Sears: Less "Atlas Shrugged" Than "Game of Thrones"

An article from the leftist website Alternet (by way of Salon) gloats that "Ayn Rand Killed Sears." No, not the novelist and philosopher herself, during whose lifetime Sears was still one of the world's greatest retailers. The blame supposedly rests with Ayn Rand's philosophy, as applied by Eddie Lampert, the hedge fund manager who bought out Sears in 2005, restructured it, and recently installed himself as CEO. Lampert, it seems, is a fan of Ayn Rand's Atlas Shrugged and claims that his unique and bizarre management system is based on free-market ideas.

But Lampert and his critiques have one thing in common: they are reacting, not to Ayn Rand's actual ideas, but to a crude caricature of her philosophy.

The debate over how Lampert ran Sears into the ground has been touched off by a long and thorough profile by Mina Kimes in Bloomberg BusinessWeek. Yet judging from this report, Lampert has been running Sears in a way that is, in fact, entirely antithetical to Ayn Rand's philosophy.

Let's start with the dumb, superficial theory behind Lampert's business model, as summarized by Kimes:

"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."

So Lampert fragmented Sears into 30 divisions which are all run as separate entities, with their own staff and separate finance and marketing plans.

In practice, all of this ends up being less Atlas Shrugged than "Game of Thrones." It's a system of constant warfare among rival fiefdoms.

Ayn Rand celebrated the freewheeling entrepreneurs who acted on their own judgment and chafed at the inertia of entrenched bureaucracies. But Lampert's system multiplies the bureaucracy.

"[T]here were more than 30 slots to fill at the head of each unit. Executives jostled for the roles, each eager to run his or her own multibillion-dollar business. Marketing directors interviewed with the newly appointed presidents, hoping to snag coveted chief marketing jobs....

"'Because Sears had to hire and promote dozens of chief financial officers and chief marketing officers, personnel expenses shot up. Meanwhile, many business unit leaders underpaid middle managers to trim costs.

"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."

As for whether anyone can make a decision and just move on it, "If product divisions like tools or toys wanted to enlist the services of the IT or human resources departments, they had to write up formal agreements." So you have 30 separate divisions all trying to negotiate agreements with each other. It's a nightmare of red tape.

Philosophically, Lampert's error is childishly simple. At one point in Kimes's report, a Lampert spokesman compares central management of a private company to "socialism." But this drops the basic distinction between coercive government action and uncoerced private action--the difference, in Ayn Rand's terminology, between the dollar and the gun.

Heck, let's put aside Ayn Rand for a second. Consider Friedrich Hayek, another supposed inspiration for Lampert's management ideas. Hayek famously argued that the mechanisms of the free market communicate information and coordinate the actions of individuals far better than the dictates of a central planner ever could. So Lampert tells Kimes: "Decentralized systems and structures work better than centralized ones because they produce better information over time." But this is a distortion of Hayek's argument. Hayek's complaint was that the supposed "planned economy" of a few bureaucrats disrupted the plans made by private individuals. But Lampert is, in effect, taking this as an argument against private planning.

The business heroes in Ayn Rand's novels all have one thing in common: they take seriously the responsibility of thinking and planning and making decisions. They know that they can't pass the buck and that it is their job to set the direction for the companies they run. But Lampert's system seems to be an attempt to evade that responsibility by pretending that decisions will somehow emerge spontaneously from an imaginary internal marketplace.

The failure is particularly acute when it comes to Sears, which was once a leader in retail innovation--100 years ago, when department stores and mail-order catalogues were the state of the art--but which is behind the curve when it comes to modern discount retailing and Internet sales. The contemporary successor to the old Sears catalogue is Amazon.com, which leaves Sears struggling to remain relevant. What the company needs is a big new visionary idea to give it a new direction for a new era.

Ayn Rand's business heroes are the type of innovators who come up with these ideas. But what emerges from the BusinessWeek profile of Sears is precisely the absence of such a coherent vision. As one former executive puts it, "Sears has been good at coming out with a lot of reasonably innovative programs, but...they still don't answer the question: 'What's the overall strategy for the brand?' The truth, former Sears executives say, is no one knows."

In the absence of a clear strategy and a big new idea, there is chaos.

"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....

"Former Sears executives say their biggest objection to Lampert's model is that it discourages cooperation.... Former executives say they began to bring laptops with screen protectors to meetings so their colleagues couldn't see what they were doing."

This leads us to the most glaring contrast between Lampert's management style and Ayn Rand's philosophy.

The central message of Atlas Shrugged is about the "Atlases," the talented individuals who, in the novel's defining metaphor, hold the world on their shoulders. The novel starts with our main protagonist, railroad executive Dagny Taggart, trying desperately to keep a promising young employee, and she spends most of the novel in a frantic search for these talented individuals, who suddenly seem to be in short supply. That mystery is central to the plot of the novel.

So you would think the one big management idea a CEO would take away from Atlas Shrugged would be: find talented people and treat them well. But the hallmark of Lampert's management, according to accounts from insiders, is a contemptuous disrespect for his top employees, displayed in the humiliating ritual of annual conference calls in which the head of each business unit has to beg Lampert for money and resources.

"The Sears chairman, who lives in a $38 million mansion in South Florida and visits the campus no more than twice a year (he hates flying), is usually staring at his computer when the camera goes live, according to attendees.

"The executive in the hot seat will begin clicking through a PowerPoint presentation meant to impress. Often he'll boast an overly ambitious target-'We can definitely grow 20 percent this year!'-without so much as a glance from Lampert, 50, whose preference is to peck out e-mails or scroll through a spreadsheet during the talks. Not until the executive makes a mistake does the Sears chief look up, unleashing a torrent of questions that can go on for hours."

Message: you're running a major division of my company, but I can't be bothered to give you the common courtesy of looking you in the eye.

Instead of running the company with a strategic vision that coordinates its actions, Lampert seems to rely on rule by fear.

"Disputes between business units should rise to the attention of Lampert and his top officials, says Bill Crowley, an ex-ESL executive who served as Sears's CFO. 'The structure was designed to allow for conflicts to be dealt with, discussed, resolved, and, if necessary, adjudicated,' he says. Other former executives say this often doesn't happen, largely because business unit heads are intimidated by Lampert."

And here we get to the central conceit of Lampert's management strategy. It is supposed to be modeled on separate businesses competing within a marketplace. But there is no "market" here. There is just one man: Eddie Lampert. So the competition between Sears executives isn't over who will succeed in the market. It is over who can curry favor with Lampert.

The most interesting insight into the Sears debacle is in the comments section of the BusinessWeek profile, where an anonymous commenter who says he is a former Sears employee offers this brilliant analysis.

"Believe it or not, this article doesn't come close to articulating the day to day chaos of that organization. The article's premise, while correctly relating many past absurdities, suggests that Eddie is boldly attempting to redefine corporate operations as a kind of internal competitive landscape, saving the company indirectly with the invisible hand.

"In fact, Eddie's management style swings wildly between ignoring things that bore him (like back-end systems and store operations) and obsessively micro-managing anything shiny. The IT department was under constant assaults from 'Eddie projects'-an endless procession of revolutionary ideas who's progress was overseen weekly by Eddie and daily by his top-level flunkies; all of whom competing aggressively for the emperor's attention. Three-hour meetings saw senior management bickering over the site's button colors. The team took to calling the phenomenon 'the eye of Sauron.' That which the leader sees, is destroyed.

"While Eddie might have successfully broken leadership into 30 competing camps, they still interface with customers through shared resources: the circulars, the stores, and the website. This creates a textbook 'failure of the commons' where the competing interests drive the common elements to ruin. And if these 30 business divisions are in competition, how come none of them ever go out of business no matter how much money they loose or for how long? Executing even the most modest site improvements required navigating Sears' labyrinthine bureaucracy. Like getting a bill through Congress, the process takes forever and what comes out the other end is mush.

"Eddie's Sears is not the free market, nor is it the Soviet central planning committee. It is the imperial court of Byzantium."

So under the guise of free-market individualism, Lampert has established precisely the opposite: submission to the whim of an all-powerful ruler.

And there's one more thing. The central virtue of Ayn Rand's philosophy is rationality, recognizing the facts no matter how unwelcome the message. Her villains spend a fair portion of the novel denying the country's collapse under their increasingly burdensome economic dictatorship and claiming that recovery is just around the corner.

The biggest theme to emerge from the BusinessWeek piece on Sears is that everyone in the organization knows that its management structure is a disaster and that the business is failing--everyone except Eddie Lampert, who keeps assuring stockholders that his brilliant ideas are going to produce spectacular results any day now.

Why doesn't Lampert see that his approach is failing? Why doesn't he see that he is achieving, in actual practice, the opposite of the philosophy that supposedly inspired him?

I've been a fan of Ayn Rand's novels and ideas for about 25 years now, and I've spent a lot of time among Objectivists, as advocates of her philosophy call ourselves. In that time, I've seen a lot of people drift into and out of the movement, so I think I can offer a little insight. This isn't the first time I've seen someone who is attracted to Ayn Rand's ideas without really having a clue what they mean.

Some of the best people in the world are attracted to Ayn Rand's ideas. But I've also seen a few Lampert types who glom onto Ayn Rand's fiction and philosophy for superficial motives. Sometimes it's the businessman who loves Ayn Rand's novels because, well, businessmen are the heroes. But that's as far as he goes. He is not interested in the actual values and qualities of character of Ayn Rand's heroes. For this type, Ayn Rand is just another person telling him how great he is. He's interested in her novels only insofar as he can interpret them as personal flattery.

This reflects a deeper abuse of Ayn Rand's philosophy. The prevailing philosophy of altruism, in denouncing business and profit-making as evil, has to construct a caricature of self-interest designed to make it look bad. In this caricature, "selfishness" is crassly materialistic, viciously adversarial, and stoked by personal vanity. Above all else, self-interest is defined in a way that is superficial and short term--making it into a straw man of that is easy to knock down.

Ayn Rand not only defended self-interest but sought to understand it properly, showing how genuine self-interest focuses on long-term values, on rationality and real achievement rather than preening vanity or lust for arbitrary power over others. In her earlier novel, The Fountainhead, she created a major character--the yellow journalism publisher Gail Wynand--to drive home precisely this difference, so it's not like an Ayn Rand fan could have missed it.

But over the years, I've met people who seem to accept that old straw-man view of self-interest, and they use their superficial understanding of Ayn Rand's philosophy as a license to go out and live the awful caricature of the "selfish" boor.

But these folks represent only their own character flaws, not Ayn Rand's philosophy. And while the left is gloating right now about how the collapse of Sears shows what happens when Ayn Rand's philosophy is put into action, there are many other businessmen with very successful records who are Ayn Rand fans and understand the real message of her novels. They will be around long after Eddie Lampert finally has to sell Sears and slink back to his hedge fund.