The Ayn Rand-Worshipping Sears CEO That Blew Up His Multibillion Dollar Empire

[freebuddy]

The Ayn Rand-Worshipping Sears CEO That Blew Up His Multibillion Dollar Empire

The invisible hand waves goodbye to Americas most delusional CEO

By Lynn Parramore

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 Floridas 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 Lamperts genius to watching gleefully as his ship sinks. Investors are running from Crazy Eddie like the plague.

Thats what happens when Ayn Rand is the basis for your business plan.

Crazy Eddie has been one of Americas 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 Americas 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.

Eddies crazy didnt 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 handbags through Americas 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 Lamperts 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, theyre 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 doesnt sound so bad, until you consider that if you had just stuck your money in the Standard & Poors 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 Rands economic theories are being discarded because they simply dont 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.

http://www.salon.com/2013/12/10/ayn_rand_loving_ceo_destroys_his_empire_partner/

[avelanch]

THE INVISIBLE HAND!

[Ghostsof1915]

Adam Smith's idea of capitalism has been shattered. Simply put, the checks and balances have been wiped out. The "invisible hand" of competition was supposed to regulate the market. Companies that were innovative were supposed to succeed. I don't think Adam Smith ever envisioned large corporations that adapted the "business is war" approach. The problem is, business is not war. This war means big firms buy out small innovative firms, and then crush their ideas, or look to milk it for all the profit it can.

Build a better mousetrap and the world will beat a path to your door. Nope. Acme Industries will buy you out. We're going backwards to Victorian England. The worst part is the greed, and unsustainable expectations of companies. You know when a company tells their sales reps "You have unlimited earning potential!". Bull. You can only work so many hours. You can only have so many clients, and there is only so many products you can sell.

Part of this problem actually stems from mutual funds. Now when you invest, you have really no idea who you are investing in. So investors are looking just at the bottom line. They don't see individual companies. They don't see when a company pays it's employees crap wages, and no benefits. They don't see companies dumping toxic chemicals.

I knew there was something wrong when my instructor in economics was trying to say that minimum wage hurts the economy. Corporations are run and employed by people. You should be able to compete in a sustainable way, treating your employees and customers like family, and still have a reasonable return. Looking for long term growth, not just to make a quick buck.

[Lancaster]

This has almost nothing to do with free capitalism or Ayn Rand.

This is just some guy who spent money foolishly and made really bad investment moves.

[:D]

This has almost nothing to do with free capitalism or Ayn Rand.

This is just some guy who spent money foolishly and made really bad investment moves.

But that wouldn't make as good a headline.

[TOMapleLaughs]

Idiot loses big money by making idiotic decisions.

World turns.

[BeefcakeBo]

I'm not sure what to take from this article? The guy is an idiot the end? Or is he actually out of a job yet?

[2SKATES1STICK]

HBO said so, so now Ayn Rand is the problem

[Offensive Threat]

Eddie Lampert has a current net worth of $3.4 Billion dollars US. So regardless of what happens to Sears Co. hes gonna land on his feet.

[viking mama]

And I like Sears for some of their brands & 70% off sales. I have always wondered where the profits were in this, tho'.

I thought that the Sears catalogue business had a good racket going,... until on-line businesses cropped-up & exploded everywhere. Sears will become just another discounted dumping ground with little or no floor space or qualified staff to sell products...like say - Winners.

This definitely appears to be the end of an era.

[Hugor Hill]

And I like Sears for some of their brands & 70% off sales. I have always wondered where the profits were in this, tho'.

I thought that the Sears catalogue business had a good racket going,... until on-line businesses cropped-up & exploded everywhere. Sears will become just another discounted dumping ground with little or no floor space or qualified staff to sell products...like say - Winners.

This definitely appears to be the end of an era.

Associated with that, brands have also made strides in consumer psychology to a point where people don't to go the store to buy, say, a computer any more. They go to the store to buy an Apple, or a Dell. The middle men distributor occupies less authority in the minds of the consumers than before.

[DonLever]

Sears has been going downhill for sometime now, so you can't blame him for everything.

[drummer4now]

Sears has been going downhill for sometime now, so you can't blame him for everything.

Agreed.. everytime I go in one it's like a ghost town..

[Mustapha]

Sears' sale philosophy:

1.Jack up retail prices 70%

2. Advertise merchandise as 70% off.

3. Sell merchandise for MSRP during 'sale'

Sears Corporation's future hinges on the following factors:

1.) Whether or not baby boomers learn to shop online, and

2.) How long the baby boomer generation survives.

When those born between 1945 and 1965 die off, Sears will die off also.

[Guest]

Associated with that, brands have also made strides in consumer psychology to a point where people don't to go the store to buy, say, a computer any more. They go to the store to buy an Apple, or a Dell. The middle men distributor occupies less authority in the minds of the consumers than before.

Yes and no. The table has turned in the other direction significantly in the past few decades. Wal-mart, future shop...big box stores have dominated the space for a while. Producers may be making in roads. As you suggest - but only the very big brands in my opinion.

[Hugor Hill]

Yes and no. The table has turned in the other direction significantly in the past few decades. Wal-mart, future shop...big box stores have dominated the space for a while. Producers may be making in roads. As you suggest - but only the very big brands in my opinion.

That's actually a good observation - the flip side to what I was saying.

The lower price points commodities, or newer brands, have thinner market penetration and smaller marketing budgets so they have to rely on box stores to distribute. Box stores compete on prices so they are tough on whole sale prices, which makes growth for these brands more difficult.

So you see, the rich companies get richer...

[Mr. Ambien]

That's actually a good observation - the flip side to what I was saying.

The lower price points commodities, or newer brands, have thinner market penetration and smaller marketing budgets so they have to rely on box stores to distribute. Box stores compete on prices so they are tough on whole sale prices, which makes growth for these brands more difficult.

So you see, the rich companies get richer...

That's a nice whinge post, and you'd be right, if the online market didn't exist, and if big box stores were going the same online route by closing down retail stores, such as Best Buy, Staples, Sears, etc. Watching Target issue apologies to Canadians for trying to presume Canadians would topple over to their brand name so they could pull the Canadian-surcharge route? People spoke with their wallets, because they had other choices.

Especially in the electronics market, people have more choices than ever. There's Tigerdirect, NCIX, Mwave, Dell, HP, Lenovo, Sager, DirectPC, DirectCanada, and within other online stores like Newegg, eBay, and Amazon, other sellers that use the traffic to those websites to sell their product too.

But anyways, I digress with all this logic stuff, this was meant to be a soap box for the irrational left to whine about wealthy people. Carry on carryin' on.

[Hugor Hill]

That's a nice whinge post, and you'd be right, if the online market didn't exist, and if big box stores were going the same online route by closing down retail stores, such as Best Buy, Staples, Sears, etc. Watching Target issue apologies to Canadians for trying to presume Canadians would topple over to their brand name so they could pull the Canadian-surcharge route? People spoke with their wallets, because they had other choices.

Especially in the electronics market, people have more choices than ever. There's Tigerdirect, NCIX, Mwave, Dell, HP, Lenovo, Sager, DirectPC, DirectCanada, and within other online stores like Newegg, eBay, and Amazon, other sellers that use the traffic to those websites to sell their product too.

But anyways, I digress with all this logic stuff, this was meant to be a soap box for the irrational left to whine about wealthy people. Carry on carryin' on.

TigerDirect, DirectPC etc are just smaller versions of the box stores. You are actually proving my point by providing more details.