The Speech That Wiped a Company’s Reputation & Share price Overnight
Best Practice looks through the archives at a CEO that managed to wipe billions from his company’s share price in a matter of hours.
Today’s story starts with Gerald Ratner, a highschool drop-out who joined his father’s modest jewellery business in 1965. Just under twenty-years later, Gerald inherited the business - Ratners Group- which despite having 120 stores, was posting losses of around £350,000 each year. Gerald, keen to turn his father’s company around wanted to deploy the aggressive strategies used by street vendors in London, noting that those who yelled the loudest and had the loudest and most attractive stalls were swimming with customers.
Soon, the storefronts of all Ratner’s locations were covered in bright and loud “SALE, SALE SALE” and “HALF PRICE” posters, with everything in the display windows clearly marked with a price tag. Rather than cater to the English elite, Ratner’s was targeting the everyday consumer with cut-price jewellery. “I put the earrings and chains in the front of the window and diamond rings at the back, and played loud pop music,” he told the Financial Times years later. Window shoppers that were previously priced-out of the jewellery market were able to purchase items as low as £20, and this saw Ratner’s profits explode.
By 1990, Gerald had increased the number of storefronts from 120 when he inherited the business from his father to more than 2,000- capturing a staggering 50% of the UK’s jewellry market. This amounted to £1.2 billion in sales- £125 in profit, and Ratners began to purchase competing jewellry chains.
“I just felt I could not fail,” Gerald said.
Things were looking perfect for Gerald Ratner and his jewellry empire… that was until he took the stage at the 1991 Institute of Director’s annual convention and managed to single-handedly pull off one of the most disastrous speeches in the history of business. In the lead up to Ratner’s speech, a consultant told him to throw in a few jokes for the audience, and the consequences of these jokes would be unprecedented.
Taking the stage - you can watch the speech in full here, for context - Ratner told the audience that his jewellry empire “doesn’t represent prosperity - and come to think of it, it has very little to do with quality as well,” he said. “We do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, ‘How can you sell this for such a low price?’ I say, because it’s all total crap.”
People say, ‘How can you sell this for such a low price?’ I say, because it’s all total crap.”
He didn’t stop there. “We even sell a pair of gold earrings for under £1... some people say, ‘that’s cheaper than a prawn sandwich!’, I have to say, the sandwich will probably last longer than the earrings.”
Waking up the following day, Rater opened up the newspapers to a headline calling him “Gerald Crapner” and others echoing the sentiment of “CEO calls his own company’s products crap”. While he initially tried to brush these comments off as little more than an ill-fated attempt at humour, the damage was done.
Within days, Ratner's Group shares had dropped by £500 million, and by the end of 1991 the stock price was down by 80%. The company said this the result of customers changing their spending habits, but it’s more plausible that the CEO taking jabs at his own company in public was a silver bullet for Ratner’s. Just a year later, Ratner was ousted from the Ratner Group.
The phenomenon of CEOs undermining their own product or company is now known as the Ratner effect, or “doing a Ratner.” He’s quoted in the press explaining that “it doesn’t seem to matter than in the ‘80s I was Britain’s largest jeweller, with over 50% of the UK market… my obituary will be all about being a disaster,” he said.