Who Is John Galt?
This really made me giggle, though I feel sorry for the employees of Lampert’s companies…
Once upon a time, hedge fund manager Eddie Lampert was living a Wall Street fairy tale. His fairy godmother was Ayn Rand, the dashing diva of free-market ideology whose quirky economic notions would transform him into a glamorous business hero.
For a while, it seemed to work like a charm. Pundits called him the “Steve Jobs of the investment world.” The new Warren Buffett. By 2006 he was flying high, the richest man in Connecticut, managing over $15 billion thorough his hedge fund, ESL Investments.
Stoked by his Wall Street success, Lampert plunged headlong into the retail world. Undaunted by his lack of industry experience and hailed a genius, Lampert boldly pushed to merge Kmart and Sears with a layoff and cost-cutting strategy that would, he promised, send profits into the stratosphere. Meanwhile the hotshot threw cash around like an oil sheikh, buying a $40 million pad in Florida’s Biscayne Bay, a record even for that star-studded county.
Fast-forward to 2013: The fairy tale has become a nightmare.
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 towatching gleefully as his ship sinks. Investors are running from “Crazy Eddie” like the plague.
That’s what happens when Ayn Rand is the basis for your business plan.
(click here to continue reading Ayn Rand-loving CEO destroys his empire – Salon.com.)
Turns out Ayn Rand is as good of a real-world economic strategist as she is a writer of fecund, pithy prose. In other words, horrible. No wonder she ended up on welfare…
Which End Has the Pot of Gold?
For instance:
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.”
(click here to continue reading At Sears, Eddie Lampert’s Warring Divisions Model Adds to the Troubles – Businessweek.)
More Spare Change
and because this should get repeated more often – hedge fund managers are not necessarily the geniuses they think they are:
But the epic incompetence of guys like Lampert may be dispelling the myth that financiers are the smartest guys in the room. Research suggests that not only do hedge fund managers typically understand squat about running a company, they’re often not much good at beating the stock market, either. A recent Bloomberg article points out that in 2013, hedge funds returned 7.1 percent. That doesn’t sound so bad, until you consider that if you had just stuck your money in the Standard & Poor’s 500 Index you would have seen returns of 29.1 percent.