Corporate Death With Dignity? Not At Wet Seal

Is there such a thing as death with dignity for a company? If so, we are not seeing it at Wet Seal. The retailer of young women’s and teenage apparel this week announced it was closing two-thirds of its 511 stores, and sacking 3,700 employees. This follows the company’s statement, last month, that there was “substantial doubt” that it could remain in business.

The company has lost more than $150 million in the last two years. In its most recent quarter, Wet Seal reported a loss of $36 million, compared with a loss of $12.5 million a year ago.

“Our financial condition leaves us no other alternative than to close these stores,” Chief Executive Ed Thomas said in a statement. “This was a very difficult decision to make.” A difficult decision, indeed. But what about responsibility in decision making for a dying company?

It is sad to see any company gasping its last breaths. We are witnessing slower but no less painful corporate deaths at Radio Shack and Sears. The management of those companies appear to be managing the process with greater dignity, however.

The case of Wet Seal is noteworthy because of its treatment of employees during the end of the company’s life. Wet Seal has had a spotty record of employee treatment even prior to its end. But now, a social media fire-storm has erupted with employees angry over the way they are being treated in the wake of their employer’s imminent demise. Employees report being assured that reduced shipments of good to their stores were only due to relocation. Then with one day’s notice, they find out they are fired and their stores are being closed. Other employees report receiving instructions to dismantle stores, and destroy the instructions afterwards. But no word as to what is to happen to them.

Responsible, ethical decision-making and management requires consideration of all stakeholder interests. In this case, the stakeholders with the greatest interests are the stockholders, the employees, and the creditors, including the companies that own the malls in which the stores are located.

It may be safe to surmise that any remaining long-term shareholders have already gone down with the ship. The value of the company stock has declined 98% in the past year. The normal management obligation of maximizing shareholder value is a nullity here. There is no text book or B-school course on managing a business for its demise. But it appears that responsible, ethical management should focus on the interests of the employees and the creditors. The effort is tricky because the interests of those two groups may be in opposition.

Wet Seal is a case where the interests of important stakeholders—the employees—appear to have been disregarded. The result is a corporate death without dignity. Maybe the management of the next terminally-ill corporation will do it better.

This entry was posted in Companies, Decision Making, Workplace and tagged , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *