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
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.