The morning after Al Dunlap was announced as the new CEO of Sunbeam Corporation the share price rose 50%. Such was the reputation of ‘Chainsaw Al’ as a master in building shareholder wealth, it meant that investors flocked to be part of what was meant to be the resurgence of Sunbeam. These same investors who expected a long-term growth prospect would come to regret their decision. While it first appeared Dunlap’s “slash and burn” approach was working, it was in fact a disaster in the making. Within two years he was out the door as Sunbeam was investigated for accounting fraud and heading into bankruptcy. Why had so many people not realised that Albert Dunlap had all the signs of being a corporate psychopath and only intent on making money for himself?
This is Part I of a two-part series examining the damage corporate psychopaths cause to organisations and their stakeholders. See Part II: Al Dunlap and the making of a Corporate Psychopath.
If you want a friend, get a dog. I’m not taking any chances; I’ve got two dogs.
——.Albert Dunlap
The Sunbeam Story
The origins of Sunbeam Corporation begin in 1897 when two entrepreneurs, John Stewart and Thomas Clark, incorporated the Chicago Flexible Shaft Company. Their first products were sheep shearing tools for the agriculture industry but in 1910 the first Sunbeam branded household appliance, the Princess Electric Iron, was introduced. This was followed by many products such as shavers, toasters, electric blankets, with perhaps the most famous being the Sunbeam Mixmaster introduced in 1930. This was the first mixer to have removable, interlocking beaters.
During WWII much of the production facilities were dedicated to the war effort but in 1946 the company name changed to Sunbeam Corporation and over the next few decades Sunbeam became the leading manufacturer of small electric household appliances. Because the cost of labour was lower in the southern parts of the US, factories were opened in such far-flung states as Mississippi and Tennessee:
By the 1970s, Sunbeam Corp. was still America’s biggest producer of small appliances, enjoying over $1.3 billion1 in annual revenue, but its commitment to Chicago was getting less clear. The company now had numerous offices and more than 75 factories (44 in the USA, 33 internationally), employing roughly 30,000 people in total; just 3,000 of whom were still based in Chicago.2
Things would not go so smoothly for long. In 1981 the Pittsburgh-based conglomerate, Allegheny International, bought Sunbeam and it became the Sunbeam Appliance Division. By the mid-1980s, Allegheny International’s divisions suffered a steep decline in sales revenues and, not helped by poor management and the 1987 stock market crash, AIlegheny was forced into bankruptcy in 1988.
In 1989 the investment group, Japonica Partners, purchased the remains of Allegheny and named it the Sunbeam-Oster Company, Inc. As “corporate raiders” their main interest was for a listing on the New York Stock Exchange and then dress up the company for sale and by doing so make a healthy profit.
Paul Kazarian took on the CEO role and went about consolidating eleven divisions down to four so that the business became profitable again and was able to go public. The Initial Public Offering (IPO) of Sunbeam-Oster stock opened on the New York Stock Exchange at $12.50 a share in August 1992.
Kazarian went on the achieve to record breaking profit levels but his over-aggressive management style meant he was replaced in 1993 by Roger Schipke, previously with GE’s small appliance division. Now renamed as Sunbeam Corporation, under Schipke’s leadership the stock price actually declined over the next few years as he attempted to transform the company. He resigned in May 1996.
Dr Barbara Kellerman, research director of the Center for Public Leadership at Harvard University’s Kennedy School of Government, gave this assessment of the state of Sunbeam Corp. at that time:
Many had now come to believe that Sunbeam was a dying brand. It had failed to keep up with competitors such as Black & Decker, attract new customers, restore its physical plant, and update its information systems. In addition, costs had spiraled out of control and the company was suffering from political conflict. Finally, its management was weak.3
The lead Japonica Partners investor, Michael Price, was now looking out for a new CEO and he came to believe there was only one person suitable for the turnaround task – one Albert J. Dunlap.
Al Dunlap at Sunbeam
When Al Dunlap was offered the job of CEO and Chairman of Sunbeam Corp. in July 1996 he made sure he got himself an extremely generous deal. There was no negotiation. He got whatever he demanded, both money – mostly share options – and control.
He had come to Sunbeam with a stellar reputation as a turnaround guru. He was famous for having transformed loss-making Scott Paper, the oldest and largest US manufacturer of toilet paper, and sold it off to Kimberley Clark. In doing so Dunlap and investors had made a mint of money in the process.
Sunbeam employees were apprehensive when then heard of the appointment because knew of Dunlap’s reputation as a mean and tough boss. But the senior executives were stunned by Dunlap’s day-long diatribe on his first day on the job on July 22, 1996. James Wilson, head of human resources recalls the occasion:
I don’t think there had ever been a meeting in my life where I stared at the top of my shoes for that long. He screamed at us all morning. It had to last three to three and one-half hours. He went after each one of us individually. He was so intimidating that when he finished, we didn’t know which end was up.4
Dunlap’s approach to the restructure of Sunbeam would be a repeat of the Scott Paper playbook, only faster, nastier and more extreme. The turnaround of Scott had taken twenty months. For Sunbeam, he said it would take six to twelve months.
His first move was to replace several key executives with trusted people from Scott Paper to build his “dream team” of senior executives. These were people whom he had worked with previously and who were loyal and could be trusted to do his bidding. It was the same with the board of directors. Within a short space of time he was able to bring in his own friends as directors.
Business Week writer, John Byrne, had closely studied the way Dunlap surrounded himself with unquestioning followers:
The most important qualifications for a Dunlap-led business journey, however, were trust and loyalty. Whether hiring people for the company’s key jobs or recruiting directors to fill board seats, Dunlap first sought friends, acquaintances, and former business associates. From Dunlap’s perspective, they were far less likely to resist his often outrageous demands. They already knew what it would take to survive him and the job.5
He couldn’t achieve his desired outcomes, especially his unrealistic goals, without others to do his bidding. Here he was skilled in using a number of manipulation techniques to get their cooperation and not have them leave.
One way Dunlap achieved a loyal following was by giving executives lavish stock option packages. The big payoff would come when the company was sold. When Kimberley-Clarke bought Scott Paper there were some sixty individuals who became millionaires overnight.
The downside was that the carrot of the huge rewards meant that it was somewhat easy for people to lose their integrity and do things they normally wouldn’t do. There was always the threat of dismissal and loss of stock-options if they didn’t perform to Dunlap’s expectations. It was this mix of fear and greed that kept them in the game.
Besides the callous way he treated people, one of the elements of Dunlap’s character could be described as glibness, which is defined as “the quality of being confident, but too simple and lacking in careful thought.”6
He had a very simplistic view of business such that the wealth of shareholders was the only thing that mattered. He wasn’t alone in this thinking. This is what short-term Wall Street investors and corporate raiders wanted as well, which is why he was in so much demand.
He had no time for the elements of Corporate Social Responsibility (CSR). In his eyes it was a waste of time to give any attention to stakeholders. For example, one of the first things he did when he arrived at Sunbeam was to cut all gifts to charities even cancelling existing commitments. He also forbad managers from being involved in community activities as he believed it would impact their work obligations.
He then set about planning a massive “chainsaw” demolition of half the Sunbeam workforce of 12,000 people together with closing half of the 26 factories. This was to start in November of 1996 to be followed by large reductions in the number of warehouses, field offices and product lines.
For the employees affected by the closures, the decision was devastating for both the individuals and the communities. When Cherrie Mae Gammage heard the news of the closure of the Bay Springs, Mississippi plant she cried. She had been working in the factory thirty-one years, had bought a home and raised five children:
It was a wonderful place to work. I had good supervisors and good coworkers. To me, that plant was like one big family. I guess I spent more time there than at home. The plant had been good to me . . . It affected a lot of people, especially younger people who had just bought homes and cars and were trying to send their children to school.7
Dunlop had no empathy or remorse for letting all these workers be let go. “I come from a working-class family. If I have to get rid of 35 percent of the people to save 65 percent, that’s what I am going to do.”8
He couldn’t even understand how someone could stay working for the one company for thirty years. “If you’re just going to stay someplace, you become a caretaker, a custodian. Life should be a roller coaster, not a merry-go-round.”9
Dunlap treated the senior management just as badly as he did everyone else. According to Richard Boynton, president of the household products division, he was condescending, belligerent and disrespectful. But he had purchased the execs’ loyalty, and they set about executing his plan to fire half the 12,000 staff and eliminate 87 per cent of the company’s products.10
In fact Dunlap was proud of his reputation as a “hatchet man” and promoted himself as “Chainsaw” Al and “Rambo in Pinstripes”. He rarely fired an executive himself as he mostly left it to Senior Vice President, Don Uzzi to do the dirty work. “Uzzi not only had to fire them; he also had to indulge in what he considered a sick routine with Dunlap, who insisted on hearing how each reacted to the news.”11
Heading for failure
Dunlap’s turnaround plan seemed to be working – at least in the eyes of the investors. In addition to closing factories and distribution centres, he cut R&D staff numbers, outsourced IT and postponed maintenance work. His cost-cutting had an eye for the short-term only. He had no concern for the long-term outlook.
The reaction from Wall Street was surprisingly subdued and the stock price barely moved. Dunlap had been quietly exploring the possibility of selling the company but it was going nowhere. It was only after he publicly announced the plan for a sale of Sunbeam coupled with an improvement in the financials that the stock price started to increase markedly.
During 1997 and the first quarter of 1998 the stock price was steadily rising and went on to reach a high of $53 in March 1998.
Where his simplistic view finally came undone was when he realised no one wanted to buy Sunbeam at such a high price. As Byrne explained, he “failed to comprehend the dynamics of a slow growth, mature industry in which consumers bought one blender or toaster every seven years.”12 Instead, investors were falling over themselves getting into high-tech startups – the dot-com bubble of the late 1990’s.
That was the point where Dunlap changed his plans and attempted to make Sunbeam into a growth company by buying three companies, adding 1.5 billion dollars of debt, but still promising a profit.
While most of the Wall Street analysts were recommending Sunbeam stock as a ‘buy’, there were others who were questioning the veracity of the financials.
The first admission to the market by Sunbeam that it would not meet the expected profit results occurred early in April 1998. The stock price tumbled. On April 16, Sunbeam’s directors, chaired by Dunlap, met via telephone. The meeting did not go well:
For almost all the directors, it was a deeply disturbing meeting. Dunlap, who had generally been on his best behavior before his directors, was angry and profane. He blamed everyone but himself for the company’s problems, for the fall of the stock, and for the departure of key executives.13
A few weeks later the board would hear more disturbing news confirming the extent of the first quarter loss.
The business press by this stage was turning against the world’s most famous “turnaround guru”. For the first time Dunlap’s financial tricks were exposed in a Forbes article published on May 4.14
But it was another negative report by Barrons business newspaper15 on June 8 that caused several worried Sunbeam directors to ask themselves, “Is this story true?” Dunlap told the board members there was no truth in the Barrons report. But some weren’t satisfied and, after learning more about the growing size of the fourth quarter loss, they voted at a special board meeting on June 15 to end Dunlap’s reign as CEO and Chairman. His employment contract would mean a severance payment of $27 million.16
The board then spent the rest of the day learning that not only was there a leadership problem, but Sunbeam was suddenly facing bankruptcy. Within days an experienced CEO, Jerry Levin, was appointed at the same time as the Securities and Exchange Commission (SEC) started investigating Sunbeam’s financial reporting.
Unbeknown to the board, Dunlap had perpetrated a massive deception. He had misled the board and investors as had Dunlap’s friend Phillip Harlow, the Anderson Consulting auditing partner who signed off the financial accounts.
The Fallout
Sunbeam entered Chapter 11 bankruptcy in 2000.
The 2001 report of the investigation by the Securities and Exchange Commission (SEC) spelt out the extent of the deception:
- The financial reports and press releases from 1966-98 were “materially false and misleading.”
- The illegal conduct began late in 1966 with inappropriate accounting “cookie-jar” reserves which were then used to falsify the reported increased income for the 1997 year. In addition, accounting fraud was used to boost income that year by $60 million dollars.
- There was a failure to disclose that the 1997 revenue growth was partly achieved at the expense of revenue for the following year. This was achieved by giving inducements to customers to bring forward their purchases, a practice known as “channel stuffing.”17
It was the end of the corporate road for Al Dunlap. He was fined $500,000 and received a life-time ban from serving as a company officer.
That wasn’t the last one would hear from Al Dunlap. He would then go on to the international speaker circuit with leadership as the subject. Financial author Christopher Byron had this to say about Dunlap’s leadership credentials:
Dunlap had never learned the subtleties and finesse of leadership since his only prior exposure to the challenges of leadership had involved the command-and-control structures of the military.18
Still a wealthy man, Al Dunlap died at his home in Florida on January 25, 2019 aged 81.
Andersen Consulting paid an out-of-court settlement of $110m to Sunbeam shareholders while partner Phillip Harlow was banned from acting ever again as an auditor.
But how did so many people allow Dunlap to wreck Sunbeam in this way? What had they missed? Is this the case of a corporate psychopath at work?
Continued as Part II: Al Dunlap and the Making of a Corporate Psychopath.
Notes
- All dollar figures are in US dollars
- “Sunbeam Corporation, est. 1893,” Made In Chicago Museum, https://www.madeinchicagomuseum.com/single-post/sunbeam-corp/.
- Barbara Kellerman, Bad Leadership: What It Is, How It Happens, Why It Matters (Boston: Harvard Business Publishing, 2004).
- John A. Byrne, Chainsaw: The Notorious Career of Al Dunlap in the Era of Profit-at-Any-Price (New York: Harper Business, 1999, 7).
- Byrne, Chainsaw, 42.
- “Glibness,” Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/english/glibness.
- Byrne, Chainsaw, 122.
- Byrne, Chainsaw, 30.
- Jon Ronson, “Your Boss Actually Is a Psycho,” GQ, December 18, 2015, https://www.gq.com/story/your-boss-is-a-psycho-jon-ronson.
- David Gillespie, Toxic at Work: Surviving your psychopathic workmates, from the dominant bullies to the charming manipulators (Sydney: Pan Macmillan Australia, 2017, chap. 4, Kindle).
- Byrne, Chainsaw, 230.
- Byrne, Chainsaw, 276.
- Byrne, Chainsaw, 254.
- Matthew Schifrin, “’Chainsaw Al’ loses his magic touch,” Australian Financial Review, May 11, 1998.
- “Dangerous Games, “ Barrons, June 08, 1998, 17, https://www.barrons.com/articles/SB897104848355618500.
- Arianna Huffington, Pigs at the Trough: How Corporate Greed and Political Corruption Are Undermining America (New York: Three Rivers Press, 2009).
- “Albert J. Dunlap, Russell A. Kersh, Robert J. Gluck, Donald R. Uzzi, Lee B. Griffith, and Phillip E. Harlow,” U.S. Securities and Exchange Commission, May 15, 2001, https://www.sec.gov/litigation/litreleases/lr-17001.
- Christopher M. Byron, Testosterone Inc. Tales of CEOs Gone Wild (Hoboken, New Jersey: John Wiley & Sons, 2004, 70).