Chainsaw Al Dunlap Essay

l “Chainsaw Al Dunlap”: A New Breed of Manager? West Point graduate Albert J. Dunlap, former chairman and CEO of Scott Paper Company, claims that the U.S. Military Academy made him “tenacious and very organized”. Others say his experience gave him an “inyour-face attitude rare among executives” and made him a valuable hired gun for straightening out troubled companies. Dunlap is known to attack and challenge nearly every premise and person that gets in his sight. Those who interfere with his efforts usually get chewed up by the experience. Scott Paper is a familiar brand name to the American consumer. Founded by Clarence and Irvin Scott in 1879, the company eventually became the world’s largest supplier of toilet tissue, paper napkins, and paper towels. As it matured, however, Scott’s profitability suffered and growth stagnated when rival Procter & Gamble took an increasing market share. Between 1960 and 1971, Scott’s market share of consumer paper products dropped from 45 to 33 percent. In the period 1990 to 1994, Scott continued to lose market share, and in 1993, the company lost $277 million and saw its credit rating deteriorate.

By 1994, Scott Paper was a moribund bureaucracy. In hiring Al Dunlap, Scott’s board of directors signaled its determination to take decisive action. Dunlap initiated changes that would eliminate 11,000 employees (71 percent of headquarters staff, 50 percent of all managers, and 20 percent of hourly workers). He sold off unrelated business units — including publishing papermaker S.D. Warren Company, for $1.6 b8llion — and slashed spending — the research and development budget alone was cut in half, to $35 million. Not surprisingly, Dunlap’s cost cuts and increased prices achieved immediate bottom-line results. The company’s profitab8iliyy soared, as did the market value of its stock, which rose 225 percent under Dunlap’s leadership.

Dunlap claimed that by launching new products and selling unprofitable ventures, he had positioned Scott Paper for long-term positive returns for investors. Critics disagreed, seeing Dunlap’s moves as constituting a short-term strategy to groom the company for a merger. In the words of one former marketing executive, Dunlap’s strategy “became a volume-driven plan to pretty up the place for sale”. In fact, on December 12, 1995 , Scott shareholders approved a $9.4 billion merger with Kimberly-Clark Corporation. As for Al Dunlap, he enjoys his “chainsaw” reputation and believes that his approach is helping to change the norms of corporate behavior. However, according to Peter D. Cappelli, chairman of the management department at the Wharton Business School , “He is persuading others that shareholder value is the be-all and end-all. But Dunlap didn’t create value. He redistributed income from the employees and the community to the shareholders.” Nevertheless, the cuts continue.

Kimberly-Clark plans to remove 8,000 workers from the combined companies’ 60,000 workforce by 1997 and to close Scott’s headquarters in Boca Raton , Florida . One former high-level Scott executive believes that the company is now “just a hollow core.” Meanwhile Dunlap walked away with $100 million in salary, bonus, stock gains, and other perks. He offers no apologies for his approach: “I’m not going to apologize for success…for all this, for hard work. That’s the freemarket system.” Dunlap does not believe that a business should be run for the stakeholders, such as employees or the communities in which they live, but for the shareholders-period. “Stakeholders are total rubbish,” according to Dunlap. “It’s the shareholders who own the company. Not enough American executives care about the shareholders.”

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The real question is whether short-term stockholder gains are good for business down the road. Says Sarah Teslik, executive director of the Council of Institutional Investors in Washington, a watchdog group for big shareholders: “Dunlap holds himself up as a role model, but any company is apt to have significant stock runup if current costs are reduced by a huge amount. That’s no guarantee [Scott] will do well in the future.” On the other hand, some analysts contend that Dunlap has changed corporate America for the better. In a Financial World magazine poll, for example, CEOs voted he is now a high-profile business leader who will be sought out by the boards of other troubled companies to enhance shareholder value. It remains to be seen, however, what impact the short-term and long-term consequences of Al Dunlap’s management theory will have on corporate America and the American workforce.

Questions: • Describe Al Dunlap’s management approach. Does it fit any of the classical or modern approaches? Explain. How does it contradict some points in these approaches? • Delineate the good points and bad points of a massive downsizing effort such as that undertaken at Scott Paper — as if you were a stakeholder, and then, as if you were a shareholder. Are your two lists different? Explain. • What factors were the keys to increased productivity at Scott Paper? How was Dunlap responsible for the company’s turnaround? • Describe the kind of company that might hire Dunlap next. What goals might its board of directors have? What problems might the company face? What companies in the news today fit your description?

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