CEO Daily: The Best in Business Reading

May 07, 2017

Good Morning.

Company battles don’t come much more Titanic than Wal-Mart (champion, physical stores division/20th century) vs. Amazon (champion, e-commerce division/21st century). “Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon?” in BloombergBusinessWeek, assesses the future of that rivalry. It focuses on how Wal-Mart is using its $3.3 billion purchase of Jet.com to really, truly, finally take it to Amazon.com. Or at least, that’s Wal-Mart's hope. The center of the story is Jet.com founder Marc Lore who, in addition, to being a most un-Wal-Mart person (a New Jerseyan who used to drive a Tesla), also has some residual animus to Amazon (and vice-versa) over a past e-commerce transaction. And Lore isn’t just running his old outfit; he’s now spearheading Wal-mart’s entire e-commerce operation. The article establishes the stakes this way: "Wal-Mart has a lot riding on Lore. Last year he received $244 million in pay, 10 times that of his boss, Doug McMillon, Wal-Mart’s CEO. His project could determine the future of Sam Walton’s legacy and the eventual success of McMillon. It will also settle the score on whether Lore is good at building profitable e-commerce sites or just selling unprofitable ones to his competitors for piles of money."

The piece is rich in insight on Wal-Mart’s past e-struggles:

Wal-Mart’s most significant fights were internal. One perennial source of tension involved prices. Amazon typically sets them using algorithms that scour the web to monitor and match the lowest number they find, which means prices can change constantly on the site. Wal-Mart sets a consistent “everyday low price” inside its stores. It’s one of the most sacrosanct brand promises in retail, practically inscribed onto holy tablets by Walton himself as a way to assure customers they won’t have to comparison-shop. The philosophy created problems on the web, though. Whenever the online price dropped below the in-store price, the merchants in Bentonville would balk. They were worried about siphoning away customers from their stores, which account for more than 97 percent of Wal-Mart’s sales.

Doug McMillon comes off as forward-looking in the article and his moves seem sensible. It’s true that every titan can eventually be dethroned, and presumably that will eventually happen to Amazon. But rare (apart from Apple) is the occasion when the upstart turns out to be the champion of a different era.

Inside A Chicken Factory

“Sold For Parts,” a collaboration of ProPublica and the New Yorker, could’ve been written by Upton Sinclair. It’s a deeply reported investigation, alternately lyrical and stomach-churning in its grisly detail, describing how immigrant workers are taken advantage of by a giant chicken-processing company. The company in question, Case Farms, each year “produces nearly a billion pounds for customers such as Kentucky Fried Chicken, Popeyes, and Taco Bell,” among others. The article captures the evolution of the poultry business, particularly in Case Farms’s plant in Winesburg, Ohio (the town immortalized decades ago in the novel by Sherwood Anderson). Once staffed largely by Amish, the workforce there is now dominated by immigrants (many from Guatemala), at a time when chickens are now sold in parts rather than whole, which dramatically raises the risks of worker’s injury.

Here’s the nub of it:

Case Farms plants are among the most dangerous workplaces in America. In 2015 alone, federal workplace-safety inspectors fined the company nearly two million dollars, and in the past seven years it has been cited for two hundred and forty violations. That’s more than any other company in the poultry industry except Tyson Foods, which has more than thirty times as many employees. David Michaels, the former head of the Occupational Safety and Health Administration (osha), called Case Farms “an outrageously dangerous place to work.”

The article goes onto explore the interplay between immigration and this sort of labor: “Case Farms has built its business by recruiting some of the world’s most vulnerable immigrants, who endure harsh and at times illegal conditions that few Americans would put up with.” The article shows that Case actively seeks illegal immigrants, in some cases conspiring to mislead the U.S. government. (The company denies any wrongdoing.) At a time of considerable controversy about the relationship between immigration and employment, this is a telling case study of one operation.

How Not To Run A Business

If you’re looking for a story that captures management pathology in its purest form, you’d be hard-pressed to top Vanity Fair’s “Can Anyone Repair National Lampoon’s Devastated Brand?” Perhaps it’s not entirely surprising that a comedy brand associated with the drug-fueled antics of the late John Belushi should end up facing calamity. Yet this is a company that produced not only a popular magazine, some mega-hit movies, including Animal House and the Vacation series, but also helped launch the careers of not only multiple Saturday Night Live cast members and many of the people responsible  for Hollywood comedies today. It wasn’t a negligible operation, though it certainly was a chaotic one: “A movie about National Lampoon even now,” one person apparently said some years ago, “would be better than any movie National Lampoon’s putting out.”

The two separate passages be;pw give a good flavor of the shenanigans, which ended with not one, but two, CEOs serving time and a stock that currently trades at one-fifth of one penny:

After its first five glorious years, the Lampoon had gradually transitioned to a silver age, and then to an age of progressively baser metals. For one brief, misbegotten period in the late 1980s, junk-bond-fueled corporate raiders installed the actor Tim Matheson, who had played Otter in Animal House, as C.E.O. ...

Durham was now confined to his Indianapolis home and wearing a government-issued ankle monitor, but… he refused to step down as National Lampoon’s C.E.O. Instead, he issued stock to himself to consolidate voting control and blocked board meetings from taking place. And he continued to run National Lampoon remotely. “It was awkward,” Marty Dundics remembers. “We’d have conference calls, and he’d be under house arrest. It’s hard to get that out of your mind when he’s talking about needing more Web traffic.”

Bonus: Is Your Thinking Too Linear?

Linear Thinking In A Non-Linear World, in Harvard Business Review, is a combination mind-twisting game and revealing essay in the vein of Daniel Kahneman’s wonderful book “Thinking Fast & Slow,” which shows how our mental processes routinely let us down. The article sketches out many of the perils of taking a linear approach to non-linear problems and it's filled with practical examples and even a test. All I can say is, I failed miserably.

Nicholas Varchaver
@nickvarchaver
nicholas_varchaver@fortune.com

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