Nothing proves the bankruptcy of libertarian principles as articulated in the world of Ayn Rand like Eddie Lampert's Sears empire.

According to Bloomberg News, Sears is hurtling toward bankruptcy, mostly because Lampert pits executives against one another in a dog-eat-dog world intended to make them fight for resources and funding.

As you might expect, it doesn't work.

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.”

Shocking.

Lampert, a hedge fund manager, is cut out of the same mold as Peter Thiel. Intensely data-driven and a True Believer in the idea of efficient markets crafted through intense, dog-eat-dog competition. The problem, of course, is that humans aren't data.

As Lampert built his bureaucracy, he encouraged employees to turn on one another.

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.”



Lampert is so obsessed with this model that he actually makes the different divisions compete for space in their advertising circulars.

Eventually Lampert’s advisory committee instituted a bidding system, forcing the units to pay for space in the circular. This eliminated some of the infighting but created a new problem: The wealthier business units, such as appliances, could purchase more space. Two former business unit heads recall how, for the 2011 Mother’s Day circular, the sporting-goods unit purchased space on the cover for a product called a Doodle Bug minibike, popular with young boys.

The outcome is predictable.

Since the takeover, Sears Holdings’ sales have dropped from $49.1 billion to $39.9 billion, and its stock has sunk 64 percent. Its cash recently fell to a 10-year low. Although it has plenty of assets to unload before bankruptcy looms, the odds of a turnaround grow longer every quarter. “The way it’s being managed, it doesn’t work,” says Mary Ross Gilbert, a managing director at investment bank Imperial Capital. “They’re going to continue to deteriorate.”

Someone ought to remind Lampert that when Ayn Rand died, she was surviving on Medicare and Social Security benefits, those bastions of a "socialist economy."