Al Dunlap Savages Scott Paper and Sunbeam
Al Dunlap had a reputation as a turnaround artist, and was hired on by Sunbeam after a success at Scott Paper - but he has often been accused of doing harm to the organizations and sometimes cooking the books in order to produce paper results.
Scott Paper
Scott Paper was a sick company, with a flat sales growth and mounting losses over a course of several years.
Dunlap came aboard, investing $4 million of his own money into the company. Within three days, he had disrupted management, fired many senior people, and replaced them with his own people. He also implemented dramatic goals that included divesting the company of nonstrategic assets, developing a new core team of senior management, restructuring the company, and being aggressive in marketing. He cut 71% of headquarters staff, 50% of salaried employees, and 20% of production workers. He outsourced a number of services to firms who could do it cheaper, and divested the company of numerous facilities.
While sales remained flat (and some lines even lost), the company's finances were very tight. The stock price rebounded and the company's credit rating improved. In the end, the entire operation was sold to Kimberly-Clark, and Dunlap made quite a pile of money for himself and the shareholders in the process.
Sunbeam
Sunbeam (electronics, not bread) likewise had flat revenues and mounting losses. When they hired Dunlap, the stock jumped 50% just on faith, and eventually climbed by 300%.
In his customary way, Dunlap canned half of the employees, outsourced operations, sold off facilities, and concentrated on the most profitable product lines. Within a year, he announced that the turnaround was complete and the firm was in good shape to be sold.
However, the high price of the stock made the company unattractive to potential buyers. So instead, Dunlap went on a buying spree, and used the company's financial strength to acquire other companies.
Unfortunately, the company took on a lot of debt to make these acquisitions, which were ultimately unprofitable, and the stock took a 90% dive from its previous price. Eventually, the board of directors dumped him.
After his departure, auditors discovered a number of accounting "irregularities" that had exaggerated the performance of the firm and artificially inflated the stock price.
Eventually, the SEC became involved, and charged Dunlap and some of his executives with securities fraud, cooking the books to make the company seem to be performing far better than it was. These charges were settled out of court, with Dunlap paying $500,000 in fines and agreeing never to become an officer or director of another public company.
There were suspicions he had done the same, back at Scott Paper, but the Enron scandal took the spotlight, so the SEC lost interest in following up.
Analysis
The "slash-and-burn" style of management has long been popular with corporate raiders, as it has an immediate and dramatic effect on the "books" of a company. The problem with this style of management is that it is short-sighted. The actual performance of the firm is not improved, and the short term "pop" is often counterbalanced by damages that do more harm to the company in the long run. It's suggested that Dunlap's strategy worked too well at Sunbeam, and had the short-term impact been less dramatic, he may have been able to unload the firm and move on to the next victim.
Another criticism of the tactic is that Dunlap failed to take the time to appropriately analyze the problem, and that in many instances he was slashing a great deal of flesh-and-bone along with the dead wood. Especially when one considers that his deepest cuts are in headquarters and salaried workers, whose work often pays dividends in the future, it becomes clear that he was hot-rodding the companies - stripping them down for a burst of performance, but no longevity.
The benefactor of Dunlap's actions were himself and short-term investors, who made huge financial profits in a short amount of time. Long-term investors often found themselves worse off for his assistance, as did the many employees who were cut in the process.
Lessons Learned
Primarily, that there is no quick-and-easy fix to a large-scale organization that is languid. It takes a number of improvements, made over the course of years, and if someone promises to delivery quick results, the board should take a long look at their plans.
There's some suggestion that consideration of other stakeholders - the employees, the long-term stockholders - should have been considered, though there's no real indication of the reason ro benefit for this.