http://www.alternet.org/economy/eddie-lampert-and-ayn-rand
Ayn Rand-loving CEO destroys his empire
The invisible hand waves bye-bye to Eddie Lampert, whose business plan
has run Sears into the ground
Once upon a time, hedge fund manager Eddie Lampert was living a Wall
Street fairy tale. His fairy godmother was Ayn Rand, the dashing diva of
free-market ideology whose quirky economic notions would transform him
into a glamorous business hero.
For a while, it seemed to work like a charm. Pundits called him the
“Steve Jobs of the investment world.” The new Warren Buffett. By 2006 he
was flying high, the richest man in Connecticut, managing over $15
billion thorough his hedge fund, ESL Investments.
Stoked by his Wall Street success, Lampert plunged headlong into the
retail world. Undaunted by his lack of industry experience and hailed a
genius, Lampert boldly pushed to merge Kmart and Sears with a layoff and
cost-cutting strategy that would, he promised, send profits into the
stratosphere. Meanwhile the hotshot threw cash around like an oil
sheikh, buying a $40 million pad in Florida’s Biscayne Bay, a record
even for that star-studded county.
Fast-forward to 2013: The fairy tale has become a nightmare.
Lampert is now known as one of the worst CEOs in America — the man who
flushed Sears down the toilet with his demented management style and
harebrained approach to retail. Sears stock is tanking. His hedge fun is
down 40 percent, and the business press has turned from praising
Lampert’s genius to watching gleefully as his ship sinks. Investors are
running from “Crazy Eddie” like the plague.
That’s what happens when Ayn Rand is the basis for your business plan.
Crazy Eddie has been one of America’s most vocal advocates of
discredited free-market economics, so obsessed with Ayn Rand he could
rattle off memorized passages of her novels. As Mina Kimes explained in
a fascinating profile in Bloomberg Businessweek, Lampert took the myth
that humans perform best when acting selfishly as gospel, pitting Sears
company managers against each other in a kind of Lord of the Flies death
match. This, he believed, would cause them to act rationally and boost
performance.
If you think that sounds batshit crazy, congratulations. You understand
more than most of America’s business school graduates.
Instead of enhancing Sears’ bottom line, the heads of various divisions
began to undermine each other and fight tooth and claw for the profits
of their individual fiefdoms at the expense of the overall brand. By
this time Crazy Eddie was completely in thrall to his own bloated ego,
and fancied he could bend underlings to his will by putting them through
humiliating rituals, like annual conference calls in which unit managers
were forced to bow and scrape for money and resources. But the chaos
only grew.
Lampert took to hiding behind a pen name and spying on and goading
employees through an internal social network. He became obsessed with
technology, wasting resources on developing apps as Sears’ physical
stores became dilapidated and filthy. Instead of investing in workers
and developing useful products, he sold off valuable real estate,
shuttered stores, and engineered stock buybacks in order to manipulate
stock prices and line his own pockets.
Eddie’s crazy didn’t stop there. As a Wall Street creature fantastically
out of touch with the kind of ordinary folks who shop at Sears, he
inserted his love of luxury into the mix, trying to sell Rolex watches
and $4,400 designer handbagsthrough America’s iconic budget-friendly brand.
As his company was descending into Randian mayhem, Lampert continued to
cheerfully inform stockholders that his revolutionary ideas would soon
produce earth-shattering results. Reality: Sears has lost half its value
in five years. Since 2010, Sears has closed more than half of its
stores. Sears Holdings is financially distressed and Lampert’s own hedge
fund has reduced its stake in the company. The Sears store in Oakland,
California, open for business with boarded-up windows, has even been
cited for urban blight.
Truth be told, hedge fund honchos have had little to fear from royally
screwing companies. Bank accounts fattened at the expense of workers and
other stakeholders, they go on their merry way to mess up something
else. But the epic incompetence of guys like Lampert may be dispelling
the myth that financiers are the smartest guys in the room. Research
suggests that not only do hedge fund managers typically understand squat
about running a company, they’re often not much good at beating the
stock market, either. A recent Bloomberg article points out that in
2013, hedge funds returned 7.1 percent. That doesn’t sound so bad, until
you consider that if you had just stuck your money in the Standard &
Poor’s 500 Index you would have seen returns of 29.1 percent. Big
difference!
While Lampert was caught up in Randian delusions of crass materialism
and cut-throat capitalism, he failed to realize that a business is an
experience as much communal as it is individual. Employees are not just
competitive beings — they benefit from cooperating with each other and
perform better when they are respected, rather than beaten down and
driven by fear.
Slowly but surely, Ayn Rand’s economic theories are being discarded
because they simply don’t add up in the real world. Even Rand acolyte
Paul Ryan (R-Wis) is now distancing himself, calling his well-documented
enthusiasm an “urban legend.”
Lampert created a business model predicated on the notion that the
invisible hand of the market would magically drive stellar results. With
his belief in economic fairy tales, he managed to kill the goose that
laid his own golden egg.
Looks like the invisible hand just waved goodbye to Eddie Lampert.
--
Darryl McMahon
Change is not a synonym for improvement.
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