Sunbeam Gives the Ax to CEO ‘Chainsaw Al’

Albert J. Dunlap, an executive who became the symbol for brutal layoffs and plant closings to boost corporate profits, was fired as chairman and chief executive of appliance maker Sunbeam Corp., signaling what many management gurus said may be the demise of the slash-and-burn turnarounds of the ‘90s.

Company directors who voted to fire the executive known as “Chainsaw Al” said they had simply “lost confidence” in his leadership and ability to improve Sunbeam’s floundering earnings.

Dunlap’s firing, which was announced Monday, reverberated across Corporate America, where he had become a cult hero during the downsizings and plant closings of the 1990s.

Management experts said Dunlap’s ouster demonstrates that firing workers is no longer a cure-all for sick companies, especially in a tight labor market.

“Mr. Dunlap never seemed to look beyond the immediate savings realized by payroll slashing to the obvious factors that in order to sell products you have to have people making it,” said Eric Greenberg, who produces an annual survey of job elimination and job creation for the American Management Assn. in New York.

Greenberg and other management experts said that while companies will continue to lay off workers, Wall Street may now be more skeptical about executives who fire workers for strictly short-term gains. Previously, investors have rewarded Dunlap’s mass firings by boosting his company’s stock prices.

“This is a beautiful lesson for Corporate America,” said Warren Bennis, a professor at USC’s Marshall School of Business. “If I was wearing a hat, I’d throw it up in the air. Mr. Dunlap was an archetype CEO who became a victim of his own short-termism . . . “

Dunlap’s firing, management experts say, shows that his management approach has been widely discredited. It places too much emphasis on slashing costs--and improving stock prices--without any regard for long-term profitability, they say.

Jeffrey Pfeffer, a professor at Stanford Business School, said .more executives, especially leaders of high tech firms, are realizing that merely firing workers is no longer an effective strategy.

“In a world in which all work is now called knowledge work, you cannot build an organization and confidence by letting people go,” said Pfeffer, author of “The Human Equation: Building Profits By Putting People First.”

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“Knowledge resides in people’s heads, and when they walk out the door, the knowledge goes with them,” he said.

Experts say successful companies are the ones that will continue to layoff workers and create new positions at the same time.

Greenberg, of the American Management Assn., cited AT&T;’s Chief Executive Michael Armstrong as a manager who employs “both job cuts and job growths.”

Since 1996, the telecommunications firm has slashed 7,700 jobs but hired 7,200 people, Greenberg said.

IBM and Xerox are other firms who have downsized workers while continuing to hire others, Greenberg said.

“Ultimately, you can’t grow a company by shrinking it,” he said. “Downsizing has to be part of an overall corporate strategy that looks beyond immediate payroll savings and toward increased sales, market share, and profitability.”

Latest unemployment figures support Greenberg’s theory.

From December 1997 to May 1998, American corporations announced job cuts totaling 273,822, a 32% increase over the previous period, according to John A. Challenger, executive vice president at Challenger, Gray & Christmas Co. in Chicago, which tracks job cuts.

Yet unemployment remained at 4.3%, meaning that companies were hiring workers faster than they were cutting jobs, experts said.

Jeff Middleswart, an analyst with a Dallas investment firm, said demand for Sunbeam’s products will remain weak because there is a glut of Sunbeam’s products in stores.

“This is not a growth business,” Middleswart said.

Dunlap’s departure from the Delray Beach, Fla.-based company came unexpectedly and only three months after the company rewarded him with a new contract worth $2 million in annual salary and $68 million in stock awards and options, according to published reports.

Dunlap’s tenure at the appliance maker has been widely chronicled because he, more than any other CEO, became unapologetic about closing plants and firing thousands of workers.

Dunlap joined Sunbeam in July 1996 with high hopes that he would repeat his success at Scott Paper Co., where he pleased shareholders by slashing 11,000 jobs and boosting its stock before selling it to rival Kimberly-Clark Corp. in 1995.

After that deal, Dunlap pocketed a reported $100 million, primarily in stock.

His tenure at Scott Paper--and mass firings of workers at other companies--earned him a reputation as someone who was not afraid to slash bloated payrolls and corporate bureaucracies.

It also earned him a host of nicknames including “Rambo in Pinstripes,” and “The Shredder.” Dunlap successfully parlayed this image into a best-selling autobiography, “Mean Business: How I Save Bad Companies and Make Good Companies Great.”

The West Point graduate would pose for promotional photographs wearing crisscrossed bandoleers and aiming automatic weapons.

“He lived by the sword,” said Richard Trumka, secretary treasurer of the AFL-CIO.

A few days after taking over at Sunbeam, Dunlap unsheathed his stock in trade: He fired most of the company’s senior management, and announced 6,000 layoffs, about half of the firm’s work force. Sunbeam’s stock soared, but not for long.

Last month, Dunlap jolted Wall Street by announcing a first-quarter loss of $45 million along with plans to close eight plants and fire about 6,000 more workers.

Management experts said the coup de grace apparently came last week when a critical article in Barron’s suggested Sunbeam’s 1997 profits of $109.4 million were largely due to improper shifting of costs, write-offs and revenues, which may have added up to $120 million in questionable “profit boosters.”

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Sunbeam’s new chairman, Peter Langerman, said Dunlap’s ouster stemmed from concerns for the company’s future, not its recent results. He said its 1997 accounting was “accurate in all respects.”

“We lost confidence in his leadership and his earnings forecasts,” Langerman said, noting that Sunbeam now expects to fall significantly short of 1998 earnings forecasts of $1.00 per Langerman represents investor Michael Price, who owns a large stake in Sunbeam.

There was no word Monday on Dunlap’s immediate plans. Company officials said the firm had not paid any severance to Dunlap and issues surrounding his contract had been turned over to company lawyers.

Dunlap’s attorney, Christopher Sues, said his client was not immediately available for comment.

But Pfeffer, the Stanford professor, said he hopes Dunlap’s firing “is the start of a new corporate culture.”

“Being mean is not a way to accomplish very much.”