulators dropped the ball.   Now companies are converting from the fixed retirement accounts to 401K where the employee is responsible.    That is great since the employee will have more control, but to think this underfunded retirement account at Kodak was the fault of the employee for being ignorant… I can agree partly but there is more information here than is vetted in the story.  

  6. Barbara Jorgensen
    November 7, 2012

    I agree with Daryl there should be some means to enforce a company's promise to employees. I understand that it is not a company's obligation, but when someone — like my father  — is told the money will be there, it should be there. Retirees have very little choice in terms of job mobility when the rug is pulled out fro underneath them. Are there ways to insure retirement plans?

  7. bolaji ojo
    November 7, 2012

    T.alex, The tough choice the company made was to eliminate its obligations and leave the workers with a nasty hangover. I don't call that much of a “tough choice”. There wasn't anything tough in here for Kodak itself, after all it isn't a flesh and blood organization. The management that took the decision would never take the same medicine. If they choose to do this, that would be a tough choice. They could decide to cut off their own entitlements or eliminate their own pension payments. That would be a tough choice.

  8. bolaji ojo
    November 7, 2012

    T.alex, The tough choice the company made was to eliminate its obligations and leave the workers with a nasty hangover. I don't call that much of a “tough choice”. There wasn't anything tough in here for Kodak itself, after all it isn't a flesh and blood organization. The management that took the decision would never take the same medicine. If they choose to do this, that would be a tough choice. They could decide to cut off their own entitlements or eliminate their own pension payments. That would be a tough choice.

  9. bolaji ojo
    November 7, 2012

    Daryl, Exactly. Why should it be possible for Kodak to ask for the cancellation of its obligations to its former employees? Any of these obligations should have a lock-box that cannot be touched when a company is seeking bankruptcy protection.

  10. bolaji ojo
    November 7, 2012

    The obligations were promised by the company and they should have “funded” these entitlements. I think it's morally reprehensible that a company should be able to do this. In fact, I think a management should be criminally liable for not putting the funds for such an entitlement in a lock box that cannot be touched. By the way, such a lock box does exist. Pension funds for senior executives are typically excluded from this kind of discussions and cannot be touched because they are always well funded and exist outside of the control of even the company's management.

  11. Cryptoman
    November 8, 2012

    I think the worst part of working for someone on a salary is the false sense of security and longevity the worker gets. This false sense is also the key reason why millions of people go through the trouble of polishing up their CVs purely to be employed by someone else.

    The reality is very different though. Businesses can go down and employees can be left jobless on the street. People currently employed read about such things in the paper and feel sorry for the unemployed never realising that the same can happen to them one day. I realised this when I first lost my job. I was sent an SMS saying that the company filed for insolvency and therefore the employees were not required to show up for work the next day. It was shocking at the time but probably was one of the best wake up calls I ever received in my life. It transformed my vision about careers, jobs, employers and security. Unless you experience unemployment at some stage in your life, you keep on living in a bubble and keep on chasing a carrot called 'a successful career' as the very valuable years pass by. You keep on giving 5 days of your valuable week for some money so that you can spend it in the remaining 2 days. That means you are giving 71.43% of your working time to realise the dreams of someone else under a highly insecure employment environment! (I suggest you read the last sentence again but this time  a bit slower).

    Therefore, although I sympathise with the retired personnel of Kodak, I think they are just an unlucky bunch who have found out too late that the bubble can burst one day. Trusting an employer to keep you employed for many years to come is naive enough but expecting a former employee to keep on paying you after retirement is unrealistic. This is simply the reality of the world we live in and whether we like it or not we have to accept the facts as they are and move on.

    Fortunately, human beings have one fantastic attribute that has helped them evolve and stay alive over thousands of years. It is called “adaptability”. No matter how bad the situation looks, people (thankfully) always find a way to survive.

    I agree with Grove's remarks and have one more bullet to add to that list:

    7 – Never put your eggs in one basket. Always have a plan B in your profession and safeguard yourself while you have a job and a stable income. Always remember that you are the captain of your own ship.


  12. Barbara Jorgensen
    November 8, 2012

    @RJ: Thanks. It seemed to me there was such an agency but no doubt its enforcement powers are limited. I'll take a look at the links–thanks again!

  13. R.J.Matthews
    November 8, 2012

    That's ok Barbara over in the UK our pensions are in a huge mess as well.

    Do the right thing and save and you will not get any benefits and inflation helped by quantitative easing will kill your pension anyway.

    Maybe the answer is to save all you can then hide it away in a Swiss bank account!


  14. bolaji ojo
    November 9, 2012

    Cryptoman, First, I agree with most of what you've written. However, I have to ask: How many of us can captain the career boat successfully? Many workers who agree with Grove try to steer their own career but many don't know exactly where they are headed and the realities of what it would take to get there even when they know.

    Our educational system encourages the “Get-a-job” syndrome. We send kids to school for donkey years — all the way to a Phd, in cases — so that they can finish and then start hunting for a job created by a smarter fella or woman who doesn't have a Phd but knows he/she needs to be a job creator first to be in control of his/her destiny. As you noted, many of us (including this writer) spend 5 or more days a week sweating for a salary but owns no stakes in the enterprise — except for a promised set of benefits that may anytime go poof with the job!

  15. Cryptoman
    November 9, 2012


    You have raised good points. I agree. It is unrealistic to expect everyone to have an entrepreneural attitude. If that was the case, everyone would be a boss with no workers!

    None of us know how to steer the career boat when we first start working except a few exceptional individuals maybe. However, one has to self-monitor while working to find out where he/she wants to head. If a person does not know how to steer the boat, that person has got to learn it either from more experienced colleagues, life coaches, friends or literature etc. There is tons of reliable information sources on such things.

    The trouble is when a person gets into a comfort zone while working and forgets to raise the head to look around and to look into himself/herself to see where the career is heading and where it should be heading.

    Employment requires constant personal growth and awareness to take a person further. Simply keeping your head down and doing your job properly is not enough. You always have to have the bigger picture in perspective to be successful and to avoid disappointments in the future.

    Furthermore, you should not be afraid to change direction and location – even if your current job looks safe – if you believe that manouvre will be to your benefit.

    The universal rule of “survival of the fittest” applies when it comes to a successful career. The worst thing one can do is to keep on running in the “rat race” simply because everyone else is doing it without questioning why and without keeping an eye for opportunities and better alternatives.




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