Commentary: Dear Al Dunlap: Put Away The Chainsawby and
Memo to: Albert J. Dunlap, a.k.a. "Chainsaw Al" Chief Executive Sunbeam Corp.
So you finally landed a job as chairman and chief executive of yet another company. And already, Wall Street is applauding. The day after your July 18 appointment as head of Sunbeam Corp., the troubled appliance maker's stock surged nearly 50%, to $18.625 a share. Even before you showed up for work, Al, you made Sunbeam's disgruntled shareholders more than half a billion bucks.
You know why Wall Street has irrationally bid up the stock. Everyone expects you to do what you always do: cut jobs, divest assets, and then ditch the company at a tidy profit, just as you did at Scott Paper Co. That's why many think of you not as a turnaround artist but as some kind of corporate vivisectionist.
Well, Al, here's the chance to prove them wrong. Sunbeam is your opportunity to show the critics that you can manage a company over the long haul. Even though it's much smaller than the big companies you've criticized--including Westinghouse Electric, Eastman Kodak, and IBM--Sunbeam, with its $1.2 billion in annual revenues, will be an honorable testing ground for your management skills.
NOT BLOATED. This one won't be easy. In Sunbeam, you're not going to find a company that is about to ride the crest of an industry cycle, as you did at Scott. You also won't discover an opulent and bloated corporate headquarters populated by 1,600 employees. Sunbeam has just 60 staffers at its Fort Lauderdale (Fla.) headquarters. Also unlike Scott, Sunbeam isn't spending $30 million a year on consultants. Still, the company's earnings have fallen below expectations in five of the past six quarters, and second-quarter earnings are down 36%.
Al, here are a few things you ought to do if you want to run this for a while:
-- Check your ego at the door. You no longer need a high-priced public-relations executive from Burson-Marsteller to hawk every move you make and, hopefully, push up the stock price--especially if your intention is to revitalize and manage Sunbeam for the long haul.
-- Leave your hatchet, or chainsaw, in your garage in Boca Raton, Fla. Sure, it's your trademark. And already, you've been initiating some major changes, such as replacing North American President and Chief Operating Officer James Clegg with Russell A. Kersh, a long-time pal who worked with you for years, and publicly mulling a major reorganization. But Sunbeam has already been through a slash-and-burn exercise before. Changes there should be made with a scalpel, not a chainsaw.
-- Invest in new product development. The company's well-known Sunbeam and Oster brands are a valuable franchise. But there's a sore need for new products to take advantage of that brand equity. At Sunbeam, you won't be able to just put a blender or gas grill in new packaging--the kind of thing you often did at Scott--and hope that it sells.
-- Improve relationships with top retailers. Sunbeam has lost shelf space in key stores in recent years, and its market share has slipped in such core categories as blenders, mixers, can openers, and outdoor grills. You'll need to offer the major retailers some powerful incentives to win them back. And you won't be able to pass on double-digit price increases to consumers as you did at Scott.
-- Boost manufacturing efficiency. Sunbeam has yet to take full advantage of a new, $80 million facility for houseware products in Hattiesburg, Miss., which still isn't operating at full capacity. To do that, you will need to consolidate manufacturing from the 40 factories and distribution centers that Sunbeam already owns or leases. Perhaps you can simply accelerate the plans on the drawing board to close down three or four plants.
It's a tall order, Al. Especially when you're already in the money--even before you showed up for work. The 2.5 million stock options Sunbeam gave you to come aboard are already worth $30 million. The 1 million shares of restricted stock you were given are worth another $18 million. And, of course, you have that $1 million annual salary. Heck, Al, you made $48 million before you fired anyone or barked a single order as the new chief executive.
That means it's going to be real tempting to do what Wall Street wants and expects: just clean it up enough to get rid of it. But don't do it, Al. Give it a shot. Show us you have what it takes to really turn around a business.