The Rise and Fall of Solyndra - Research Paper Example

? The Rise and Fall of Solyndra of the of the The Rise and Fall of Solyndra Introduction The foundations of every business enterprise, it may be surmised, are based on two principles- to earn a profit on the product or service it provides to consumers, or to find a way to provide much needed basic services such as health and sanitation to the communities where it is needed. Corporate businesses look at the bottom line also from another perspective- whether the business activities have contributed to a rise in the value of share prices that belong to the shareholders. That said- a business can only hope to survive and prosper in the marketplace when it strategizes against the many internal and external forces that provide opportunities and threats not only to the firm but indeed to the whole industry sector. A firm uses its particular strengths to compete in the marketplace while seeking to minimize the effect of its weaknesses. The case of Solyndra, the solar panel manufacturer, is unique because it was the only company in the solar panel manufacturing industry of the USA that relied on silicon based technology. The Formation of Solyndra Solyndra was founded in 2005 by Dr. Christian Gronet and had its headquarters in Fremont, California. The company manufactured cylindrical panels of CIGS (copper-indium-gallium-diselenide) based thin film solar cells which, as it was believed, represented a superior technology having certain advantages over conventionally produced solar cells. Thus, the company hoped to have created its own niche within the industry. The sales revenues for 2009 and 2010 were $100 million and $140 million respectively, before a peculiar set of circumstances forced the company to file for bankruptcy under Chapter 11 in 2011. The company claimed to have set up 1000 systems all around the world (The Solyndra Website, 2011). The Emergence of Legal and Other Issues Solyndra has been a company that was touted to be a success story exemplifying the usefulness of the Obama Administration’s green energy plan for the nation. The founder of the company was replaced by Bernie Harrison, an Intel veteran as CEO in September 2009. The company resorted to lobbying and had contributed a sizeable sum to the Obama campaign. Small wonder then- that out of 143 companies applying for a Federal loan, Solyndra was the first to receive a sum of $527 million from the Federal Financing Bank, under conditional guarantee from the US Department of Energy. By that time, it had already spent about $1.8 million lobbying for this cause. Further investigations have revealed that due to Chinese solar panels flooding the US markets, the company had been unable to compete effectively and had been forced to sell many of its products at below the cost of production. Moreover, as the cost of silicon plummeted in the world market, it became more and more difficult to make a profit. It appeared that the company had chosen the wrong silicon based technology to make its products and was now bearing the brunt of this mistake. Controversies Surrounding the Company Ethical considerations notwithstanding, one might have expected that the loan from the Obama Administration would be used to correct an already worsening situation and that the company would try to claw its way of the abyss it had fallen into. Sadly, this was never the case. Investigations by the FBI and newspaper reports by the Washington Post and others have revealed that company executives and top management went on a spending spree following the approval of the loan. However, weakening demand in the light of competition from Chinese firms such as Yingli and Suntech was cited as a worry. Solyndra’s new plant was built from the proceeds of the loan and another $198 million from private investors. At the time of taking the loan, the company had promised to create at least 3000 jobs in the construction and solar manufacturing industries, of which 1000 would be US based. But it all came to nothing and Solyndra was forced to file for bankruptcy under Chapter 11 in September 2011. Presently, executives have been appointed to oversee the restructuring and sale of assets to satisfy the creditor’s claims (The Solyndra Website, 2011). It must be said that being a publicly funded corporation, the shareholders or employees could have taken legal action against the irregular goings-on in the firm at any given time before dissolution but, apparently, no one was sufficiently interested. Under the Sarbanes-Oxley Act 2002, the Corporate Governance Committee could have also made a case against the management conduct and their unprofessional behavior but people were either bought off, threatened, silenced or displayed sheer lack of responsibility- acting only out of a sense of self preservation. The Sarbanes Oxley Act puts certain responsibilities on the Public Company Accounting Oversight Board regarding auditor independence, enhanced financial disclosure, conflicts of interest and accountability for corporate fraud and it is highly likely that Solyndra and its top management have violated one or more of these provisions of Corporate Law. For instance, it is quite likely that the accounts presented before the DOE contained falsified information designed to incline the examiners towards giving the Federal loan to the company. Another controversy regarding the company’s irresponsible and lackadaisical behavior regards the disposal of glass tubes that are used to make its products. Solyndra threw millions of dollars worth of these glass tubes into dumpsters where they ended up being shattered. This is, indeed, a sorry state of affairs indicating apathy and waste. They could have been donated to universities, for example. The company was also rumored to have left a considerable quantity of toxic waste in its facility in California. In fact, the possibility of the firm’s imminent bankruptcy was being discussed as early as 2010 even as the loan was given to the firm. Another shocker reported by CBS News is that Solyndra threw away many pieces of unused equipment at their plants once they knew that the stakes were irreversible. Some of these were found abandoned still in their original packing. This depicts the sheer callousness and carefree spirit in which the company was being managed in its final days. Does a Code of Ethics Apply Here? Given that lobbying has been a traditional way to get things approved and supported at the highest levels in the US Administration, it is not surprising that Solyndra resorted to such tactics. However, other companies have scoffed and chafed at such tactics, deeming them irregular and even unethical. At best, it leaves one with a bad feeling about the whole issue. Nevertheless, money and favors are exchanged as part of our political system and it seems it is hard to change. One can never underestimate the limits of human ingenuity. However, a simple and clear cut strategy across the board to discourage and dissuade the practice will eventually bear fruit. Investigations by the US Treasury Department found that executives in the Obama Administration had gone out of their way to favor and approve Solyndra’s loan even before the requisite financials were reviewed by the concerned officials. They had pulled a few strings in the right places. One good turn deserves another, they say, and the Solyndra loan approval is proof of that. But what is more disconcerting is the apparent lack of professionalism that was displayed by the top management of the firm. It has been put up as a weak defense that as Solyndra was faltering, it was getting more and more difficult to retain top executives and they had to offer cash and other incentives to do so. In any event, CEO Brian Harrison was appointed at a higher salary than founder Gronet; records show that the latter did not even receive his exit package. The top management earned not only top dollar competitive packages but had bonuses to beat. And all the time the company was suffering losses, so much so that in the end the employees were summarily terminated without even their severance packages. Such injustice will surely rankle in the halls of justice and fair play. The Department of Energy has itself been found guilty of letting Solyndra get the loan despite the financial statements showing that the company was on shaky ground. Under the loan agreement, Solyndra was to pay back the loan in installments of $5 million but even this was not honored by the company. However, the Department of Energy and the Obama Administration continued to look the other way while it was clear that the company was defaulting. In fact, the Obama Administration intervened in December 2011 to change the order of company liabilities so that private investors would be satisfied first in the event of a company default, with the American taxpayers and members of the general public being paid last of all. This is inexcusable behavior on the part of the Democrats and needs to be looked into. Even the Republican Party watched Solyndra fall without so much as a whimper. Now that the damage has been done, they are keen to point it out as one of Obama’s failed pet projects (Tampa Bay Times, 2011). Dissolution of the Company It was inevitable that the grossly mismanaged, technologically uncompetitive and incompetent Solyndra would fail a mere six years after its formation. There could be many reasons cited for this. It is said that Solyndra was a victim of the Chinese-US trade war on silicon, but nevertheless if was the failure of the original strategy that was to blame as well as the incompetent management that was only concerned with playing the fiddle while Solyndra burned. As such, they cannot be excused for what happened to the firm while under their watch and the CEO, CFO and other department heads must be brought to task. The employees were right to sue the firm regarding the abrupt loss of their jobs, that too without severance pay and other benefits due to them. The company officially filed for Chapter 11 bankruptcy on 06 September 2011. It was subsequently raided by the FBI and also put under investigation by the US Department of Treasury. Amazingly even as recently as February 2012 a Delaware bankruptcy judge approved $370,000 in bonuses for some 20 management staff of the defunct company. While Mitt Romney has criticized the Obama Administration for supporting Solyndra because of friendships with George Kaiser, an Oklahoma businessman with major investments in the solar company, Romney himself supported Konarka Technologies Inc. (which filed for bankruptcy on 01 June 2012) while he was Governor of Massachusetts It is a case of the pot calling the kettle black. We should deal with cases on merit rather than picking personal favorites (Snyder, 2012). The Solyndra episode notwithstanding, the DOE has little choice but to rely on freely available renewable energy sources in the future as world reserves of gas and oil dwindle. It takes time for technology to improve and become cost effective. That is why we might not see electric cars in every household till a power source is readily and reliably available via the National Grid. Some companies do make mistakes and must bow out. But one cannot excuse the irresponsible and high handed behavior of the top management of Solyndra even if they knew the company was failing. They could have revamped part of their production facilities or closed down operations for a while till an alternative strategy was developed. As of now, the USA is exporting more solar panels than it is importing, and the solar balance of trade went from $723 million in 2009 to $1.8 billion in 2012. It was the Reagan Administration that had halted all progress on these initiatives first undertaken by the Carter Administration- so we now lag behind Japan, China, Taiwan and Europe. It is far more sensible to create our own home grown energy resources than rely on sources from other countries- which may not have our best interests at heart. Present representatives in Congress and Senate both are more supportive of solar and other renewable sources of energy than the traditional gas and oil. They realize that it is our best hope for the future in using greener and cleaner sources while also reducing pollution and our carbon footprint (Walmsley, 2011). Lessons Learned At the time Solyndra was created, the only constraints on the industry were the price of silicon and construction costs of a solar manufacturing plant. The US Government planned to invest quite a lot of money into this technology. However, the game plan changed when China entered the marketplace. China correctly estimated that the battle for solar energy was a battle worth winning, and in 2010 alone sunk $30 billion into this industry, about 20 times the US investment. Global prices for silicon took a nosedive and put several US firms out of business. China was right in estimating that over the next few years, the solar manufacturing industry will become a worldwide market worth trillions of dollars. Today while China holds 54 percent of the world market, the US share has declined from 42 percent in 1997 to just 6 percent now. The US has tried to catch up to China with the Energy Policy Act 2005. This Bush era initiative was a loan guarantee program that provided State sponsored assistance for clean energy projects using wind, solar and nuclear power. The Obama Administration has continued to sponsor this legacy. One problem is that the new projects are quite capital intensive but are not labor intensive- hence they create very few jobs of the new kind. The problem is that while funding is tied to politics in the USA, in China the State sponsored program goes forward without too much bungling and fanfare. It is business in motion, quiet and effective. In the USA, the failure of Solyndra and Konarka Technologies has led to much criticism especially regarding the bad treatment of employees at the hands of management (Scherer, 2011). The US is at present in a quandary- it must invest in technology and support the cost of failures as it develops energy efficient goods. Indeed any country desirous of investing in alternative energy must do the same. Blaming failure on a particular individual or Government will only be a setback to future aspirations. (2364 words) References Scherer, M. (2011). The Solyndra Syndrome. Time Magazine, 10 October 2011. Accessed on 15 June 2012 at http://web.ebscohost.com.pegleg.park.edu/ehost/detail?vid=3&hid=113&sid=dac8c3c6-1a5b-4c9b-8533-8094f9ca451e%40sessionmgr115&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=afh&AN=66316280&anchor=toc Snyder, J. (2012). Romney backed Solar Company fails days after he Faulted Solyndra. Accessed on 15 June 2012 at http://www.bloomberg.com/news/2012-06-04/romney-bashes-solyndra-s-loan-as-solar-company-he-backed-fails.html The Solyndra website (2012). Accessed on 15 June 2012 at www.solyndra.com. The Solyndra website (2011). Solyndra suspends operations to evaluate reorganization options. Accessed on 15 June 2012 at http://www.solyndra.com/2011/09/solyndra-suspends-operations-to-evaluate-reorganization-options/ The Tampa Bay Times, Nov 3, 2011. As Solyndra faltered, top executives collected big bonuses. Accessed on 15 June 2012 at http://www.tampabay.com/news/business/energy/as-solyndra-faltered-top-executives-collected-big-bonuses/1199760 The New Republic Magazine (November 2011) Blinded. Page 1, November 17, 2011. Accessed on 15 June 2012 at http://www.lexisnexis.com.pegleg.park.edu/hottopics/lnacademic/? Walmsley, S. (2011). US voters back solar investment despite corporate collapses. IPE Real Estate Magazine, November 17, 2011. Accessed on 15 June 2012 at http://www.lexisnexis.com.pegleg.park.edu/hottopics/lnacademic/? Read More