On June 9, Sunbeam (SOC) Chairman and CEO Albert J. Dunlap stormed out of a
board meeting in Rockefeller Center, leaving a conference room filled with puzzled
and incredulous directors. Most of them thought the once celebrated champion of
downsizing, under mounting pressure, was becoming unglued. One director, say
three participants, openly expressed concerns about Dunlap’s emotional state.
Demanding their support, Dunlap, 60, had just told his board that billionaire financier
Ronald O. Perelman and others were engaged in a conspiracy to drive the smallappliance
maker’s already slumping stock down further so they could buy Sunbeam
Corp. on the cheap. He suggested that if Michael Price, an influential mutual-fund
manager who had recruited Dunlap nearly two years earlier, really backed him, he
would buy out Perelman’s $280 million stake.
Why Perelman, one of Sunbeam’s largest investors, who owns 14% of the company,
would do anything to diminish his investment, he could not explain. ”We can’t fight a
battle on two fronts,” said Dunlap, according to several directors. ”Either we get the
support we should have or [chief financial officer] Russ and I are prepared to go….
Just pay us.”
NEAR TEARS. ”Al, we don’t know what you’re talking about,” retorted Director William
T. Rutter, a banker patched into the meeting by phone from Florida, according to
several participants. ”We’re supportive of both of you.”
So were all the other four outside directors. Again and again they assured Dunlap and
his close ally, Russell A. Kersh, of their support. Kersh, say several directors, seemed
near tears. ”I don’t know what Al thought or what was going through his head,” says
Peter A. Langerman, Price’s board representative. ”But I didn’t hear anything from
Perelman, and Price was still behind him.”
Sunbeam’s stock, meanwhile, has plummeted from a high of 52 in early March to a
low of 8 13/16 on June 22, below the level it traded when Sunbeam announced
Dunlap’s hiring in mid-1996. One analyst, Nicholas P. Heymann of Prudential
Securities Inc., said the stock was trading ”more on vindictive emotions than rational
analysis.”
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How could a single businessman arouse such emotions? In little more than four years,
Al Dunlap made more than $100 million, ran two well-known public corporations,
wrote a best-selling, vainglorious autobiography, and axed some 18,000 employees.
Dunlap, of course, was hardly the only chieftain to order hefty workforce cuts or to say
that the only stakeholders in a public corporation are its investors. But by eagerly
seeking publicity to expound his simple philosophy, he emerged as the poster boy for
”shareholder wealth.” Since his departure from Sunbeam, Dunlap has been
uncharacteristically silent. Along with his attorney, Christopher J. Sues, and CFO
Kersh, he has not responded to repeated requests to be interviewed for this story.
To investors who made millions by following him, Dunlap was, if not a god, certainly
a savior. He parachuted into poorly performing companies and made tough decisions
that quickly brought shareholders sizable profits. ”We’re all seduced by the possibility
of big wins,” says PaineWebber Inc. analyst Andrew Shore, who follows Sunbeam.
After meeting Dunlap in mid-1996, Shore immediately put out a buy on the stock. ”I
didn’t necessarily like him or trust him,” he recalls, ”but I thought my clients could
make money on him. I knew they just had to get out at the right time.”
DEMOLITION EXPERT. It was a supremely confident and triumphant Dunlap who
arrived at the troubled appliance maker in July, 1996. Six months earlier, he had
successfully completed the sale of Scott Paper Co. Wall Street lustily cheered his
arrival at the $1.2 billion maker of electric blankets and outdoor grills. Sunbeam’s stock
surged nearly 50%, to 18 5/8, the day after his July 18 appointment. Less than four
months later, Dunlap lived up to his reputation as a corporate demolition expert. He
announced the shutdown or sale of two-thirds of Sunbeam’s 18 plants and the
elimination of half its 12,000 employees.
Dunlap’s most devoted fans, of course, resided on Wall Street. But Shore of
PaineWebber wasn’t one of them. Trained by the legendary Perrin Long, who made
him come to work by 7 a.m. and labor over weekends, Shore, 37, had been following
the household products and cosmetics industries for a decade when Dunlap arrived
at Sunbeam. When the stock spiked when Dunlap was appointed, Shore thought the
reaction irrational and said so. His candor hardly pleased Dunlap, who would claim
that Shore was biased against him because PaineWebber didn’t get Sunbeam’s
investment banking business. (Shore denies that charge.) Still, the analyst jumped on
the bandwagon himself, knowing Chainsaw Al could make his clients money. With
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each new earnings report, however, he carefully dissected Sunbeam’s ever-improving
results.
It didn’t take long for alarm bells to sound. ”BILL AND HOLD.” ”I said to myself: ‘Let’s
play the game a little longer,”’ remembers Shore. ”No one [had] soured on him yet.
Very few picked it up, only the smart shorts at the hedge funds. I thought it would take
several more quarters to play out.” Shore alerted his clients to the warning signs but
continued to recommend the stock because he thought investors would keep bidding
it up. He was right. Sunbeam’s shares kept climbing, even though the company’s thirdquarter
results created even greater cause for concern. Shore noted in one of his
reports that there were massive increases in sales of electric blankets, usually a
fourth-quarter phenomenon. Then, in the fourth quarter of 1997, he was alarmed by
enormous increases in sales of grills, at a time when virtually no one buys those
products. Still, Shore says, ”I didn’t think the story was over just yet. The market hadn’t
caught it.”
Although unknown at the time, Dunlap was aggressively trying to push out more and
more product. As the company later acknowledged, he began to engage in so-called
”bill and hold” deals with retailers in which Sunbeam products were purchased at large
discounts and then held at third-party warehouses for delivery later. By booking these
sales before the goods were delivered, Dunlap helped boost Sunbeam’s revenues by
18% in 1997 alone. In effect, he was shifting sales from future quarters to current
ones. The approach was not illegal, but the extraordinary volume made it unusual.
Dunlap defended the practice, saying that it was an effort to extend the selling season
and better meet surges in demand. Sunbeam’s auditors, Arthur Andersen & Co., later
insisted it met accounting standards.
On Mar. 19, Sunbeam acknowledged that first-quarter results would be below
analysts’ estimates. Two weeks later, on Apr. 2, Shore heard more disturbing news:
Donald R. Uzzi, Sunbeam’s well-regarded executive vice-president for worldwide
consumer products, had been fired by Dunlap. Not able to reach Uzzi or Dunlap for
confirmation, Shore sought out investor-relations chief Richard Goudis, only to
discover that he had quit. Finally, the analyst thought, it was time to advise his clients
to get out of the stock. He frantically downgraded the stock on Apr. 3 at 9:00 a.m.,
and it quickly fell by 4 points. Some two hours later, Sunbeam disclosed that it would
post a first-quarter loss. By day’s end, the stock fell 25%, to 34 3/8, and shareholders
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soon filed lawsuits charging deception, an accusation that Sunbeam dismisses as
”meritless.”
Undaunted, Dunlap swiftly hatched a plan for a comeback. On May 11, before 200
major investors and Wall Street analysts–including Shore–he promised that the
company would rebound from its dismal first-quarter loss of $44.6 million. Dunlap
conceded that he had taken his ”eye off the ball” to focus on the trio of acquisitions
he made in March and had allowed underlings to offer ”stupid, low-margin deals” on
outdoor cooking grills. But he insisted that it would ”never happen again,” and that
Sunbeam would post earnings of 5 cents to 10 cents a share in the second quarter
and $1 a share for the full year.
Not everyone felt reassured, least of all Shore, who had several contentious
exchanges with Dunlap at the meeting. Afterward, as Shore was heading out the door,
Dunlap made a beeline for him. ”I saw this wild man coming forward,” recalls Shore.
”He grabbed me by my left shoulder, put his hand over his mouth and near my left ear
and said: ‘You son of a bitch. If you want to come after me, I’ll come after you twice
as hard.”’ One Sunbeam adviser corroborates Shore’s account.
Dunlap’s performance at that meeting–including his announcement of another 5,100
layoffs at Sunbeam and the newly acquired companies–didn’t prevent the stock from
dropping further. Nor did Dunlap’s speech stop news reports about what Shore had
discovered nearly nine months earlier: that Sunbeam was engaged in highly
aggressive sales tactics and accounting practices that inflated revenues and profits.
The most scathing analysis, in Barron’s, alleged that Dunlap employed $120 million
of ”artificial profit boosters” last year when the company reported $109.4 million in net
income.
Dunlap was so concerned about the effects of the story that he called an impromptu
board meeting for June 9 to rebut the charges.. Dunlap, recalls one participant,
”seemed strangely subdued and quiet.” Kersh and Controller Robert J. Gluck led the
board through the charges, denying virtually all of them. The Arthur Andersen partner
assured the board that the company’s 1997 numbers were in compliance with
accounting standards and firmly stood by the firm’s audit of Sunbeam’s books. The
directors discussed a range of alternatives to deal with the story, from the filing of a
libel suit to issuing a detailed letter of corrections to its shareholders.
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The discussion was drifting when it was decided simply to draft a point-by-point
rebuttal for the company’s bankers and directors. Suddenly, Director Charles M.
Elson, a Stetson University law professor and friend of Dunlap’s, asked how the
company’s second quarter was shaping up.
”This is a transition year,” Dunlap responded. ”You’ve got to stop worrying about
specific numbers. We’re trying to prepare for 1999.” Dunlap then said he wanted to
discuss something privately with the board. All the outside advisers departed, leaving
only Dunlap, Kersh, and the five directors. Over the next 20 minutes, Dunlap told the
board that either he needed the right level of support or he was prepared to go. ”If
you really want me and Russ to go, then let’s settle up the contract and we’ll go,”
Dunlap said, according to several board members. ”I have a document in my briefcase
that we can go over and get it done.”
The board was stunned. Dunlap told them he believed that Perelman was
orchestrating a torrent of bad media coverage so he could buy the company at a
bargain. Some of the directors said later that they thought Dunlap was becoming
emotionally distraught. They did not believe that Perelman, who declined comment,
would undermine himself that way. His ownership stake enabled him to affect change
more directly.
SUSPICIONS. Shortly after the exchange, Dunlap and Kersh got up and marched out
of the room. After allowing the pair enough time to reach the elevator bank, Howard
G. Kristol broke the silence. Of all of them, he had known Dunlap the longest. For
more than 20 years, Kristol had been his personal attorney. He had drafted Dunlap’s
employment pacts at Scott Paper and Sunbeam. ”That is complete bullshit,” Kristol
blurted out, according to several directors. ”Just bullshit.” Everyone in the room
agreed. No one had uttered any doubt about Dunlap’s ability to lead the company. No
one thought he had cooked the books.
”I don’t know about you, but what I’m clearly hearing is that Al and Russ want out,”
Kristol recalls saying. The others concurred. The timing could not have been worse.
Although the company was in crisis, Dunlap was about to go to London to give a
speech and promote his book, while Kersh was going off on vacation in Ohio. They
were concerned that Dunlap lacked the resolve to continue in the job, was unaware
of the deteriorating results, or worst of all, was being less than candid. ”We all sat
there feeling like we were going to throw up,” says Elson. ”It was horrible.”
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Over the following two days, Langer-man did considerable homework. Unbeknownst
to Dunlap, he called several Sunbeam insiders, including three top operating
executives, Lee Griffith, Frank J. Feraco, and Franz Schmid. But the most important
break came when he spoke with Sunbeam’s Executive Vice-President David C.
Fannin. Fannin, 52, didn’t fit the Dunlap mold. Unlike his tempestuous, self-promoting
boss, Fannin is unassuming and mild-mannered. The Kentucky-born lawyer had
worked at a blue-chip law firm in Louisville for nearly 20 years when a client recruited
him to Sunbeam in 1993 as interim general counsel. Of Sunbeam’s top dozen senior
executives, he would be the only survivor, someone who viewed himself as a
moderating influence on his mercurial boss. Dunlap not only brought Fannin into his
inner circle, he handsomely rewarded the lawyer for his loyalty and commitment. In
February, for example, Dunlap handed him a new three-year contract that raised his
base salary by 90%, to $595,000, along with a huge stock option grant on 750,000
shares, now underwater. What Dunlap failed to notice, however, was that Fannin had
become demoralized by what he saw at Sunbeam. It was hard to really like Dunlap,
with his hair-trigger temper. Many times Fannin considered quitting. ”But it was like
being in an abusive relationship,” he says. ”You just didn’t know how to get out of it.”
Fannin, however, had now reached the breaking point. Although Kersh told the board
the second quarter would be soft, a week earlier Fannin had been at a Sunbeam
meeting at which considerable concern was raised that the results would be far below
Dunlap’s May 11th forecast. At that session, the numbers coming in showed that
revenues were falling by as much as $60 million in the quarter. In last year’s second
quarter, Sunbeam’s sales were $287.6 million.
Meanwhile, Fannin did some interviewing of his own from Wednesday to Friday of
that week. He met with Gluck, the controller, a finance analyst who had been a preDunlap
holdover, and asked pointed questions about the quality of the 1997 earnings.
”I didn’t like the answers I got,” recalls Fannin. ”He said: ‘Look, as much as possible,
we tried to do things in accordance with GAAP, (generally accepted accounting
principles), but everything has been pushed to the limit.’ There was no smoking gun,
but taken as a whole, this was not a sustainable situation.” Gluck did not respond to
requests to be interviewed.
Langerman called his fellow directors and asked them to come to an emergency
meeting in Kristol’s Rockefeller Center offices on Saturday morning. Fannin agreed to
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come to report on what he had found. ”Had he not come forward,” says Elson, ”it
would have been extraordinarily difficult for us to act. He was the quiet hero. He really
put his neck out.”
On Saturday morning, June 13, Sunbeam’s outside directors solemnly gathered
around the same rectangular conference room table where only four days earlier they
had had their odd meeting with Dunlap and Kersh. A box of Krispy Kreme doughnuts
served as breakfast. Four of the directors were there, along with Fannin and a pair of
lawyers from Skadden Arps, Slate, Meagher & Flom. Director Rutter was on the
telephone from Captiva Island, Fla., where he was on vacation with his family. The
directors all agreed Dunlap had to go. With the exception of Langerman, the directors
were Dunlap’s friends. But they also felt betrayed by him, misled about the company’s
financial condition, its second-quarter earnings, and its yearly numbers as well, they
later said. ”We lost our confidence in him and the ability to sustain things was
questionable,” says Rutter.
By noon, Skadden Arps lawyer Blaine V. ”Finn” Fogg carefully scripted the words that
Langerman would say to Dunlap when they placed the conference call. ”All the
outside directors have considered the options you presented to us last Tuesday and
have decided that your departure from the company is necessary,” Langerman read
aloud. Elson then made the motion to dump Dunlap, but he couldn’t bring himself to
read it. ”It felt too cruel,” he recalls. ”We had gone back a long way, and I just couldn’t
do it.”
So after Elson put forth the motion, it was quickly seconded by Kristol and dryly read
by Fannin. The outside directors passed it unanimously. ”I think I’m entitled to an
explanation,” Dunlap said finally, according to several participants in the meeting.He
wouldn’t get one. Instead, Langerman told him to contact the board’s lawyer. Kristol
adjourned the meeting shortly after. Three days later, during a telephone session,
Kersh was fired as well.The day after Dunlap was axed, the board met again in
Skadden Arps’ offices. It named as the new chief executive Jerry W. Levin, a longtime
aide to Perelman and former CEO of Coleman, which now comprises about 40% of
Sunbeam’s revenues. Langerman, who agreed to serve as nonexecutive chairman,
had called Perelman on Saturday afternoon to ask for help. Levin was on his way to
see a movie that evening when Perelman asked if he would be interested in taking
over.
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Now, Levin has to sort out the mess. Not only is Sunbeam expected to report another
loss in the second quarter and possibly for the year, but the company is also under
an informal probe by the Securities & Exchange Commission. It is also expected to
be in technical default on a $1.7 billion bank loan by June 30. Already, Levin is
expected to win a reprieve from the banks, but it will take some time to turn Sunbeam
around.
Dunlap still has followers who predict a comeback, though headhunters say it’s
unlikely he’ll ever get another chance to run a major company. In the end, Al Dunlap,
the kid from Hoboken, N.J., the son of a union steward, fell on his own weapon, the
sword of shareholder value. ”Dunlap got thrown out not because the board said his
way was the wrong way to run a company,” notes Peter D. Cappelli, chairman of the
Wharton School’s management department. ”He was fired because he couldn’t make
his own numbers.”

Q1

Identify three areas ?three Decision making theories, models and processes? for improvement in Dunlap’s decision making process, and using theory form Managing Under Uncertainty make detailed
recommendations on how to improve the decision-making process?

read the PDF named?so important information?
Q2
Using the theories from Managing Under Uncertainty, critique the influence of personality, traits and values on the decision-making process of Dunlap’s.
?PDF named?so important information has show the personality and value part?
Q3
What is the decision from the case, and explain & analyse the decision based on eight step decision making process?