How can a company fail without failing?
It doesn’t make sense, does it?
Toys R Us — a retail giant with 870 stores, $11 billion in annual revenue, and a place in the community that defined generations — didn’t die of irrelevance.
In the late 1990s and early 2000s, it was profitable and innovating. Under CEO John Eyler (a respected former FAO Schwarz executive), it was upgrading flagship stores, piloting new formats, and preparing for a fresh public offering. This wasn’t a company in decline. It was repositioning for the future.
So how did a business still investing in its future, still beloved by customers, end up bankrupt—buried under more than $5 billion in debt—just over a decade later?
You might assume it fell behind. That it couldn’t keep up with Amazon. That it was Blockbuster to Jeff Bezos’s Netflix.
That story’s tidy. But it’s not true.
Toys R Us didn’t fail because it couldn’t compete. It failed because it was turned into something else entirely.
In 2005, a consortium led by Bain, KKR, and Vornado acquired the company for $6.6 billion, investing just $1.3 billion of their own money and borrowing the remainder. That debt—more than $5 billion—was placed directly on the company itself.
Toys R Us had just become responsible for funding its own purchase.
This wasn’t unusual. It’s standard in leveraged buyouts. The company becomes the engine for paying back the debt used to acquire it. From that point on, Toys R Us wasn’t managed for customers. It was managed for creditors.
It didn’t stop making money. It just wasn’t allowed to use it.
Almost every spare dollar went to service interest. Annual payments ran into the hundreds of millions. There was nothing left for innovation, store upgrades, or a digital strategy.
Meanwhile, the owners did fine. Management fees, transaction fees, advisory fees. Dividends—also debt-financed. Long before the collapse, they were already out ahead.
So when Toys R Us finally filed for bankruptcy in 2017, what exactly failed?
Not the investment strategy. That worked.
Not the private equity firms. They exited with profit.
Not the leadership. They left with generous compensation.
The failure was borne by those who had no say in the matter: the 30,000 employees whose jobs disappeared, the suppliers left unpaid, the pension holders whose futures depended on a company no longer designed to endure.
And here’s the part that’s hardest to square:
There was no scandal. No fraud. Nothing illegal.
In fact, in some corners of finance, it was admired.
The deal made sense. The returns were solid.
The exit was clean.
What looked like collapse from the outside—and felt like loss for those on the inside—was, in the language of modern finance, a win.
And that’s when the shape of it comes into view.
The modern company often has two identities.
One is built for customers, staff, and the public—full of mission statements, career promises, and community credentials.
The other is built for owners and capital—an engineered chassis, designed to extract value and optimise return.
Those two realities can coexist. For a while.
But not forever.
If that feels strange, it should.
How can a business collapse while still making money?
How can failure be reframed as success?
It’s tempting to call it a trick of modern finance. But it’s not a trick. It’s a shift.
To understand it, we need to go back—before debt pyramids and performance dashboards. Before EBITDA, IRR, and “shareholder value.”
Back to when value meant something closer to what it sounds like.
To a windswept path on the coast of Fife, where an absent-minded professor paced each morning, trying to explain how markets worked—not for shareholders, but for society.
Because before we learned how to extract value, we had to decide what value was. This isn’t a story of decay. That came earlier. This is the system behind it—the logic that made it all seem reasonable. If Erosion shows what work becomes, Extraction explains why it keeps happening.
Remembering value
Before we learned how to extract value, we had to decide what value was.
And that question—what value is—was first asked seriously not in a boardroom or a bank, but on a windswept path above the coast of Fife.
Kirkcaldy isn’t the sort of place you’d expect to launch an economic revolution. Grey-skied, salt-licked, perched on the edge of the Firth of Forth, it was quiet, industrious, and unremarkable—except for one man.
Each day, Adam Smith walked the clifftop. Locals called it “The Professor’s Walk.” He’d pace back and forth, muttering to himself, waving his hands in imagined debate.
He wasn’t rehearsing speeches. He was trying to solve a riddle: what makes a nation truly prosperous?
Not just rich—but flourishing.
Smith is often misquoted. And nowhere more so than in his line about the butcher, the brewer, and the baker. It’s been wheeled out for decades to justify greed. But that was never the point.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” “but from their regard to their own interest.”
Self-interest, yes. But not selfishness.
Smith’s world was grounded in relationship. Markets were personal. You knew the baker. You saw the brewer at church. Transactions weren’t abstract—they were exchanges between people, rooted in reputation.
Trade, for Smith, was mutual improvement. The baker earned a living. You got your bread. Both walked away better off.
But Smith’s deeper genius wasn’t in observing how people transacted. It was in asking why they didn’t exploit each other more often.
Before The Wealth of Nations, he wrote The Theory of Moral Sentiments—a book not about economics, but about conscience.
Smith argued that we behave decently not just out of rule or fear, but because we care what others think. We want to be seen as fair. We live under the imagined gaze of the “impartial spectator”—a kind of moral audience formed by the community around us.
Markets, then, weren’t machines. They were mirrors.
They worked only as long as people played fair—because if you lied, cheated, or gouged, your standing suffered. And in a small enough world, reputation was everything.
That was the market Smith described: local, visible, interdependent. Not a battlefield. Not a numbers game. But a web of mutual accountability.
And he worried—even then—about what might happen if that visibility disappeared.
What if the owners of capital never met their workers?
What if companies grew so large that harm could be outsourced?
What if someone could make decisions without ever facing their consequences?
Because distance changes things.
When people stop looking each other in the eye, they start thinking differently. The impartial spectator fades. Moral restraint dissolves. You don’t need to be cruel—you just need to be far enough away.
Smith wasn’t naïve.
He saw it coming.
He just couldn’t have imagined Bain Capital.
When distance removes the cost
To understand how businesses cause harm without intending to, we need to start somewhere unexpected.
War.
In 1947, U.S. Army researcher S.L.A. Marshall published a striking claim. After interviewing soldiers fresh from combat in the Second World War, he estimated that only 15 to 25 per cent of American infantrymen had fired their weapons during battle.
Not just missed. Not hesitated. They didn’t shoot at all.
This wasn’t cowardice. These were trained soldiers, in position, under fire. But when it came to pulling the trigger on another human being, they couldn’t do it.
The closer the enemy, the harder it became.
Marshall’s findings—still debated but broadly supported—sparked a quiet revolution in military training. The U.S. Army redesigned how it trained troops to overcome what it called “the resistance to killing.”
Out went bullseye targets. In came human-shaped silhouettes. Training became faster, more reflexive, less conscious. The goal was to short-circuit deliberation—and with it, hesitation.
Most critically, soldiers were distanced—psychologically and emotionally—from those they were being trained to kill.
It worked.
By the Vietnam War, up to 90 per cent of infantry were firing in combat.
What changed wasn’t the soldiers. It was the system.
Because the closer we are, the harder it is to harm. The further away, the easier it gets.
That’s the core insight in Rutger Bregman’s Humankind: A Hopeful History. Bregman argues that most people don’t want to cause suffering—and will go to surprising lengths to avoid it—unless they’re trained, coerced, or distanced from it.
He offers examples from across history: prison guards, genocide participants, drone pilots. The common factor isn’t cruelty. It’s separation. Remove the faces, the names, the stories—and people behave differently.
Not necessarily worse.
Just less humanly.
And so what started on the battlefield has become a kind of blueprint.
You don’t need to turn people into monsters. You just need to make the consequences invisible.
Which brings us back to business.
Because what Bregman observed in war has quietly been normalised in work. Distance is built into the system. Shareholders don’t know employees. Too few executives meet with customers. Analysts never see the people whose jobs are cut to meet guidance. Distance doesn’t create extraction. But it removes the friction that might otherwise slow it down. When you don’t see the pain, you don’t feel the weight. The logic flows faster, cleaner—uninterrupted by conscience.
And it’s not personal.
That’s the point.
You can lay off 5,000 people from a spreadsheet. You can squeeze suppliers via email from an office 3,000 miles away. You can declare bankruptcy from a Zoom call in London.
You don’t hear the stories. You don’t see the faces. You don’t walk past the empty shopfront.
And if you’re far enough away from the impact, you don’t even feel like the one pulling the trigger.
From making to taking
Value has long been debated, but it once meant something.
Not just economically—but experientially. You could see it. Feel it. Point to it.
A loaf of bread. A repaired roof. A printed book. A service that made someone else’s life better.
Someone did something useful. Someone else needed it. An exchange took place. Both walked away with more than they had before.
That was Smith’s model. Value was created in the doing. In the effort. In the outcome. Wealth came from making or delivering something people needed.
But over time, that logic began to shift.
First came scale—factories, professionalisation, the dream of more for less.
Then came abstraction—money itself became the product. Value no longer tied to usefulness, but to movement: of capital, of credit, of rights and risk.
Somewhere along the way, we stopped asking what was being created—and started asking what could be extracted.
We don’t talk much about that shift. But it matters.
Because it’s how a company can produce nothing, serve no one, and still generate record profits.
It’s how renting out debt can earn more than building homes. How derivatives can dwarf entire industries. How cutting jobs can improve “value”—even if it destroys capability and resilience.
Economist Mariana Mazzucato calls this the value extraction economy—a system that rewards those who position themselves at the point of transaction, not production. Where finance outpaces service. Where manipulation of risk trumps contribution to society.
In her book The Value of Everything, she asks a simple question: Who creates value? And who just moves it around?
It’s not a question the market is designed to answer.
Instead, we’ve come to treat price as proof.
If something’s expensive, it must be valuable. If someone earns a lot, they must be productive. If a metric goes up, it must be a sign of success.
But none of those things are necessarily true.
Mazzucato shows how many of the world’s most profitable firms profit not by creating value, but by extracting it. By capturing a share of something someone else built. By owning the gate, not the work.
And the rest of us? We’ve learned to see through the system’s eyes.
We treat high prices as signs of worth. We assume profits mean value. We measure what’s easy—then call it important.
We don’t do this out of malice. It’s just how we’ve been taught to recognise success.
That’s the real shift.
Not just from making to taking— but from understanding value to calculating it.
Who do you really work for?
Most people don’t join a company thinking about extraction.
They’re not planning how to sweat assets or flip a holding. They’re looking for something more familiar. A decent job. A team they like. A manager who backs them. A place to grow.
And for the most part, that’s what they’re shown.
The induction slide deck talks about purpose. The all-hands call talks about culture. The careers page talks about people.
And those things aren’t necessarily false. They just leave something out.
Because beneath the surface, there’s often another company. Not the one built for people. The one built for capital.
That company doesn’t talk about values. It talks about value. It speaks in the language of multiples, margin expansion, and return expectations. It’s designed to perform—against forecast, against peers, against time.
The company of people might want to invest in long-term capability. The company of capital might want to exit in eighteen months.
The company of people might see a store, a team, or a community. The company of capital might see a portfolio line item and a refinancing opportunity.
And when the two meet—it’s usually the latter that wins.
Because once a company is acquired, or listed, or restructured, it’s no longer just a business.
It’s a vehicle. A chassis. A tool for extraction.
And here’s the part that’s hard to spot:
No one has to act maliciously. No one needs to issue a memo or pull a lever.
That’s the brilliance of it.
Everyone just follows the logic they were given.
And then they stopped believing
None of this broke the rules. That’s what makes it so unsettling.
Toys R Us wasn’t a scandal. It was a strategy. No fraud, no incompetence. Just logic—followed all the way through. The company was legally alive. Still operating. Still profitable. But it had already been emptied.
Not by accident, and not by failure—but by design.
This is what shareholder value becomes when it moves from idea to operating system. In Primacy, we argued that the company is supposed to be the board’s primary obligation—an entity in its own right, not just a vessel for returns. But here’s the truth: When the company becomes a tool for shareholder return, those duties collapse into each other. The company stops being the thing you serve. It becomes the thing you use.
And the consequences don’t just affect investors and executives. They fall on the people with no say in the logic: employees, suppliers, and communities. Those who still believe the company is supposed to mean something.
And here’s the part we often miss: The people making the decisions—the ones influencing them—don’t always see that cost either. They see the ratios. The projections. The forecast gap. And that’s enough.
Meanwhile, the people inside the company—the ones doing the work—they see something else: The hiring freeze. The redundancy round. The plan that quietly disappears. But they rarely see why.
Because transparency doesn’t flow both ways.
What if it did? If employees saw the logic of capital clearly, would they feel less betrayed, or more expendable? If leadership had to face the human consequences and understand the impact on employees, would they still make the same calls?
I’ve seen what happened when that distance closed. Some leaders leaned in. But most turned away. It’s one of the reasons Harkn didn’t survive. Distance protects decisions. And people.
Smith understood what was at risk. Even Friedman might have been surprised by how far the logic would go. But here we are.
Extraction didn’t corrupt the system. It became the system.
And most people inside it already feel the disconnect. Even if they haven’t yet found the words.
Because when no one’s watching—when no one has to look—anything can be justified. Smith believed the gaze of others helped keep us honest. But what happens when that gaze disappears?
This is what happens.
Extraction.
Another reason people stop believing.
Another layer in the great unravelling.
Another truth behind the rejection that comes next.