Al Dunlap evidently applied to Sunbeam Corp. his "rule of 55": 50 percent of a company's products typically produce only 5 percent of its revenues and profits. The rule has a corollary: 50 percent of a company's suppliers provide only 5 percent of the services and products that the company buys. In other words, half a company's operations add almost nothing to its earnings - and can go.
So it should have been no surprise last week when Mr. Dunlap outlined his turnaround plan for Sunbeam, a maker of consumer products. Fully 50 percent of the company's 12,000 employees would go, 39 of 53 facilities would be closed, six regional headquarters would be closed, and 87 percent of Sunbeam's products would be discontinued.
All this would take place inside 12 months - Dunlap's rule-of-thumb turnaround window. In anticipation that Dunlap would pull off what he had already done at Scott Paper Co. and other companies in the past decade and a half, Sunbeam's stock had already doubled before he broke the news.
Dunlap keeps a tight focus on a company's brand products, selling or closing down what doesn't fit. The assets he keeps are those he thinks he can grow or build on. When he takes over, he spends a few months analyzing things with the help of a small team he brings along - plus a longtime outside consultant, C. Don Burnett of Coopers & Lybrand, and in the case of Sunbeam, a dozen or more management teams. Dunlap outlines his methodology in a recent book, "Mean Business" (Times Business).
Executive perks, like fancy cars, go. To change a corporate culture he moves the downsized headquarters. He knows he is disliked by many, as the nickname Chainsaw Al makes clear. "When I fire people, of course I feel for them!" he says. "But what I keep uppermost in my mind is that if I don't release them today, I'm going to have to cut more of them in six months or a year anyway."
Dunlap operates under a set of imperatives and the confidence of a corporate board behind him. He asks, to cite his authority: "Whose company is it, anyhow?" Shareholders, he replies: "The people who invest in a company own it - not the employees, not the suppliers, and not the community."
Well, much as the quickness, boldness, and effectiveness of Dunlap's methods have to be acknowledged, this question of "ownership" is subtler than may appear. Texaco certainly found that basic rules of employment law govern its treatment of black employees. Businesses benefit from a host of governmental provisions and societal norms, which enforce fairness and prevent business chaos.
One could ask: Who owns a university? Alumni? Faculty? Students? The administration? The University of Minnesota Regents this week had to drop their efforts to modify tenure laws to make it easier to dismiss faculty. A cost-cutter could argue that the state and the students have to shoulder the burden of a financially inefficient system. But constraints, only partly legal, set in on the governance issue and blocked the regents.
Ownership alignment, to embrace workers, is the trend. BankAmerica this week announced an ambitious plan to allow most employees to buy stock options at three-month intervals, in effect helping to include more workers among its stockholders. Employees bear the downside risk of equity programs, as well as the prospect of upside opportunities.
Dunlap depicts his antagonist not as workers but as the previous management, for allowing such a mess to develop. One wonders how well his rule of 55 applies to other balance-sheet operations like campuses, households, and governments.
*Richard J. Cattani is editor at large of the Monitor.