Good Intentions With Bad Outcomes: Examples From Corporate Finance

Companies make financial decisions with the best intentions, aiming to drive growth, reward shareholders, or stay competitive. However, even well-planned strategies can backfire, leading to financial strain, inefficiencies, or long-term instability. The gap between intention and outcome highlights the complexity of corporate finance, where seemingly sound ideas can have unintended consequences.

Common missteps include overestimating expansion potential, distributing too much cash to investors, or taking on excessive risk in pursuit of short-term gains. These mistakes can weaken financial health, reduce flexibility, or create unforeseen challenges. Examining these examples shows why careful planning and risk assessment are essential for sustainable success.

Overbudgeted Expansion Projects

Companies expand to capture new markets, increase production capacity, or enhance competitiveness. While these initiatives can drive growth, poor cost estimation, unrealistic revenue projections, and unforeseen delays often lead to projects exceeding their budgets. When expenses spiral out of control, the financial burden can strain cash flow, increase debt, and erode profitability.

Boeing’s development of the 777X aircraft illustrates this issue. Initially expected to enter service in 2020, the project faced repeated delays due to design challenges, regulatory hurdles, and supply chain disruptions. As costs mounted, Boeing recorded billions in charges, significantly impacting its financial performance. Tesla’s Gigafactories, while ultimately successful, also exceeded initial cost estimates due to construction delays and higher-than-expected material expenses.

Overly optimistic demand forecasts contribute to budget overruns as well. Target’s failed expansion into Canada is a prime example. The company invested heavily in supply chain infrastructure and store openings, but logistical issues and pricing missteps led to losses exceeding $2 billion before the venture was abandoned.

Excessive Dividend Distributions

Returning profits to shareholders signals financial strength, but distributing more cash than a company can afford creates liquidity issues, limits reinvestment opportunities, and forces reliance on debt to sustain payouts. This short-term focus can weaken long-term stability, particularly if earnings decline or economic conditions worsen.

General Electric provides a cautionary example. For years, GE maintained high dividend payments even as its industrial operations struggled. By prioritizing shareholder returns over reinvestment, the company depleted cash reserves and increased financial strain. In 2018, GE slashed its dividend by 92%, signaling distress and contributing to a sharp decline in its stock price. AT&T faced similar challenges. Its aggressive dividend policy raised concerns about its ability to fund expansion and reduce debt. In 2021, the company cut its dividend nearly in half after spinning off WarnerMedia, acknowledging that previous payouts were unsustainable.

Energy firms are particularly vulnerable to overcommitting on dividends. ExxonMobil maintained its dividend through the 2020 oil downturn by taking on additional debt, raising concerns about long-term financial flexibility. In contrast, BP reduced dividends to preserve capital, demonstrating a more cautious approach.

Overly Generous Compensation Packages

Attracting and retaining top executives is a priority, but excessive compensation can strain finances and misalign incentives. When pay structures prioritize short-term stock performance over sustainable growth, executives may take actions that temporarily boost share prices while neglecting long-term stability.

Stock-based compensation, particularly when tied to aggressive earnings targets, has led to questionable decision-making. In the early 2000s, stock option backdating scandals emerged as companies manipulated grant dates to maximize executive gains. More recently, performance-based stock awards have encouraged executives to engage in share buybacks that artificially inflate earnings per share rather than investing in operations. Tesla’s 2018 CEO compensation plan, which granted Elon Musk stock options tied to market capitalization milestones, exemplifies how such structures can lead to extreme risk-taking. While Tesla’s valuation skyrocketed, its volatile financial performance raised concerns about whether growth was being pursued at the expense of stability.

Golden parachutes, which provide sizable exit packages to departing executives, can also be problematic. These agreements often guarantee multimillion-dollar payouts regardless of performance, shielding leadership from the consequences of poor decisions. In 2019, Boeing’s then-CEO Dennis Muilenburg was ousted following the 737 MAX crisis but still walked away with compensation exceeding $60 million. Such payouts raise concerns about accountability, as executives may not face meaningful financial repercussions for mismanagement.

Aggressive Debt Issuance

Debt can fuel growth, optimize capital structure, or finance strategic initiatives, but excessive borrowing exposes a company to liquidity risks, credit downgrades, and restrictive covenants that limit flexibility. High leverage also magnifies vulnerabilities during economic downturns, as interest expenses become harder to service when cash flows contract.

WeWork’s rapid expansion was heavily financed through debt. The company issued billions in bonds, relying on optimistic projections of future profitability. When investor confidence collapsed in 2019, its bonds traded at distressed levels, and refinancing options dwindled. The inability to service obligations contributed to the company’s eventual bankruptcy in 2023. Bed Bath & Beyond faced similar struggles. A heavy debt load from aggressive share repurchases and strategic missteps drained liquidity, forcing the retailer into costly emergency financing that only delayed its eventual failure.

Underpriced Service Contracts

Companies often offer competitive pricing to attract customers, secure long-term contracts, or gain market share. When pricing fails to cover costs, these agreements erode profitability, strain resources, and create operational inefficiencies that are difficult to reverse. Businesses that lock themselves into unprofitable contracts may struggle to renegotiate terms, leading to sustained financial losses.

IBM’s early cloud computing contracts illustrate this issue. To compete with Amazon Web Services and Microsoft Azure, IBM pursued aggressive pricing strategies that resulted in thin margins. The cost of maintaining infrastructure and delivering promised service levels outpaced revenue, forcing IBM to restructure its cloud business and spin off its managed services division in 2021. Similarly, UK-based construction firm Carillion collapsed in 2018 after underbidding on government contracts. The company won major public-sector projects but underestimated labor and material costs, leading to cash flow shortfalls that triggered insolvency.

Airline industry partnerships also highlight the risks of underpricing. American Airlines’ regional carrier agreements with subcontractors like Mesa Airlines faced financial strain when rising fuel and labor costs outpaced fixed contract rates. Mesa ultimately had to restructure its agreements, demonstrating how failing to anticipate cost fluctuations can make long-term service commitments unsustainable. Companies that fail to incorporate inflation adjustments, cost escalators, or performance-based pricing into contracts often find themselves locked into unfavorable terms that erode financial stability.

Rash Mergers Causing Integration Hurdles

Mergers and acquisitions are pursued to enhance market position, achieve synergies, and unlock new revenue streams. When integration challenges are underestimated, these deals can lead to cultural clashes, operational inefficiencies, and financial underperformance.

The 2015 merger of Kraft Foods and Heinz serves as a prime example. The deal, orchestrated by 3G Capital and Berkshire Hathaway, aimed to create cost efficiencies through aggressive expense reductions. However, deep budget cuts led to supply chain disruptions, product quality concerns, and brand deterioration. By 2019, Kraft Heinz had taken a $15.4 billion impairment charge on key brands, reflecting the failure to generate expected synergies. Sprint’s merger with Nextel in 2005 faced similar issues. Incompatible network technologies and cultural misalignment led to subscriber losses and financial struggles, ultimately resulting in Sprint being acquired by T-Mobile in 2020.

Banking mergers also highlight integration risks. The 1998 combination of Citicorp and Travelers Group formed Citigroup, a financial conglomerate that struggled with regulatory challenges and operational complexity. Initially praised for its cross-selling potential, the deal faced conflicting business models and compliance issues, leading to significant restructuring. By 2009, Citigroup had divested Travelers, illustrating how ambitious mergers can unravel when strategic execution falls short. Companies that fail to conduct thorough due diligence, align corporate cultures, or integrate systems effectively often find that anticipated benefits never materialize.