Gut Check: How Would You Lead When Faced With a Death Spiral?

Vince Molinaro, Ph.D. Blog

It was three years ago, March 31, 2014 to be exact, when a colleague and I sat in a downtown Toronto restaurant and watched the demise of a once great company unfold before our eyes.

Across the street from where we were sitting, workers were removing the Sears sign from the façade of Eaton Centre, Toronto’s busiest downtown mall.

Between bites of my lunch with a colleague, I watched each of the giant white letters being painstakingly pried loose, and then lifted up and away from the plain grey background. A dark imprint of those letters was left behind, a stark reminder of the challenges facing one of  North America’s most enduring retail brands. I took a photo of the scene that transpired before me.

Sears was closing its flagship store in Canada. Any time I hear of a company going through that kind of hardship, I can’t help but feel sad because as a consultant, I work every day to help leaders and their companies be more successful.

Like many companies in this situation, Sears was restructuring operations brought on by declining financial results. Similar events were unfolding all over the continent as Sears struggled to come to grips with competition in a brave new digital age.

Doug Campbell, the CEO of Sears Canada, explained back in 2014 that the reorganization would allow it to streamline operations and focus more on e-commerce. “That’s clearly not indicative of the beginning of the end,” he told the Toronto Star.

Although Campbell was clearly correct in his assumption – Sears continues to operate hundreds of stores in North America – the future remains quite uncertain.

Sears Holding Corporation, the parent of Sears and K-Mart has not reported a profit since 2012. The company’s stock did enjoy a brief bump this past Christmas season as sales jumped, but the company continues to lose about $1 billion annually. In response, just this month Sears announced another restructuring plan aimed at trimming costs by more than $1 billion. Many feel the company is in a death spiral.

At the end of the day, many believe the company’s real downfall is a result of its inability to make the digital leap. Many retailers are struggling with the very same challenge.

At the center of the Sears story, is CEO Edward Lampert, a successful hedge-fund manager with extensive experience in the retail world. He took over the management of the retail chain in 2013. Since then, he has launched a series of moves designed at both modernizing the company’s operations to compete online and cut overhead.

The restructuring has not been painless – hundreds of stores have been closed.

Certainly, no one can accuse Lampert of not being dedicated to saving Sears. In addition to his vigorous restructuring plans, Lampert put his own money on the line. Already owner of about a quarter of the shares of Sears Holding, Lampert recently announced he would provide nearly $1 billion in loans or letters of credit to help his struggling company.

However, even those actions didn’t spare him from widespread criticism about his leadership style.

Apparently, he prefers to do most of his work from a vast Florida estate, holding daily video conferences with Sears’ executives toiling in the company’s Illinois head office. He only travels to the Sears head office once a year for the annual shareholders meeting.

The video conferences, which reportedly are quite emotional, have been widely discussed in the business media and in profiles of Lampert. In response, the former Wall Street superstar says his tone and style of management is designed to “drive decision-making and accountability at a more appropriate level.”

It is way too early to say whether Lampert’s style and methods will be successful. He’s being tested in significant ways. Can he lead this once great company out of what many feel may be an irreversible death spiral?

I often refer to the fact that leadership is hard work. This example shows how hard it can be at times. If an organization has acquired the stink of death, then the job to make things better becomes even harder.

This is the situation that Lampert is trying to navigate now.

He continues to demonstrate unflagging confidence in his company with his vigorous restructuring and his personal financial support. Although many take issue with his decision to work away from the company’s head office, and the hardline style he takes with his employees, few could question his faith in the Sears brand. So having this unwavering belief in your company is critical.

The problem with a death spiral is that at some point, the momentum that comes with the bad word-of-mouth, bad publicity, poor financial results and lack of faith in the future, becomes too much for the average leader or organization to endure.

This week’s gut check question is a critically important question: how would you lead when faced with a death spiral?

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