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For Sale: A Former Reputation

Circuit City is selling its name. Unfortunately, it's a name with little value these days. And that's too bad. The former electronics retailer was once a great company praised for its progressive leadership.

From 1982 to 1997, Circuit City outperformed the general stock market by eighteen-and-a-half times. During that period, Circuit City developed a system for operating its stores that enabled the company to expand rapidly across the country. Under the guidance of board chair Alan Wurtzel and CEO Richard Sharp, Circuit City's leaders provided a consistent framework within which store managers and salespeople had leeway to operate. The key was having self-disciplined employees who understood the system and willingly followed it. In his book, Good to Great, Jim Collins credits Circuit City's culture of discipline for its tremendous success.

But under the leadership of Philip Schoonover, the company demonstrated a much different attitude toward its employees. This was the leadership that, in early 2007, fired 3,400 of those self-disciplined salespeople, claiming they earned 51 cents per hour too much. Over the next three months, Circuit City's year-over-year sales dropped 4.3 percent and the company lost $54.6 million. Stock analysts blamed the losses on management's decision to replace the company's most experienced salespeople with cheaper workers. After its stock price hit a four-year low, those leaders had a change of heart and asked the terminated employees to come back and help revive the company's sales. Then, after firing frontline salespeople for earning too much, Circuit City awarded its top executives retention bonuses of up to $1 million each. So much for self-discipline.

Once a good-to-great success story, Circuit City's leaders shattered its culture of discipline and drove the company to extinction. The company closed all of its 567 stores earlier this year, costing nearly 40,000 employees their jobs. Now all the company has left is its name.

When all that remains is your name, what will your reputation be worth?
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