Denise Cummins writes about what happened when Sears was run according to the principles of Ayn Rand. SPOILER ALERT: Chaos, followed by bankruptcy. Think Lord of the Flies in the executive suite.
In 2008, Sears CEO Eddie Lampert decided to restructure the company according to Rand’s principles.
Lampert broke the company into more than 30 individual units, each with its own management and each measured separately for profit and loss. The idea was to promote competition among the units, which Lampert assumed would lead to higher profits. Instead, this is what happened, as described by Mina Kimes, a reporter for Bloomberg Business:
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.
A close-up of the debacle was described by Lynn Stuart Parramore in a Salon article from 2013:
It got crazy. Executives started undermining other units because they knew their bonuses were tied to individual unit performance. They began to focus solely on the economic performance of their unit at the expense of the overall Sears brand. One unit, Kenmore, started selling the products of other companies and placed them more prominently than Sears’ own products. Units competed for ad space in Sears’ circulars…Units were no longer incentivized to make sacrifices, like offering discounts, to get shoppers into the store.Sears became a miserable place to work, rife with infighting and screaming matches. Employees, focused solely on making money in their own unit, ceased to have any loyalty to the company or stake in its survival.
We all know the end of the story: Sears share prices fell, and the company appears to be headed toward bankruptcy.
The moral of the story, in Parramore’s words:
What Lampert failed to see is that humans actually have a natural inclination to work for the mutual benefit of an organization. They like to cooperate and collaborate, and they often work more productively when they have shared goals. Take all of that away and you create a company that will destroy itself.
A reminder from VEA Chair Bob Monks’ efforts to save Sears in the 1990’s