When Circuit City Stores (NYSE: CC) shocked the retail world a few months ago by stating it would effectively fire 3,400 higher-paid employees and replace them with lower-paid employees, most of us were slightly aghast. After all, this kind of brutal honesty was not what the industry was used to. It also exposed Circuit City management as incompetent spendthrifts. Cutting costs is one thing, but messing with long-term employees in a fashion like this can completely destroy employee morale and make nobody want to be employed by your organization.

Now, capitalistic economies survive by openness and competition, and Circuit City was free to make this decision. There is no law against it. At the same time, one large misstep (like many smaller ones) can completely ruin a company. I'm not sure that is happening to Circuit City yet, but there are some signs this may be happening. In standard and deplorable fashion, Circuit City CEO Philip Schoonover is taking home huge compensation amounts while the company he leads sucks the marrow from its own existence. Since this ground has been covered many times, I'll move on.

Circuit City's admission that it saw the first quarterly sales drop in over three years should be a huge wake-up call to its management and especially the board. If the board is supposed to be the guiding light behind large company decisions, this one is on life support. Did the effect of all those firings in recent months help Circuit City see a huge sales drop in its more recent quarter? If those two factors can ever be correlated, then it will show what many of us are already thinking -- human talent, although thought to be expendable, can make or break you.