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.
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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.
- Mad ideology: gunplay on our streets
- Today – Mad ideology: billionaires play with big businesses
- 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.”
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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?
For More Information
To see all posts about inequality: section 8 of this Reference Page.
About our emerging plutocracy:
- Origins of what may become the 3rd American Republic (a plutocracy), 8 April 2011
- Why Americans should love Tolkien’s Lord of the Rings – we live there, 13 December 2011
- The new American economy: concentrating business power to suit an unequal society, 27 April 2012
- The voice of plutocrats yearning for dominance and control,
16 September 2012 - We’ve worked through all 5 stages of grief for the Republic. Now, on to The New America!, 8 January 2013
- Why Elizabeth Bennet could not marry Mr. Darcy. Nor could your daughter., 12 July 2013
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