Al Dunlap
Of all the stupid things the
American Medical Association has done during its disastrous fling with
commercialism, choosing Sunbeam CEO Al Dunlap as its business partner has to be
the most stupid. Dunlap's nicknames-- preferred nicknames--are "Chainsaw
Al" and "Rambo in Pinstripes," so you can scarcely imagine two more
antithetical worldviews than his and the AMA's. The AMA pitches itself as
America's selfless medical counselor, indifferent to the demands of the
marketplace. Dunlap, by contrast, is the marketplace. The most
coldblooded businessman around, Dunlap personifies the relentless logic of Wall
Street. He champions efficiency and ruthlessness, and follows no higher
principle than the value of his company's stock. If the market is controlled by
an invisible hand, Dunlap is its iron fist.
The AMA
hoped the would help the company's bottom line, and not cause it embarrassment.
But since its Aug. 12 announcement, Dunlap has been teaching the association a
painful lesson in the realities of the market. The AMA tried to soft-pedal the
Sunbeam deal as a consumer-education project, but Dunlap exploded that notion
by touting its commercialism: Sunbeam, he declared, would eagerly advertise its
exclusive AMA partnership. When public outrage prompted the AMA to wriggle free
of the Sunbeam deal last week, Dunlap threatened to sue the association to
enforce the contract. The AMA and Sunbeam haven't settled their dispute, but
everyone knows who won and who lost. Dunlap's company has received a vast
amount of press. Its little-known home-health-care product line got a huge PR
boost. Its stock price jumped four points. The AMA, meanwhile, will spend the
next few months (or years) trying to repair its image. The AMA has been
"Dunlapped."
Aholy terror of a CEO, Dunlap has emerged as the mascot of
a new kind of capitalism. Dunlapism begins and ends at Wall Street. Its
sole credo is: "How can we make our stock worth more?" Nothing that is
valued by less steely businessmen--loyalty to workers, responsibility to the
community, relationships with suppliers, generosity in corporate
philanthropy--matters to Dunlap. Business ethics professors tout "stakeholder
capitalism." Dunlap sneers at the phrase. Dunlapism is the perfect religion for
the Mutual Fund Age. As the AMA discovered, everyone who deals with Dunlap
loses--except his stockholders.
Other
executives share his creed, but none matches Dunlap's methods. In the past two
decades, the 60-year-old executive has run nine companies in the United States,
Australia, and England. He served as right-hand man/enforcer for both
Australian media magnate Kerry Packer and recently deceased British billionaire
Sir James Goldsmith. In the process, he has earned a reputation as the most
merciless turnaround artist in the world. To wit: As CEO of struggling cup
manufacturer Lily Tulip Corp. in the '80s, Dunlap fired most of the senior
managers, sold the corporate jet, closed the headquarters and two factories,
dumped half the headquarters staff, and laid off a bunch of other workers. The
stock price rose from $1.77 to $18.55 in his two-and-a-half-year tenure. At
Scott Paper--his pre-Sunbeam tour of duty--he fired 11,000 employees (including
half the managers and 20 percent of the company's hourly workers), eliminated
the corporation's $3-million philanthropy budget, slashed R&D spending, and
closed factories. Scott's market value stood at about $3 billion when Dunlap
arrived in mid-1994. In late 1995, he sold Scott to Kimberly-Clark for $9.4
billion, pocketing $100 million for himself--a modest payoff, he says, for the
$6 billion in increased shareholder value.
Dunlapping continues at Sunbeam, a stagnant
consumer-products company. Dunlap has fired 3,000 of 12,000 workers since
taking over in July 1996; sold off subsidiaries employing another 3,000;
eliminated corporate charity; and shuttered 18 of 26 factories. The payoff:
Sunbeam's stock has climbed from $12 to $44 in barely a year.
What
distinguishes Dunlap from his colleagues is that he takes pride in his
toughness, expressing only cursory regret for having cashiered thousands of his
workers. When Newsweek ran a cover story about corporate layoffs, Dunlap
contributed a gleeful column about how wonderful such firings are for
stockholders. Then he savaged AT&T CEO Robert Allen publicly for not
sacking enough people. He posed as Rambo on the cover of USA Today . And
he titled his 1996 best seller Mean Business: How I Save Bad Companies and
Make Good Companies Great . (In it, he likens himself to Michael Jordan and
Bruce Springsteen, fellow "superstars.")
It's easy to hate Dunlap for the wrong reason, which is
that he is a brutal, heartless, arrogant bastard. According to Business
Week , Dunlap skipped the funerals of both his parents, failed to support
(or even pay attention to) the child from his first marriage, and refused to
help pay for his niece's cancer treatments. But to criticize Dunlap for his
cruelty is akin to scolding a lion for killing an antelope. Dunlap lacks
conscience? Well, so does the market. If Wall Street were a CEO, it would skip
its parents' funerals, too. And there is logic to Dunlap's cruelty.
Struggling companies do need to shed workers in order to recover. Dumping 35
percent of your employees, as Dunlap did at Scott, may save the jobs of the
other 65 percent. Stockholder profits should not necessarily be squandered on
the CEO's favorite charity.
But there is a right reason
to hate Dunlap, which is this: He's not as good as he looks. Dunlap does not
know how to build a company. If capitalism is "creative destruction," Dunlapism
is simply destruction. He prettifies struggling companies for Wall Street, but
undermines them in the long term. Both Barron's and Business Week
have chronicled how Dunlap has built his "turnarounds" on cosmetic measures
designed to pump up stock prices. At Sunbeam and Scott, he has sold assets to
raise quick cash, cut prices to artificially boost sales, and squeezed
suppliers for short-term savings at the price of long-term reliability. His
R&D cuts have come at a time when other American companies are investing in
new technology. He uses PR brilliantly: Hill and Knowlton tout him relentlessly
to reporters and investors, winning him an adulatory profile that serves him
well. The day he was hired, for example, Sunbeam stock jumped 59 percent on his
reputation alone. (Another example: Within an hour of my call to Sunbeam HQ for
information on Dunlap, I received five voice mail messages from three Sunbeam
flacks.) Dunlap's companies, too, rely heavily on short-term marketing
campaigns and advertising. What he does not do is spend time developing new
products, nurturing talent, and cultivating customers. Why? Because he never
sticks around a company long enough for that to matter.
Sooner or later--almost
certainly sooner--Dunlap will quit Sunbeam, liquidate his stock options, clear
a profit of about $100 million, and move on to another high-profile job.
Sunbeam will be worth a lot more than it was when Dunlap arrived. It may not be
a better company.
