Suppose you are the head of a big corporation that consists of a large number of retail stores all over the country aimed at the middle classes. You also happen to be a devotee of Ayn Rand, so much so that you can rattle off by memory huge chunks of her oeuvre, no mean feat considering her awful writing. Hedge Fund manager Eddie Lampert was one such person and when he became CEO of the merged corporation of Sears and Kmart, he put Rand’s ideas into practice.
For such a person, what would be more natural than to think that the best way to improve efficiency and increase profits is to pit the managers of individual stores against each other in a competition, rather than the previous system where they all saw themselves as working together as part of the same team?
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.
As Lynn Parramore writes, it doesn’t take a genius to predict what might happen.
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 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.
But there is one thing about adult Ayn Rand followers. They are like a religious cult and they will drink the Kool-Aid rather than admit they are wrong.