Scorched Earth Policy

During the Gulf War in 1990-91, Coalition forces went to battle with the Ba’athist Iraqis that had invaded Kuwait. The Iraqi troops were no match for the Coalition forces, but just because they couldn’t compete with their military might doesn’t mean they weren’t ready to do some damage as they retreated. They set fire to 600-plus oil wells on their way out of town, and some of those fires burned for almost ten months.

This practice of destroying stuff our enemy might find useful even as we retreat is known as a scorched-earth strategy, and the Iraqis weren’t the first—or the last—military force to use it.

This strategy has a counterpart in the business world, and it’s called a “scorched earth policy.” It’s a where a company tries to make itself as unattractive as possible in an effort to stave off an unwanted acquisition. They might sell a bunch of their assets, take on a bunch of unnecessary debt, or even make moves to buy a company currently in bankruptcy. Crazy stuff, right? Those are the kind of maneuvers that can destroy an organization, but that’s the thinking here: the company is saying they’d rather die than be acquired.

Sometimes this strategy works: the would-be acquirer backs off, the target company recoups its losses, and everyone goes merrily on their way. But sometimes it doesn’t work. Sometimes the company does end up destroying itself, which is why we’ll sometimes see this practice referred to as a “suicide pill.” Or sometimes the acquirer will file legal motions preventing the target from self-destructing, though those motions aren’t always successful.