Al dunlap sunbeam

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B R I A N J . H A L L

R A K E S H K H U R A N A

Al Dunlap at Sunbeam

Dunlap v. [after Albert J. Dunlap (1937- )] 1. To turn a company around at lightning speed. 2. To focus on the best: to eliminate what is not the best. 3. To protect and enhance shareholder value.

— Al Dunlap, Mean Business

For much of his career before coming to Sunbeam, Al Dunlap was known as the poster child of corporate restructuring. Coming off a highly successful turnaround at Scott Paper, he had recently published a best-selling book, which detailed his career success at his previous jobs and celebrated his latest accomplishment, “rightsizing” the appliance-maker Sunbeam. Dunlap was both famous and infamous for his hard-nosed approach to turnarounds, which typically involved radical restructuring and downsizing. Although he was often criticized in the press, Dunlap was not shy about his “take-no-prisoners” managerial style, which he documented in his aptly titled book, Mean Business.1

His declared victory at Sunbeam (see Exhibit 1), however, may have been premature. Two months after increasing Sunbeam’s stock price to its all-time high of $53 per share, and only two weeks after Sunbeam’s largest shareholder Michael Price stated that Al Dunlap “is an outstanding executive and Sunbeam is fortunate to have him,” Dunlap was fired.2

Sunbeam’s board had hired Dunlap to turn around the company in 1996, in hopes that he could effect the same increase in shareholder value he had at Scott Paper from 1994 to 1995. As his tenure at Sunbeam carried into the second year, board members watched their stock price fall from a high of $53 to less than $16 the day his firing was announced. His cost-cuttings hadn’t panned out, and the companies acquired under his leadership had been much more trouble than the board had anticipated. Given his widely acclaimed history of turning around ailing companies, and the rapidity of his fall, many wondered what had happened. Was he really just a “one trick pony,”3 overrated and overpaid, or would his restructuring of Sunbeam have worked if he had only been given more time?

1 Dunlap, Albert J. Mean Business: How I Save Bad Companies and Make Good Companies Great. (New York: Simon & Schuster, 1996).

2 Business Wire. May 26, 1998.

3 “Al Dunlap: Exit Bad Guy.” Daniel Kadlec. Time, June 29, 1998.

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899-218 Al Dunlap at Sunbeam

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“Rambo in Pinstripes”

The day Sunbeam announced to Wall Street that shareholder-focused Al Dunlap would be its next CEO, the company’s stock price jumped 49%, creating almost $500 million of value for the shareholders, including Michael Price and Michael Steinhardt, the two men who controlled almost 42% of Sunbeam’s shares.4 Price and Steinhardt had pulled the appliance maker out of bankruptcy in 1990 when they bought the company from Allegheny International, a corporation that had acquired Sunbeam in 1981 and had done little to improve it.

By the time Dunlap was hired in July of 1996, Sunbeam had been through two other CEOs, an intensive restructuring and a long period of instability.5 (See Exhibit 2 for a history of Sunbeam.) Paul Kazarian, one of the partners in the buyout from Allegheny, and the CEO who took Sunbeam public, was fired in 1993 for his highly volatile leadership style. The CEO that followed, Roger Schipke, was a former GE executive focused on growing Sunbeam slowly, over the long term. He resigned in early 1996, noting a change in strategy, dictated by Price and Steinhardt, from long term to short term. The controlling directors wanted to cash out, and had retained Merrill Lynch to shop the company in late 1995. There had not been any takers.

Sunbeam, many believed, was a dying brand. It had failed to keep up the pace with competitors like Black & Decker, and had not succeeded in attracting new customers. Most of the consumers who bought Sunbeam products were older, and had been buying Sunbeam since its heyday in the 1950s and 1960s. Its factories were also aging, as were its machinery and tooling. There were no information systems to connect one department or factory to another. Turnover was high; among factory workers, it was well over 50%. Its board of directors was voted one of the worst boards of 1994 by Chief Executive magazine.6 By the middle of 1996, the stock price had hovered in the teens for close to a year and a half. Sunbeam needed a savior.

Dunlap had a well-established track record for “rescuing” ailing companies. His list of accomplishments ranged from implementing operational improvements in the factory he supervised at Kimberley-Clark (his first civilian job after graduating from West Point), to putting Lily Tulip back in the black for Kohlberg Kravis Roberts & Co. (See Exhibit 3 for Dunlap’s employment history.) A man from the “slums of Hoboken”7 who worked the factory floor before becoming an executive, Dunlap attributed many of a company’s ailments to “ivory tower disease”: the inability of business school-educated managers to make decisions about processes occurring layers of management below them.8 In later years, his restructuring plans carried the trademark of firing from the top down, and he earned a reputation for attacking corporate culture as the source of a company’s problems.

He was perhaps hired as much for his reputation as for his skills. His aggressive style offered fodder to those he fired, and to the media, who portrayed him as, in his words, “some kind of serial killer.”9 His nicknames (“Chainsaw Al” and “Rambo in Pinstripes” among the most used) were not self-appointed, but Dunlap acted the part, at one point even dressing up as Rambo and posing on the