hedge fund

Most business leaders have their critics. But Edward S.  of Sears Holding Corporation has more critics than most.99

, a hedge fund billionaire, acquired control of Kmart—emerging from bankruptcy—in 2003 through his hedge fund ESL Investments. In 2005 Lampert used Kmart as a platform to acquire the financially troubled Sears, creating the Sears Holding Corporation.  ESL Investments controls some 56 percent of the holding company. Thanks to aggressive cost-cutting, Sears Holdings thrived at first, and its stock price soared. But by 2007, profits had declined 45 percent. The stock, at an all-time high of $182, began a long descent (to a low of $36 two years later). The stock has had some mild increases since then but returned to the $30–$40 range in 2012 and 2013. Throughout, finding a good CEO was problematic; not many stayed on. Interim CEOs often stood in while search committees looked. In January 2013,  took over directly from CEO Lou D’Ambriosio, who left to deal with a family medical matter, according to published reports.100 Under Lampert’s direction, Sears Holding has gone up and down but not retained any of its mild increases in valuation.  problems relate in part to organization. Structure On acquisition, Sears was organized like a classic retailer. Department heads ran their own product lines, but under the same merchandising and marketing leaders and toward the same financial goals. For several years, Lambert kept the structure intact: until 2008. Bloomberg Business week questions the impact of  reorganization on Sears Holding: Many of its troubles can be traced to an organizational model the chairman implemented, an idea he has said will save the company.  now runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money.101

splintered the holdings into more than 30 separate business units, often down to a profit center level. The executive for each holding goes to the company’s headquarters and pleads their case for investment, where  attends by videoconference. Business week interviewed over 40 former executives, who said that Sears Holdings is ravaged by infighting for fewer resources and no cooperation across divisions. And  approach to leadership also contributes to the company’s difficulties. While technically the company may be seen as employing a divisional structure,  approach seems to remove coordination and unity of vision at the top. Rather than existing as silos, each division is treated as an orphan with no claims to family loyalty. You might say this is an atomized structure. Style A fan of  Rand’s Objectivist philosophy that selfishness begets effective and rational business decisions,  likes the idea of forcing divisions to compete within the organization the same way they compete outside in the open market. At the annual teleconferences with business division heads,  often appears to be ignoring the executive entirely, checking on e-mail and not asking questions, until he hears something that triggers his attention. Once aroused, he may pepper the executive with comments and questions, or he may lecture the executives on fine points of retail. One trigger is the use of standard retail jargon like vendors or consumers. Some executives privately refer to  as the Wizard of Oz for such performances. Part of  style may have been forged by his earlier successes with ESL, when he would hold a portfolio of real estate holdings, stripping them of assets strategically to achieve maximum return. But in 2008, The Wall Street Journal judged that Lampert was failing because his strategies did not fit the times. “The best time for acquisitions or creating value by stripping out and selling embedded assets such as real estate is, for now, past.”102 Culture Corporate culture under  is fraught with fear and infighting, if we choose to accept some of the posted comments on the July 2013 Business week article. For example, “Video boy Matt” posts that he worked at Sears for two years with corporate-level employees and saw much dissension: I was amazed how much smack talk one center, or office said of another who did a similar job, but for a different division. Call centers hated the stores, the stores hated online, online hated delivery, delivery hated customer service reps who promised everything, blue ribbon didn’t listen to employees (blue ribbon being their corporate escalation dept.) . . . This led to dysfunction across the corporation: None of the departments used the same computer interface, they all used separate programs, so none of them could look up the same info. So if you ordered an appliance online in NY, it would be sent to a warehouse in Georgia, and then the warehouse, or customer service rep who took the customer’s phone call could not look up any info on it, or track it down.103

Incentives Bob Sutton is an organizational psychologist and author who used his own blog to expand on the Business week article. He points out how  structure incentivizes dysfunction. Lampert defends this structure as “decentralized,” but that confuses a structure where individual units have autonomy to act largely as they please with one where there is no incentive (or worse, a disincentive) to support the company’s overall performance. Google, for example, is quite decentralized, but there have always been both cultural and financial pressures to do what is best for the company as a whole.104 Integrated Retail In May of 2013,  decried his company’s “unacceptable” losses, and as reported in Businessweek, repeatedly invoked a strategy of “integrated retail,” of combining digital interaction with bricks-and-mortar retail.  explained: I think that the broad-based, everybody-gets-the-samedeal marketing that Sears and Kmart and many others have engaged in for a long time will be changing. I’m not predicting that the retail industry will become like the airline industry where 10 people . . . across a row on a plane all pay different prices for their seat or five people on the floor of a hotel room all pay different prices for their hotel room.105 Wall Street responded favorably with a mild bump in stock price, but the price soon drifted down again. Later in the year, a bigger rise came when  announced plans to spin off more assets from the holding company, but again the stock returned to the mid-$30 range. Some critics describe the company’s progress as a death spiral; some have identified  as one of the worst CEOs in the country for not wanting to understand retail or improve investment in the company instead of wringing profits from it.106 Apply the 3-Stop Problem-

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