Seducing investors


CHAINSAW Al is gone, leaving many people who believed in him a lot poorer than they were before. Albert J. Dunlap was chairman of Sunbeam Corp. He belonged to the let's-crack-heads school of corporate management. During his stint at Sunbeam and before that at Scott Paper, he laid off at least 23,000 workers. Many American corporate executives have dismissed large numbers of employees, but what made Chainsaw special is that he did it all with great relish. Calling himself "Rambo in pinstripes," Mr. Dunlap tirelessly promoted his book, "Mean Business." He'd announce on television that 80 percent of American business ought to be "Dunlapped."

Chainsaw Al applied his surgical techniques to Sunbeam, maker of Mr. Coffee Machines, First Alert smoke alarms and Coleman outdoor equipment. Taking over the helm in 1996, he began by announcing plans to eliminate half the work force. This time, however, he lost the patient and his job. Now, while the rest of the stock market is thriving, Sunbeam shareholders bleed losses.

Forgive me for saying this, but they had it coming.

There is a simple-minded view among many investors that brutality in business is the key to making money. They regard business as a Darwinian jungle that assures the survival of the fittest. Their mistake comes in assuming that the fittest contender is the beast with the longest fangs. That's not what naturalist Charles Darwin really meant in his theories on the "struggle for survival." Survival might also rely on cooperation tTC with others of the species.

"There are more fools than knaves in the world," said another 19th-century Englishman, Samuel Butler, "else the knaves would not have enough to live upon." May I suggest that investors who follow a chief executive who yaps about being the king of the jungle are suckers? As Mr. Dunlap beat his chest about how many people he sacked, he marketed this brutality as evidence of his devotion to the interests of shareholders. The spiel drew some rather naive investors into his tent.

This is what he then did to the shareholders. He had Sunbeam sell $58 million worth of barbecue grills at cut-rate prices in December (giving stores until June to pay for them). Barbecue grills are ordinarily sold later, as the barbecue season approaches. By moving sales that would have occurred in 1998 to December of last year, he goosed up the sales numbers for 1997. People saw the 18 percent jump in 1997 sales and declared Mr. Dunlap a genius.

In January, the Sunbeam board awarded Mr. Dunlap a three-year, $70 million contract. "You can't overpay a great executive," he boasted. "Don't you think I'm a bargain?"

Some began to smell a rat. PaineWebber analyst Andrew Shore started to ask pointed questions at financial meetings. Mr. Dunlap ordered him to sit down and let someone else ask him questions. According to Fortune magazine, he called the analyst "a son of a bitch." Then early this month, Barron's magazine reported that 1997 profits were largely based on accounting gimmicks. Having borrowed earnings from the previous year and no longer having enough workers to make its products, Sunbeam announced a $45 million loss for the first quarter.

Chainsaw Al was not alone in seducing investors with tough talk verging on the bizarre. Richard Scott, the head of Columbia/HCA hospital chain, was also a big, noisy cost cutter. He slashed nursing staffs and brought doctors to their knees. He applied brass knuckles to communities opposed to letting him take over their hospitals. He referred to diseases as "product lines" and compared admitting patients to making radios. His eyes glinted.

Quoting Hannibal as he prepared to cross the Alps, Mr. Scott announced, "We will either find a way or make one."

Having made the company name hateful across the nation and found to have presided over a management embroiled in schemes to defraud Medicare, Mr. Scott got Dunlapped about a year ago. Naturally, the stock price collapsed and the stockholders started suing -- just as they are now doing at Sunbeam.

Both boards say they had no idea. Both executives walked away with fortunes. A big issue now at Sunbeam is whether the shareholders should pay Mr. Dunlap the $35 million severance package they had agreed to. A market system indeed promotes the survival of the fittest -- at the expense of the dumbest.

Froma Harrop is a Providence Journal columnist.

Pub Date: 6/25/98

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