Commentary: At Least Chainsaw Al Knew How To Hire A Board

Ousted Sunbeam Chairman and Chief Executive Albert J. Dunlap, arguably the most reviled executive of this decade, did do one thing right: He, perhaps inadvertently, created an independent board from the group of friends that he hand-picked as directors. How? By insisting that they be paid in company stock and that they buy company stock. In the end, this independence--and the financial pain that each director was feeling--was Dunlap's own undoing.

Things began to unravel after a June 2 board meeting at which directors discussed a Barron's article alleging that Dunlap cooked the books to create a bogus turnaround at Sunbeam Corp. last year. Skeptical directors began to press Sunbeam executives for details. They discovered that the appliance maker--which had earlier shocked investors with a $44.6 million first-quarter loss--was going to fall far short of Dunlap's optimistic forecasts for the rest of the year. Four days later, the directors canned "Chainsaw Al" at a special meeting--at which, insiders say, nobody spoke in his defense.

BIG STAKES. It was a remarkable performance, given the cast of characters on Sunbeam's board. There are no CEOs in the group--not even a retired chieftain. In fact, none of the directors has any significant experience in business operations. The five outsiders were a New York lawyer, a banker in Boca Raton, Fla., where Dunlap lives, the head of a charitable foundation, a law professor, and the representative of an investment fund that owns 17.4% of Sunbeam.

Every one of the outsiders, with the exception of Peter A. Langerman of Franklin Mutual Advisers Inc., thought of Dunlap as a friend. How-ard G. Kristol was Dunlap's personal attorney for two decades and helped put together his employment contracts at Sunbeam, Scott Paper Co., and other companies he led. Another was William T. Rutter, who manages private banking at Dunlop's bank, First Union National Bank of Florida.

But one thing bonded them: They all owned too much of Sunbeam to watch quietly as it started to sink. Charles M. Elson, a Stetson University law professor, and Kristol each bought 6,000 shares. For Elson, this was not an inconsequential investment. He had more equity tied up in Sunbeam than he had in his residence.

In three months, Elson and Kristol saw their net worths plummet by more than $315,000. Faith Whittlesey, who heads the American Swiss Foundation, lost nearly $200,000; banker Rutter was out $112,000. Langerman's fund took the biggest hit, of course, dropping in value by $614 million.

To paraphrase Samuel Johnson, nothing quite concentrates the mind as wonderfully as a loss of your own money. "The governance lesson is that an equity-holding board works," says Elson, who made the motion to dump Dunlap. "It was not a long, agonizing process. We did what a board had to do."

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