Struggling Sears is borrowing another $200 million from its CEO to stay afloat
Sears is borrowing more money from CEO Eddie Lampert's hedge fund to stay afloat.
Lending your own money and lending that of other people is not quite the same. And, you know, bye bye money.
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.”
The most cumbersome aspect of the new structure, former employees say, was Lampert’s edict that each unit create its own board of directors. Because there were so many departments, some presidents sat on as many as five or six boards, which met once a month. Top executives were constantly mired in meetings.
Under the new model, Lampert evaluated the different divisions—and calculated executives’ bonuses—using a metric called business operating profit, or BOP. As some employees had feared, individual business units started to focus solely on their own profitability and stopped caring about the welfare of the company as a whole. According to several former executives, the apparel division cut back on labor to save money, knowing that floor salesmen in other departments would inevitably pick up the slack. Turf wars sprang up over store displays. No one was willing to make sacrifices in pricing to boost store traffic.
In an e-mail, Chris Brathwaite, a Sears spokesman, writes that executives work together if it makes sense. He added: “Clashes for resources are a product of competition and advocacy, things that were sorely lacking before and are lacking in socialist economies.”
Every organization is, internally, a "socialist economy." Well, a Soviet-style planned one, really. Just dissolve the firm entirely and atomize it down to its component parts, single individuals.