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Ayn Rand’s philosophy applied by Libertarian CEO may have caused the downfall of Sears


Eddie Lampert, the legendary hedge fund manager, was once hailed as the “Steve Jobs of the investment world” and the second coming of Warren Buffett. These days, he claims the number 2 spot on Forbes’ list of America’s worst CEOs. He has destroyed Sears, the iconic retail giant founded in 1886, which used to be known as the place “Where America Shops.”

America now avoids Sears at all costs, thanks largely to Mr. Lampert and his love of twisted economic logic.

A bit of background: Lampert cut his teeth on Wall Street at the risk-arbitrage desk of Goldman Sachs under Robert Rubin, who later became U.S. Treasury Secretary and now serves as vice chairman at Citigroup. In 1988, Lampert founded ESL Investments and joined the billionaire’s club at age 41. He rose to fame in the early 2000s for seizing control of Kmart during bankruptcy and then using it to take over Sears. Along the way he was kidnapped and deposited on a motel toilet in handcuffs for nearly 40 hours, and lived to tell the tale. Lampert is known for his touchiness and odd habits, such as conducting meetings from a bare bones room to Sears executives forced to tune in by videoconference. He hates flying.

You might say that Lampert is the distillation of the fervent market worship and wrong-headed economic approaches that came to dominate the U.S. in the 1980s and have yet to run their fatal course. He adores Ayn Rand, and is reported to have given out copies of Atlas Shrugged during an ESL annual dinner. Lampert is also a fan of Friedrich von Hayek, the Austrian economist beloved by conservatives and libertarians. As a Robert Rubin protégé, he absorbed the lessons of a man whose discredited economic focus on budget deficits ended up starving the country’s infrastructure, education and alternative energy.

Looking at what Lampert has done to Sears, we can see what happens when the lessons of his mentors are actually applied in the real world. It isn’t pretty.

1. Myth: Bigger is better

William Lazonick, an expert on the American business corporation, has written about the rise of the conglomerate movement of the 1960s. At the time, shareholders were clamoring for rapid growth, so they pushed for big mergers and acquisitions. Once-successful firms were pressured to move away from their core businesses, often to terrible effects.  In an email to me, Lazonick noted that “the ideology was that a good manager could manage anything, and that all the central office needed was performance statistics so that it could ‘manage by the numbers’.” This foolishness “imploded,” as Lazonick put it, in the 1970s.

Evidently Lampert didn’t get the memo. In the 1980s, as deregulation got the casino games rolling on Wall Street, mergers and acquisition fever once again took hold. This time around, mergers more often involved acquisitions in the same industry, like Bristol Meyers’ acquisition of Squibb. Two new terms entered the American vocabulary, the “hostile takeover” and the “corporate raider.” Oliver Stone made a movie about this episode called Wall Street.

Some refer to Lampert as a corporate raider. He prefers the term “active investor.” It must be admitted that Lampert wasn’t only interested in stripping the assets of his retail giant to make a fortune off it right away. He thought he could increase profits, too. After making a nice wad of cash from Kmart by selling off the valuable real estate sitting under dozens of stores, shutting down 600 stores and laying off tens of thousands of workers in the name of cost-cutting and thereby jacking up the stock price, he got bigger ideas. He would use Kmart to take over another ginormous retailer, Sears.

What background did Lampert have in retail? None at all. But never mind that. He was a Wall Street genius, and he would make this thing work by harnessing the power of data and numbers and letting the invisible hand of the market guide his Franken-company to glory. He even hired Paul DePodesta, the statistician of “Moneyball” fame, to advise him. When Kmart acquired Sears, the new company, Sears Holdings, became one of the largest retailers in the U.S., and Lampert became its CEO. He took on the Herculean task of integrating two vastly complex companies. And he brought on a guy that knew all about restaurants and nothing about retail to help him, Aylwin Lewis, former president of YUM! Brands.

Reactions ranged from surprise to predictions of doom. Mark Tatge atForbes called him “Crazy Eddie” and decided that he must be planning to liquidate the whole shebang, perhaps slowly, by dumping stores (Sears owns a ton of valuable real estate) and using the money to do stock buybacks (more on that later) that would further enrich him.

It turns out that contrary to Lampert’s notion, you actually do need to know something about a business in order to manage it well. There’s really no substitute for industry-specific experience. And bigger is not always better — a gigantic corporation can be too unwieldy and complex to thrive, especially when your management philosophy is derived from a writer of bad novels.

Sears and Kmart are now on well on their way to becoming vaporized as brands.

2. Myth: Self-interest is the greatest virtue

The neoclassical economic paradigm is built upon the idea a human being is little more than a globule of self-interest. It teaches that the market economy is populated by rational individuals whose selfishness is constrained only by expediency. Ayn Rand was an enthusiastic proponent of this idea in extreme form, and her celebration of it can be found in The Virtue of Selfishness: A New Concept of Egoismpublished in 1964, which explains, among other things, the destructiveness of altruism and the virtue of acting solely in your own self-interest.

At Sears, Lampert set out to create the Ayn Rand model of a giant firm. The company got a radical restructuring. It was something that had been tried at giant industrial conglomerates like GE, but never with a retailer.

First, Lampert broke the company into over 30 individual units, each with its own management, and each measured separately for profit and loss. Acting in their individual self-interest, they would be forced to compete with each other and thereby generate higher profits.

What actually happened is that units began to behave something like the cutthroat city-states of Italy around the time Machiavelli was penning his guide to rule-by-selfishness. As Mina Kimes has reported in Bloomberg Businessweek, they went to war with each other.

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 that Sears’ own products. Units competed for ad space in Sears’ circulars, and since the unit with the most money got the most ad space, one Mother’s Day circular ended up being released featuring a mini bike for boys on its cover. 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 the company or stake in its survival. Eddie Lampert taunted employees by posting under a fake name on the company’s internal social network.

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.

In 2012, Lampert bought a $40 million home on Indian Creek Island, near Miami, just around the time he decided to sell 1,200 Sears stores and close an additional 173. That same year, Sears Holding was named the sixth worst place in America to work by AOL Jobs.

3. Myth: Greed always wins

In the 1980s, a noxious business philosophy developed that said that shareholders were the only true stakeholders in a company, because they made the investments and bore the risk. Forget about the investments and risks born by taxpayer and the people that work for a company. They didn’t matter. A company had no responsibility to anybody but the shareholder.

As a result, executives started using this justification for various kinds of hustles designed to line their pockets. They got very adept at the game of buying back their own stock in a way designed to inflate earnings per share and hide weaknesses.

In 1977, 95 percent of distributions to shareholders came in the form of dividend payments.  Today, more than half of the cash returned to shareholders of S&P 500 companies comes from buybacks instead of dividends.

Fortune magazine, in a story about what happens when Wall Street jumps into the retail business, reports that under Lampert, Sears has gone on a stock buyback spree. Between 2005 and 2011, he took what was once the company’s strong cash flow and spent $6.1 billion of it on stock buybacks. During the same time period, only $3.6 billion was spent at Sears on capital improvements. Lampert told investors that upgrades and new stores were not an “efficient” use of capital. Neither was paying workers decently. In fact, Sears workers are paid so badly that they have taken to the streets to protest.

So when you walk into a Sears store today, you find a sad, dingy scene with scuffed floors and chipped paint. Tense-looking workers hover over merchandise scattered onto ugly display tables. Hardly makes you want to buy a microwave.

A handy chart on Yahoo Finance show that buybacks reached a high just about the time that Sears’ sales went into the toilet. Stock buybacks are really just an effort to manipulate stock prices, and they don’t help a company’s long-term health. They divert money away from the things that a company needs to have to succeed, like decent salaries for workers and investments in new products and services. Wonder why Apple is no longer making anything interesting? Why its retail workers get paid squat? Check out what they’ve been doing with stock buybacks.

Lampert’s buyback scheme has raked in a pile of money for him and his early investors, but it’s also flushing the company down the drain. Hoovering cash out of any firm, especially a retailer that needs appealing stores and strong advertising, will eventually crush sales.

And so it has. Sears has lost half its value in five years.

Conclusion:  The lessons of Crazy Eddie seem so obvious that a bunch kids running a lemonade stand could understand them. You have to know something about the business you’re running, especially a big one. Success requires cooperation rather than constant competition. Greed is ultimately destructive.

The invisible hand of the market appears to have attempted to slap Lampert upside the head to teach him these things. But he remains committed to his nonsense, and the real losers are all the hard-working people who have lost their jobs, and the potential loss to the American economy of two revered brands.

It’s probably a good thing Ayn Rand never tried to run a business.

This article originally appeared on Alternet

Facebook Comment


  1. Jason Paskowitz

    July 18, 2013 at 9:26 pm

    All I know is, they are now making a good part of the Craftsman tool line in China. If I wanted cheap Chinese junk, I’d buy it. Looks like I’ll be flagging down the Snap-On truck from now on.

  2. Bob Cull

    July 18, 2013 at 9:55 pm

    As bad as this is I find it much more frightening that we have all of these idiots in D.C. who also idolize Rand and want to run our nation based on her faulty ideas.

  3. iamjoeychan

    July 19, 2013 at 4:21 am

    I went to Sears today, and got a pair of pants for ten bucks. Fifteen years ago, that same pair of pants would had costed my mom like 35 bucks. Sears had really reached bottom.

  4. Doug

    July 19, 2013 at 6:39 am

    So the problem isn’t that rational self-interest is bad, the problem is that he’s too stupid to see where his rational self-interest truly lies. He doesn’t see that by making himself wealthy by destroying his own little corner of the US economy, that is what leads people to kidnap him. Rather than properly run a business, create value, and exchange value for value, he is acting as a drain. This guy may profess to love Rand, but he isn’t following her principles. People like Costco CEO Craig Jelinek or CEO of Red Camera (formerly founder of Oakley sunglasses) Jim Jannard are. They are paying workers a fair wage, innovating, and taking what they earn from a company while making a profit and value that benefits everyone – customers, employees, and society as a whole. People need to distinguish between selfishness, a desire for what you’ve earned, and greed, a desire for what you have not earned. One is a healthy desire. One is not.

  5. M. H. Wilson

    July 19, 2013 at 1:22 pm

    I have been in retail for 40 years and the problem Sears has is due to poor customer service. You can start there.

  6. boss260

    July 19, 2013 at 2:24 pm

    SO painfully wrong on every level. 1. Myth: Bigger is better Is a SOCIALIST ideal. Freemarkets determine growth by success and market principles. Tiffany’s will never have as many outlets as McDonalds no matter how many jobs it would crate because the MARKET cant sustain that saturation.

    2. Myth: Self-interest is the greatest virtue
    Yes but just because you WANT your retailer to succeed doesnt mean you have the ability. ONLY a socialist would confuse wanting something and EARNING something so easily.

    3. Myth: Greed always wins

    “In the 1980s, a noxious business philosophy developed that said that shareholders were the only true stakeholders in a company, because they made the investments and bore the risk.”
    YES. Employees as shareholders is used by Wal-Mart Successfully.

  7. lassitor

    July 19, 2013 at 2:30 pm

    more “bubble gum” journalism! The author really has no clue about Libertarianism or Ayn Rand.

  8. Bob Cull

    July 19, 2013 at 9:54 pm

    ROFLMMFAO!!! Can you say clueless? I knew you could!

  9. Bob Cull

    July 19, 2013 at 9:58 pm

    I remember when Sears had terrific customer service. You don’t suppose the lack of it could be part of what this moron did to the company do you?

  10. Bob Cull

    July 19, 2013 at 10:05 pm

    No the problem is that you think that Ayn Rand was anything more than a hack writer who had not the foggiest idea how the real world works. She did not advocate for the worker, she held nothing but disdain for those who she saw as her inferiors. She was wrong and anyone who thinks that her scribblings have anything to offer to the world are even more disconnected from reality than she was.

  11. Juliet

    July 20, 2013 at 12:32 am

    Then why are Wal-Mart employees using SNAP? If they’re shareholders, they should be well-off, right?

    If someone in charge at Tiffany’s thought they could make more money by turning it into a mega-store, they would. They don’t, for the same reason Bentley doesn’t make as many cars as Toyota: not everyone can afford their product.

  12. Katie B

    July 20, 2013 at 11:48 am

    i was thinking the same thing. Selfish ego-blobs running around trying to outdeal each other. Although they do have a fierce sense of partisan loyalty; frankly, it’s the only thing that drives any decision they make other than money.

  13. Jermz

    July 20, 2013 at 1:04 pm

    Congratulations, Bob! You’ve completely ignored Doug’s argument because you want to rag on Ayn Rand. Good for you.

  14. Dan

    July 20, 2013 at 6:13 pm

    Randy’s ideas became his demise because he ignored the fact that he’s not the only person who has them. His self interest was brought down by the self interest of his customers and employees. He seems to have missed the entire point of Rand’s philosophy.

  15. Dan

    July 20, 2013 at 6:15 pm

    Yea, those greedy capitalist and their affordable prices! When will they learn?

  16. Juliet

    July 20, 2013 at 7:51 pm

    Yeah, we’re just idiots who want to buy quality products at reasonable prices, and find something wrong with the employees of a company being unable to afford its products or services. We do stupid things like work for a living, providing the labor that ends in those products and services. Then we expect decent wages and benefits, like idiots, when everyone knows that only the upper-level management and shareholders should see any benefit. Because the people who BUY the product or utilize the service don’t matter at all. It’s all about stock prices for the shareholders.

    Well, if I can’t buy or use, then the providers don’t get any money from me. Multiply this by several million people, and guess who isn’t making a lot of money?

    So: tell me again how those investment shenanigans are such good things, when it’s executives squeezing everything for the last nickle when — surprise! — people are on assistance or unable to purchase.

  17. Bob Cull

    July 22, 2013 at 12:02 am

    What argument? When you are defending a “philosophy” that was put forth by a bad novelist and accepting it as a viable model for any civilization you have no argument. I refuted his argument by discrediting his source material.

  18. Dan

    August 10, 2013 at 5:11 pm

    Capitalism is failing and good riddance to it. It has been the down fall of humanity for the last 100 years.

  19. Juliet

    August 15, 2013 at 11:16 pm

    ‘Yes, but just because you WANT your retailer to succeed doesnt (sic) mean you have the ability.’ Were you born in 1980? Do you even know about the reputation that Sears used to have?

    Sears has been around since 1866. Craftsman tools were a byword for quality. If you wanted a washing machine or lawn mower, you went to Sears because the things would last forever, and they had the customer service to keep it running. While you were looking for an appliance, you could also trot over to get some clothes that were worth the money.

    It was doing quite well, but people who aren’t happy unless they’re squeezing out one more nickel (hell, PENNY) of profit decided that the customers and employees could go hang. The stockholders were more important than anyone else.

    Hope you like your cheap set of ‘Craftsman’ tools. The ones that won’t last anywhere near as long as the real ones your father still has.

  20. Jason

    August 16, 2013 at 10:33 pm

    Agreed. I won’t buy any Craftsman tools online because I don’t know what I’m getting. Luckily, there’s a Sears hardware nearby so I can confirm that I’m getting Made in USA Craftsman, not junk made in China.

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