A tale of New America: a billionaire plays with his employees & shareholders

Summary:  Today we have second of three tales of New America, about a billionaire playing with his toy: Sears. Its employees, vendors, and shareholders will suffer if his mad theories destroy the company. Nothing that happens will affect his family’s lifestyle for a dozen generations. These are bad versions of the Gilded Age’s tycoons.

Llibertarianism

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Yes! where is he, the champion and the child
Of all that’s great or little, wise or wild;
Whose game was empires, and whose stakes were thrones;
Whose table earth — whose dice were human bones?

— Excerpt from “The Age of Bronze” by Lord Byron

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A three-part series: tales of New America

Increasing wealth creates positive feedback, much like a hurricane moving over warm water. A more powerful 1% allows them to command the political and economic high ground of America, so that they can gain further wealth — and shape a New America more to their liking. This process has run for several generations; now the results are plain to see — for all that wish to look.
Happy rich

  1. Mad ideology: gunplay on our streets
  2. Today – Mad ideology: billionaires play with big businesses
  3. Billionaires mold our schools to produce better help

A billionaire plays with a big company & his mad ideology

“With great wealth comes great intelligence”
— Aphorism known to all billionaires

At Sears, Eddie Lampert’s Warring Divisions Model Adds to the Troubles“, Bloomberg, 11 July 2013 — Opening:

Every year the presidents of Sears Holdings’ many business units trudge … to a conference room where they ask Eddie Lampert for money. The leaders have made these solitary treks since 2008, when Lampert, a reclusive hedge fund billionaire, splintered the company into more than 30 units. Each meeting starts quietly: When the executive arrives, Lampert’s top consiglieri are there, waiting around a U-shaped table … An assistant walks in, turns on a screen on the opposite wall, and an image of Lampert flickers to life. The Sears chairman lives in a $38 million mansion in South Florida and visits the campus no more than twice a year (he hates flying) …

In January, 8 years after Lampert masterminded Kmart’s $12 billion buyout of Sears in 2005, the board appointed him chief executive officer of the 120-year-old retailer. The company had gone through 4 CEOs since the merger, yet former executives say Lampert has long been running the show. Since the takeover, Sears Holdings’ sales have dropped from $49.1 billion to $39.9 billion, and its stock has sunk 64 percent. Its cash recently fell to a 10-year low. Although it has plenty of assets to unload before bankruptcy looms, the odds of a turnaround grow longer every quarter. “The way it’s being managed, it doesn’t work,” says Mary Ross Gilbert, a managing director at investment bank Imperial Capital. “They’re going to continue to deteriorate.”

Plagued by the realities threatening many retail stores, Sears also faces a unique problem: Lampert. Many of its troubles can be traced to an organizational model the chairman implemented five years ago, an idea he has said will save the company. Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money. An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.

Instead, the divisions turned against each other—and Sears and Kmart, the overarching brands, suffered. Interviews with more than 40 former executives, many of whom sat at the highest levels of the company, paint a picture of a business that’s ravaged by infighting as its divisions battle over fewer resources. (Many declined to go on the record for a variety of reasons, including fear of angering Lampert.) Shaunak Dave, a former executive who left in 2012 and is now at sports marketing agency Revolution, says the model created a “warring tribes” culture. “If you were in a different business unit, we were in two competing companies,” he says. “Cooperation and collaboration aren’t there.”

Each of us has a role in the ecosystem
Each of us has a role in the ecosystem

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Lampert {said} “Decentralized systems and structures work better than centralized ones because they produce better information over time. The downside is that, to some, it appears messier than centralized systems.”

… Lampert created the model because he wanted deeper data, which he could use to analyze the company’s assets. It’s why he hired Paul DePodesta, the Harvard-educated statistician immortalized by Michael Lewis in his book Moneyball: The Art of Winning an Unfair Game, to join Sears’s board. He wanted to use nontraditional metrics to gain an edge, like DePodesta did for the Oakland Athletics in Moneyball and is trying to repeat in his current job with the New York Mets. Only so far, Lampert’s experiment resembles a different book: The Hunger Games.

The rest of this article continues with this tale of a mad ideology applied by a man whose billions have inflated his self-esteem so that he feels beyond advice from mortals (i.e., non-billionaries). It’s an amazing story. A horrific one for the employees and stakeholders of Sears.

For a brief analysis see “John Galt and the Theory of the Firm“, at the New York Times, 16 July 2013 — Excerpt:

Eddie Lampert’s big idea is that markets and competition rool, so he’s forcing the different parts of Sears to compete for resources just as if they were independent firms, with individual division profitability the only criterion for success. According to BB, it’s not going well; but they don’t get much into the broader issues.

The first issue that should pop into anyone’s head here is, if the different divisions of Sears have no common interests, if the best model is competition red in tooth and claw, why should Sears exist at all? Why not just break it up into units that have no reason not to compete? For that matter, why should any large firm exist? Why not just have small firms, or maybe just individuals, who make deals for whatever they need?

… We may live in a market sea, but that sea is dotted with many islands that we call firms, some of them quite large, within which decisions are made not via markets but via hierarchy — even, you might say, via central planning. Clearly, there are some things you don’t want to leave up to the market — the market itself is telling us that, by creating those islands of planning and hierarchy. Why that’s true — why some things are better done through market mechanisms, while others are better done through at least a bit of command-and-control — is a deep issue. Oliver Williamson (pdf) got a Nobel for helping elucidate some aspects of that issue …

For a free-market true believer the recognition that some things are best not left up to markets should be a disturbing notion. If the limitations of markets in providing certain kinds of shared services are important enough to justify the creation of command-and-control entities with hundreds of thousands or even millions of workers, might there not even be some goods and services (*cough* health care *cough*) best provided by non-market means even at the level of the economy as a whole?

Wonka and the GOP

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About our emerging plutocracy:

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6 thoughts on “A tale of New America: a billionaire plays with his employees & shareholders

  1. You know, I’ve met several “Randians” over the years – entitled, spoiled, selfish, immature, and narcissistic are the terms that come to mind (I should know as I was married to one). Each one of them was a complete screw-up in their ability to relate to other people but whose professional accomplishments gave them license in their minds to treat others like dirt and boast incessantly about their greatness. Every one of these people would regularly proclaim their inherent superiority over the “masses” yet would whimper when their nastiness was reflected back to them.

    Of course, their supposed superiority over other people required that their taxes be minimized to avoid subsidizing the poor and unfortunate who deserved only contempt and rejection. Conversely, when their own personal and professional fortunes went south, their philosophy of Galtian independence would quickly go out the window so they could collect unemployment insurance or SSI for disability claims.

    The worst part from my perspective is how their interpersonal incompetence and hypocrisy always and inevitably leads to disaster for themselves and other people, both personally and professionally. In short, when the sh*t hits the fan because of their own arrogance, stupidity, and high-handedness, they had no problem asking others, including the government, to bail them out but are just as quick to leave others to clean up their messes. The biggest and most ironic example of all is how their chain-smoking philosophical queen took Social Security and possibly Medicare:

    What Eddie Lambert has done to Sears is the inevitable outcome of this plutocratic, “FU, I Got Mine” nonsense. Given that the tentacles of this philosophy are wrapped around our governmental representatives, the media, and intelligentsia, our democratic experiment is in grave danger. As Fabius Maximus has often stated, we have much work to do.

  2. Randianism is the sociopaths bible. ‘They’ are more competent (they never are by the way) in their own minds. They cause chaos everywhere they go. They are deeply dysfunctional people, but who thrive (for a short term at least .. another symptom .. unable to thing into the future) in dysfunctional environments. Therefore they, deliberately, create dysfunctional ones.

    The thing they hate (and kill off if they can) is measurable responsibility and accountability.

    Everyone else is just a shadow to them because they lack the ability to form deep connections and over value their ability to dump their failures onto other people. Watching two or more sociopaths try to dump their own individual failures on each other is one of the few pleasures we ordinary people can enjoy these days.

    Up to now they have been totally successful at creating their ‘perfect society’. Neo-liberalism.a sociopathic ideology masquerading as ‘economic theory’, and its worse offspring ‘neo-conservatism.as a psychopathic ideology, masquerading as, well, a psychopathic ideology,

    In every major western society, especially Anglo Saxon ones such as the US,. UK, Australia etc, the top levels of leadership/management (and in quite few cases several levels below that) are dominated by sociopaths now. That’s why we can;t expect much change in trends, as even if we clean out the top levels, the next levels are just as bad.

    In our ‘modern’ society things like, intelligence, competence, loyalty (to everyone above and below your personal level) , long term thinking, creativity, ethical behaviour, etc, are now personal liabilities. To succeed you have to be a sociopath (or emulate one).

    FM your own posts show this, the perfect examples are your Marine threads about the fights between those who want a ‘mission command’ system and those who really, really like the old ‘orders go down and so does the blame while the glory goes always upward’ system. This is a perfect example of the fight between sociopaths and humans.

  3. I’d be more tolerant of Randians if they’d be honest about their “final solutions”. Kill food stamps, take away public housing, remove SSL, privatize retirement (abolish SS), privatize medicare, remove the requirement for hospitals to heal the indigent.

    They want poor people to die and/or they are utterly oblivious to the possibilities of cause and effect. People who cannot feed their children will not let them die before they resort to crime. Judge them as you like, it’s what a great many will choose to do. Socialism removes any reasonable claim to engage in illegal behavior for survival.

    Take away these tools of civilized society for removing desperation and we are likely to end up in armed, gated communities with guns pointed outward. Many of the people formerly on food stamps instead work as guards in prisons and in our communities defending the wealthy from the desperate masses.

    My guess is that food stamps are likely cheaper unless you lower the hurdle for capital punishment allowing theft to be a justification for public execution. Otherwise, you just feed them in jail.
    You were feeding them before… but now you pay for the utilities and upkeep of their “apartment” with bars in the windows. Who wins?

    Make theft a capital crime and they might as well murder all their victims BEFORE taking their money. Surely some will still avoid killing to survive, but I doubt everyone will be as pious.

    The Randian outcome I see is a horrifying dystopia more akin to Somalia than any rejuvenated America. I sincerely doubt Randians relish such an outcome so I suspect they haven’t thought through the process very far. John Galt could not hide anywhere on the planet yet maintain a society as bountiful as the one we have today. The pride of the “makers” would come at a severe cost in their standard of living.

    1. Bill,

      Thank you for your comment. You have a generous spirit and a large heart. I cannot bring myself to so charitably see people who hold such views.

      The world needs more people like you, and probably less like me.

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