Act II: Chainsaw Al: Cutting to the Core NARRATOR: ONE CEO WHO RINGS THE BELL WITH WALL STREET
IS THIS MAN: SUNBEAM CEO ALBERT J. DUNLAP. LIKE WALL STREET INSIDERS, DUNLAP HAS ONE YARDSTICK OF SUCCESS: THE PRICE OF HIS COMPANY’S STOCK.HE KEEPS A STOCK TICKER RIGHT OUTSIDE HIS OFFICE. DUNLAP: I always watch it. NARRATOR: …AND WITH GOOD REASON. DUNLAP: I control about four million shares of the company.
SMITH: So, we’re talking so, we’re talking a hundred sixty million dollars? DUNLAP: You know, a substantial amount of wealth
NARRATOR: DUNLAP IS A SHORTTERM TURNAROUND ARTIST, A WEST POINT GRAD WHO PARACHUTES INTO TROUBLED COMPANIES IN ORDER TO BOOST THEIR STOCK. DUNLAP:
I take on the corporations that are in the worst possible shape. I go in when no one else wants the job. And I rescue and save the corporation. That’s my job. That’s what I’m there for.DUNLAP: I believe the
shareholders own the corporation. We work for you. NARRATOR: WELL, NOT EXACTLY FOR YOU… DUNLAP: Life treating you well?
PRICE: Well, I’m making a living. NARRATOR: …ACTUALLY, FOR MICHAEL PRICE.STAND-UP: BACK IN 1990, SUNBEAM WAS BANKRUPT. MICHAEL PRICE AND A COUPLE OF PARTNERS BOUGHT
IT. THE COST TO MICHAEL PRICE’S MUTUAL FUND? SIXTY MILLION DOLLARS. UNDER PRICE’S WATCHFUL EYE, SUNBEAM DELIVERED FIVE PROFITABLE YEARS FROM 1991 THROUGH 1995, AND PRICE CASHED IN HALF HIS INVESTMENT FOR A STAGGERING
FIVE-HUNDRED-MILLION-DOLLAR PROFIT. PRICE: Huge and now we still have uh today we have seventeen over seventeen million shares. That’s another $600
million. So we made $1 billion on Sunbeam, with no risk. NARRATOR: BUT, WHEN SUNBEAM’S MOMENTUM BEGAN TO SLIP AND THE STOCK FELL IN 1995…PRICE AND TOP LIEUTENANT PETER LANGERMAN DUMPED THE OLD CEO AND BROUGHT IN DUNLAP. LANGERMAN: He works for the shareholders.
That’s that’s all he cares about is working for the shareholders and maximizing value for shareholders. SMITH: And that means driving the stock price up. LANGERMAN: That means getting the stock price up. NARRATOR: AT SUNBEAM, DUNLAP APPLIED HIS TIME-TESTED FORMULA, STARTING WITH HIS STANDARD PROCLAMATION THAT HIS NEW
COMPANY WAS DEAD ON HIS ARRIVAL. DUNLAP: …There’s no question in my mind. I’ve done this enough times to recognize the death gurgle of a corporation. And this corporation had the
death gurgle. NARRATOR: DUNLAP’S GAME PLAN, SPELLED OUT IN HIS BLUNTLY-TITLED BOOK, IS TO BOOST THE BOTTOM LINE WITH SWIFT, DEEP LAYOFFS: SELL OFF DIVISIONS, MOVE PRODUCTION TO
LOWER WAGE STATES, OR, BETTER YET, RELOCATE ABROAD, CUT BACK TO THE CORE BUSINESS, CANCEL ALL CORPORATE CHARITY. THAT SUITED WALL STREET AND MICHAEL PRICE TO A TEE. PRICE: My
shareholders say, “Michael, you know, you’re a value investor. How can you keep your Sunbeam?” And I got one answer: Al. NARRATOR: BUT DUNLAP’S STRATEGY DIDN’T LEAVE MUCH OF THE
OLD SUNBEAM. DUNLAP: We’ve gone from twentysix factories to eight. We’ve sold all the businesses that don’t make sense. We’ve cut two hundred twenty-five million of cost. We’ve
put in a great management team. NARRATOR: IT’S A FORMULA THAT RANKLES OTHER CORPORATE LEADERS, SUCH AS HENRY SCHACHT OF LUCENT TECHNOLOGIES. SCHACHT: Firing people and slashing things and selling it to somebody else that’s a no-brainer. uh that’s SMITH: No-brainer meaning...
SCHACHT: Doesn’t take a just go do it. That’s not creating value. That’s destroying value, in my view.DUNLAP: Toast Logic.
SMITH: Logic because… DUNLAP: …because it thinks for itself. NARRATOR: AFTER THE CUTTING, DUNLAP NEXT RUSHES NEW AND RE-PACKAGED PRODUCTS
TO MARKET. DUNLAP: …burnt it to a crisp! NARRATOR: AND, TO GIVE THE MAXIMUM LIFT TO HIS STOCK…
DUNLAP: Mmm, those are good. NARRATOR: …DUNLAP, EVER THE CONSUMMATE PITCHMAN…HYPES HIMSELF TO THE MEDIA…
DUNLAP: …What I do is go into the most difficult situations and rescue companies.DUNLAP: And I think it’s an exciting day. NARRATOR: …AND,
MORE IMPORTANTLY, TO WALL STREET, WHERE THE TAKING IS SHOWED TO A CROWD OF ANALYSTS IN NEW YORK… DUNLAP: …but I think today you’ll see products that make a substantial difference
to lifestyle. NARRATOR: …OR ONE-ON-ONE IN SAN FRANCISCO… DUNLAP: How’s everything going?STEELE: Good. NARRATOR: …AS HERE WITH DEAN WITTER’S WILLIAM STEELE. STEELE: I think that Al has won over most of the sell-side analysts on Wall Street, yes. NARRATOR: DUNLAP SAVORS HIS IMAGE AS AMERICA’S TOUGHEST BOSS, BOASTING OF HIS NICKNAMES “CHAINSAW” AND “RAMBO IN PINSTRIPES.” DUNLAP: I’m a great believer in in
predators because a predator has to go get its own lunch; it can never call for room service. So I think anybody that has to be able to have the ability to provide for themselves, it’s a good thing. So you’ll see
predators throughout the uh throughout the office. NARRATOR: WHILE MANY IN CORPORATE AMERICA SHARE DUNLAP’S VIEWS, FEW IF ANY, ARE AS OUTSPOKEN IN DEFENDING THEM.
WHEN NEWSWEEK RAN THIS ISSUE, IT ASKED FIFTY CEOS TO DEFEND SLASHING THEIR WORKFORCES. NONE WOULD. SLOAN: And then I said, “Let’s call Dunlap.”DUNLAP: And, you know, I always
say it’s either me or Kevorkian and I have a lot better personality than he does… SLOAN: They called Dunlap… DUNLAP: …I think. (laughs) SLOAN: …and, within an hour, Dunlap had agreed to do it. He stands up for
what he does even if you don’t like it. He doesn’t use mealy-mouthed words. DUNLAP: I’ve done nine major restructurings, and I can tell you categorically this was the worst.
NARRATOR: IN FACT, DUNLAP’S DELIBERATE TOUGH-GUY IMAGE IS A BIG PART OF HIS PLAY TO WALL STREET. SMITH: You walk into a company and the stock price goes up. Why? I mean, part of
it’s track record, but part of it, people know Al Dunlap’s the tough guy. DUNLAP: Well, I think... SMITH: Isn’t there a payoff?DUNLAP:
Well, I think that, when you looked at when I came to Sunbeam, the stock went up fifty-nine percent the first day. They know I’m going to dramatically cut the cost. They know I’m going to focus on the core business, and
they know I’m going to come up with a winning strategy. And that’s really what they’re betting on. And they know I’ll implement it. SMITH: they know you’re a tough guy.
DUNLAP: That’s right. I will implement. NARRATOR: GARY ROUBOS SAW THAT FIRST HAND AT SCOTT PAPER COMPANY WHEN HE AND OTHER BOARD MEMBERS
HIRED DUNLAP TO RUN SCOTT IN 1994. ROUBOS: I think part of what Al does is a is a play, and it is done very specifically with a purpose in mind of creating an image in the
media and in the investing community which he uses to get the stock up. NARRATOR: DUNLAP’S STYLE OF DOWNSIZING HAS BECOME FASHIONABLE IN CORPORATE AMERICA, WHERE BOOSTING YOUR
COMPANY’S STOCK PRICE… DUNLAP: Sunbeam is up three-eighths. That’s good. NARRATOR: …HAS COME TO OVERSHADOW ALL OTHER CORPORATE PRIORITIES.
BUT AL DUNLAP WAS PRACTICING THIS APPROACH LONG BEFORE IT BECAME THE VOGUE. AS A 28YEAROLD, HE MET HIS WIFE JUDY WHILE ON A DOWNSIZING MISSION IN HER HOMETOWN. JUDY DUNLAP:
People were saying things to my parents about “How can Judy marry this terrible person? He’s firing people, and he’s cold and cruel and all the words that I heard, and I sat down one night and started crying. And Al
said, “Sit down. We’re gonna have a talk. And and we’re going to have this talk once, and if you can’t live with what I’m going to tell you, then maybe we’re not meant to be.” He said, “I came here not to win a
popularity contest. I came here to save a company. And, if I have to get rid of thirty percent of the people so that seventy percent of the people have job security, that’s what I’m going to do.” NARRATOR: JUDY SIGNED ON, AND AL’S HAD HER ON A WHIRLWIND EVER SINCE THROUGH EIGHT COMPANIES ON THREE DIFFERENT CONTINENTS. AT SUNBEAM, HIS LATEST, DUNLAP HAS SHOT UP THE STOCK… DUNLAP: You look very prosperous. I can tell you’re a Sunbeam shareholder.WOMAN: You’re right. NARRATOR: …WINNING HIM A HERO’S WELCOME… JAN JESSUP: We’re within a hair of doubling our money in less than a year. NARRATOR: …FROM SUNBEAM’S HAPPY STOCKHOLDERS.
JESSUP: We own about 25,000 shares. NARRATOR: DUNLAP HAS EXTENDED STOCK OPTIONS TO THOSE AMERICAN EMPLOYEES OF SUNBEAM WHO SURVIVED HIS LAYOFFS. DUNLAP: This lady behind the desk is a shareholder.DUNLAP: Everyone thinks it’s a bunch of rich people on Wall Street who own the shares. In truth, in fact, in the world we live in today, the shares of
publicly traded companies are held, by and large, by pension funds, 401k programs. And that, in fact, is the moms and pops. STAND-UP:SOUNDS GOOD, BUT IT’S NOT TRUE. STOCK
OWNERSHIP HAS SPREAD DURING THE BULL MARKET OF THE 1990S. BUT THE FEDERAL RESERVE REPORTS THAT SIXTY PERCENT OF AMERICAN FAMILIES OWN NO STOCK AT ALL NO 401K PLAN, NO MUTUAL FUND, NO COMPANY STOCK, NO PENSION
INVESTED IN STOCK, NOTHING – SIXTY PERCENT. AND, AMONG THE FORTY PERCENT WHO DO OWN STOCK, OWNERSHIP IS HEAVILY CONCENTRATED AT THE TOP. ANALYSIS OF FEDERAL DATA BY ECONOMISTS AT M.I.T. AND DARTMOUTH SHOWS THAT THE TOP
ONE PERCENT OWNS NEARLY FIFTY PERCENT OF ALL THE STOCK IN AMERICA. IT’S MAINLY IN THE HANDS OF RICH PEOPLE LIKE MICHAEL PRICE AND AL DUNLAP. NARRATOR:
PRICE MADE SIX HUNDRED MILLION DOLLARS PERSONALLY BY SELLING HIS MUTUAL FUND COMPANY TO THE FRANKLIN TEMPLETON GROUP IN 1996. HE STAYED ON TO KEEP RUNNING THE INVESTMENTS. AND AL
DUNLAP MADE HUNDREDS OF MILLIONS OF DOLLARS IN STOCK PAYOFFS FROM CUTTING COMPANIES DOWN TO SIZE AND NOW ENJOYS THE GOOD LIFE… DUNLAP: If you’re gonna splurge, Dom Perignon
if you’re gonna splurge. NARRATOR: …IN HIS TWO-MILLION-DOLLAR HOME IN FLORIDA. DUNLAP: There’s a new Sunbeam shining on a bright, sunny
day. What could be better? NARRATOR: BUT, FOR DUNLAP’S EMPLOYEES, IT’S A DIFFERENT STORY.DUNLAP PINCHES PENNIES, AS HE CALLS IT, IN LARGE PART BY CUTTING WAGES, WHETHER BY
MOVING PRODUCTION TO LOW-PAYING STATES LIKE MISSISSIPPI… DUNLAP: We have one third of our whole global workforce in the state of Mississippi. NARRATOR: …WHICH HAS THE LOWEST MANUFACTURING WAGES IN THE NATION…OR BY MOVING AMERICAN JOBS ALL THE WAY TO MEXICO TO SLASH WAGES STILL
FURTHER. DUNLAP: We have our manufacturing facilities. We’ve got four facilities in the United States. We’ve got three in Mexico and one in Venezuela. Well, I think the
importance of this is American corporations to be competitive in the world have to globalize. You know, capital moves at the press of a button.RECEPTIONIST: Good afternoon, Sunbeam-Oster? Hold one moment, please.
NARRATOR: HERE AT THE SUNBEAM-OSTER HAIR CLIPPER ASSEMBLY PLANT IN MCMINNVILLE, TENNESSEE, GOING GLOBAL IS COSTING FIVE HUNDRED AND FIFTY AMERICAN WORKERS THEIR JOBS.
DUNLAP: How’s the Mexican operation?LUIS SILBERWASSER: Pretty well, pretty well. DUNLAP: Great, so the people’re getting trained up properly? We’ve have a good crew down there to
teach them how to do it? SILBERWASSER: Absolutely, we have a very good crew. We have a lot of cooperation between McMinnville and Mexico. NARRATOR: WITH THEIR JOBS ON THE
CHOPPING BLOCK, MCMINNVILLE EMPLOYEES WERE TOLD BY THE COMPANY TO TRAIN THEIR MEXICAN REPLACEMENTS.NARRATOR: PLANT MANAGER ART OXLEY… OXLEY: I can tell you the toughest thing
that I’ve ever had to do as a manager period is is go through the announcement that this place was going down to a hundred and fifty people. SMITH: What was their reaction?
OXLEY: …a lot of blank faces, a lot of disbelief.M. DUNLAP: There’s a lot of people in this town, you know, unemployed. NARRATOR:
MARSHA DUNLAP, NO RELATION TO AL, GOT A TERMINATION LETTER AFTER NEARLY THIRTY-FOUR YEARS AT THE MCMINNVILLE PLANT. M. DUNLAP: It says that my termination date is July the Fourth
1997. SMITH: So July the Fourth, the national holiday, they’re going to put you out and send the job to Mexico. M. DUNLAP: They say the
wages in Mexico is a lot less than, you know, what they pay us. So that’s where their profit is. NARRATOR: MARSHA DUNLAP EARNS NINE DOLLARS AND THIRTY CENTS AN HOUR, AND HER JOB
HAS PROVIDED HER FAMILY’S ONLY PENSION AND HEALTH INSURANCE COVERAGE. M. DUNLAP: Well, it was very devastating, you know, to find out that you’re going to lose your job, you
know. It’s a hurt feeling. And you people don’t understand, you know, not unless you’ve been there. NARRATOR: THE FOURTH OF JULY IS STILL AN OCCASION FOR AN OLD-FASHIONED
CELEBRATION IN MCMINNVILLE.NARRATOR: BUT IT’S A BITTERSWEET FOURTH. NARRATOR: SUNBEAM’S CUTBACKS HAVE LEFT A BIG HOLE IN THE LOCAL ECONOMY…
ACCORDING TO “SHOT” NUNLEY, THE TOWN’S ECONOMIC DEVELOPMENT OFFICER. “SHOT” NUNLEY: We’re hunting industry today. We’re hunting jobs. But the difficulty is gonna be that the jobs
that we may be able to recruit probably won’t pay as much as the jobs that they’re giving up at Oster, at SunbeamOster. NARRATOR: IN THIS SMALL TOWN COMMUNITY, EVEN THE SUNBEAM
SURVIVORS HAVE FELT THE PAIN. OXLEY: I mean, it’s nothing that I would want anybody else to have to go through.
SMITH: Has it been hard on you? OXLEY: It’s been hard on me. It’s been hard on everybody. Yes.M. DUNLAP: Well, it affects everyone, the whole community: the car dealership,
you know, the real estate, grocery stores, discount stores everybody it affects. SMITH: Was this place a basket case? OXLEY: No.
I’ve never heard of McMinnville as referred to as a basket case – maybe a cash cow, but not a basket case. NARRATOR: THE REAL SHOCKER WAS MCMINNVILLE’S CLIPPERS WERE AMONG THE
MOST PROFITABLE PRODUCTS IN THE ENTIRE COMPANY. OXLEY: It’s like we thought we made money. What I mean, why? Why are we losing our jobs? Why is it going to Mexico? I mean
we’re a profitable business. And we are. SMITH: When I said to people, “Al Dunlap says this is a basket case,” they said, “Nonsense, this was a cash cow for Sunbeam.”
DUNLAP: It was a component of a seriously failing company. What we had to do was look at every component of that company and try to make every component as successful as we could. So what
did we do? We kept in McMinnville, we kept the highest end of the products, the most technologically advanced, and we’re adding new and better equipment to enhance that. And we moved the lower end of the business,
which we ultimately would have lost, to Mexico, where that can be better served. NARRATOR: AS IN ALL OF HIS RESTRUCTURINGS, DUNLAP BROUGHT IN COOPERS & LYBRAND AND HIS
FAVORITE DOWNSIZING CONSULTANT, DON BURNETT. BURNETT: …we suggested all of McMinnville move to Mexico.
SMITH: …That’s not what you saw, a cash cow? BURNETT: It was a good business. It ran by itself. It was doing well from that point of view. You could leave it alone, and it would
be perfect. But you could get much more money out of it by moving//much more income for Sunbeam if you moved the easy part down to Mexico. NARRATOR: AND, FOR THE EASY PART,
SUNBEAM WILL PAY ITS MEXICAN WORKERS JUST ONE DOLLAR AN HOUR IN WAGES AND BENEFITS. THAT’S LESS THAN TEN PERCENT OF WHAT MARSHA DUNLAP GETS.NARRATOR: BUT MEXICO WASN’T SO EASY. ITS SLOW, STUMBLING START-UP FORCED
SUNBEAM TO POSTPONE MARSHA DUNLAP’S JULY FOURTH LAYOFF. NARRATOR: STILL, SHE KNOWS HER TIME WILL COME. SMITH: I guess you you sound like you feel a little bit lost. M.
DUNLAP: Well, you would be too if you’d been somewhere thirty-four years, and that’s all you know. SMITH: Where does loyalty fit in to restructuring a corporation like Sunbeam?
DUNLAP: It’s like a commander in the field, you don’t want to lose a single soldier, but when you go into battle, you’re going to lose some. And it’s tragic, and I feel very
sorry for anyone who lost their job. But my job at the end of the day is to save the corporation and save as many jobs as I possibly can. And I’ve saved over six thousand jobs.
STAND-UP:AL DUNLAP INSISTS THAT HIS WAY IS THE ONLY WAY TO REBUILD THE COMPANIES HE TAKES OVER AND TO SAVE JOBS. BUT IS THERE AN ALTERNATIVE, AND ARE THERE OTHER BENCHMARKS OF CORPORATE SUCCESS BEYOND QUICKLY RUNNING
UP THE STOCK PRICE? TO FIND OUT, WE LOOKED AT SEVERAL OF SUNBEAM’S COMPETITORS, AND WE FOUND THIS COMPANY: WAHL CLIPPER CORPORATION. JUST AS SUNBEAM IN MCMINNVILLE, WAHL MAKES HAIR CLIPPERS HERE IN STERLING, ILLINOIS,
HAS BEEN FOR SEVENTY-FIVE YEARS. WAHL IS PRIVATELY-OWNED, FAMILY-RUN, PROFITABLE, AND IT HASN’T LAID OFF A SINGLE EMPLOYEE IN TWENTY-FIVE YEARS. JACK WAHL: And I guess I would
say, “Why have layoffs?” They’re not necessary. They’re extremely wasteful. NARRATOR: CEO JACK WAHL SAYS DUNLAP’S DRASTIC CUTS ARE BAD FOR BUSINESS. JACK WAHL: He’s laying off quality people. They’re key people. I don’t think you can go through an organization and get rid of twenty-five, thirty percent of them without changing radically. And they I
know a lot of the people in that organization, and they’re quality people, and they shouldn’t be terminated. NARRATOR: UNLIKE DUNLAP, WHO MANAGES FROM A DISTANCE, JACK WAHL AND
HIS HEIR APPARENT, SON GREG, LIVE IN THE SAME TOWN AS THEIR WORKERS. GREG WAHL: We actually care about our people. We see ’em walking down the street. Our kids go to school with
their kids. We go through life through generations with our with our workers.JACK WAHL: We’re not hired gunslingers to come in and do a job temporarily. NARRATOR:
ALSO, WITH A PRIVATE COMPANY, THE WAHLS DON’T HAVE TO CATER TO WALL STREET. JACK WAHL: We don’t have a stock price. No one is interested in the day-to-day value of the stock.
SMITH: That’s interesting. You’re suggesting that Wall Street’s interest in stock prices is inefficient. JACK WAHL: It can motivate
people for the short term. You need to look at the long-term value of the corporation, and it’s not one year. It’s not two years. It’s uh decades, as far as I’m concerned. NARRATOR: LABOR ECONOMIST TERESA GHILARDUCCI… GHIRLADUCCI: …it’s not Al Dunlap that’s a problem here. He’s following all the rules that anybody who was paying
attention in business school um would follow is that, in the past fifteen years, the ethos, the culture, the curriculum has been to maximize shareholder value. It’s a short-term strategy. It’s a strategy
that’s based on extraction, not about creation of value. He’s extracting. He’s selling off. He’s uh eating the seed corn um of his company. NARRATOR: AND
WERE DUNLAP’S DRASTIC ACTIONS NECESSARY? IT’S TRUE: SUNBEAM WAS STRUGGLING. BUT REMEMBER IT HAD POSTED FIVE STRAIGHT PROFITABLE YEARS BEFORE DUNLAP ARRIVED.SMITH: But, to a layman, you have to admit, five profitable
years in the black before that does not look like a company that’s going to go bust. DUNLAP: But five years of a company going downhill.
SMITH: How do you know downhill? DUNLAP: I know. SMITH: Fifty million to a hundred million profit each year. DUNLAP: [Here, here] People are looking from fifty thousand feet. I was at ground zero. NARRATOR: DUNLAP SAYS HE’S A SAVIOR, BUT, IN FACT, HIS RECORD PAINTS HIM MORE
AS A LIQUIDATOR WHO NEGOTIATES THE SURRENDER OF HIS COMPANIES. SINCE 1983, DUNLAP HAS ENGINEERED THE SALE OR DISMEMBERMENT OF SIX COMPANIES IN A ROW.NARRATOR: THE BEST KNOWN WAS SCOTT PAPER. AT SCOTT, DUNLAP FIRED
ELEVEN THOUSAND EMPLOYEES, CUT ALL CORPORATE CHARITY AND GUTTED EXPENDITURES ON PLANT IMPROVEMENTS AND RESEARCH AND DEVELOPMENT. WALL STREET LOVED IT, AND THE STOCK JUMPED TWO HUNDRED AND TWENTY-FIVE PERCENT IN JUST
EIGHTEEN MONTHS. DUNLAP: I created sixty-two millionaires at Scott in eighteen months. NARRATOR: …INCLUDING JERRY BALLAS, ONE OF A MERE
HANDFUL OF VETERAN SCOTT EXECUTIVES DUNLAP RESPECTED ENOUGH TO KEEP ON.SMITH WITH BALLAS: I see a couple of souvenirs of yours. What’s this?
Broll: Ballas showing Smith “Chainsaw Massacre” tshirt NARRATOR: WHEN THE MASS FIRINGS AT SCOTT TOOK PLACE IN AUGUST 1994, EMPLOYEES RESPONDED WITH GALLOWS HUMOR. BALLAS: And it’s the uh reference to the uh restructuring, the 1994 Chainsaw Massacre World Tour, and it’s got all the facilities uh in the U.S., Europe and the Pacific.
SMITH: So you’ve got this other thing here. What’s this? BALLAS: Yeah, that that was uh I believe that was passed out
in one of our sales meetings, and one of the things that was done in jest uh is// uh “The New Scott: we’re not a company anymore.”
SMITH: What was it like to work for Al Dunlap at close hand? BALLAS: Well, the word that comes to mind is
terrorizing. I mean it literally, it’s terrorizing working for the man. What you do is you avoid, at all costs, getting near him, avoid contact with him.ROUBOS: Well, he’s he’s a hard guy to take
personally. I mean, his ego is pretty darn large, and he he’s uh pretty overbearing. NARRATOR: BUT, FOR INSIDERS, DUNLAP’S PERSONALITY WASN’T THE ONLY PROBLEM.
SMITH: Did Dunlap at Scott just cut fat? BALLAS: No. Al went beyond fat. We uh cut to the point where we would not have been able to sustain operations in the long
term. NARRATOR: WHILE DUNLAP’S CUTS LOOKED GOOD TO WALL STREET, BY LATE 1995, JERRY BALLAS SAW SCOTT HANGING ON MONTH BY MONTH.
BALLAS: We were just strung out to the very, very edge. NARRATOR: BUT AL DUNLAP WAS ALREADY INTO HIS EXIT STRATEGY. EIGHTEEN MONTHS AFTER TAKING OVER, HE SOLD OUT SCOTT PAPER TO
COMPETITOR KIMBERLY CLARK…NARRATOR: …AND CASHED IN TO THE TUNE OF A HUNDRED MILLION DOLLARS, MOST OF IT STOCK PROFITS. SO AT SCOTT DUNLAP MADE A HUNDRED AND SIXTY-SIX THOUSAND DOLLARS A DAY. ROUBOS: Al keeps score by how much money he makes. Al’s got plenty of money; he doesn’t need the money. But that’s the way of he’s keeping score as to how important he is and how good he is as as uh as a CEO and how he ranks with all the other CEOs. And that’s very important to Al. NARRATOR: MICHAEL PRICE, THE MAN BEHIND THE THRONE, CONCEDES THAT DUNLAP’S GAIN CREATES A COST FOR SOCIETY. PRICE: And I think one of the main things that society has
to do is learn to cope with the effects of the Al Dunlaps because the Al Dunlaps are the people who are gonna make the society more productive the effects of the layoffs, the plant closings, the retraining of
people, OK? SMITH: How is society going to do that? PRICE: Well, they have to learn. NARRATOR:
AND CLOSE DUNLAP ALLIES LIKE INVESTMENT ACTIVIST NELL MINOW THINK SCOTT PAPER COULD HAVE BEEN SAVED WITHOUT ALL THE PAIN. SMITH: So what was your plan for Scott?MINOW: Well,
the plan involved uh restructuring and some capital changes but no layoffs of any of the employees uh because we didn’t feel that it was necessary. DUNLAP: It was arguably the best
restructuring done in the shortest period of time in American corporate history, and it led to a merger that created a giant of a corporation today with enormous opportunities for the future. And I’ll rest my case on
that. NARRATOR: AT SUNBEAM ONCE AGAIN, DUNLAP IS INTO HIS EXIT STRATEGY: JUST FIFTEEN MONTHS INTO HIS THREE-YEAR CONTRACT, DUNLAP IS TRYING TO SELL SUNBEAM OR ACQUIRE ANOTHER
COMPANY. A CHANGE IN CONTROL WOULD LET DUNLAP CASH IN MILLIONS OF STOCK OPTIONS IMMEDIATELY.NARRATOR: A SALE WOULD LET MICHAEL PRICE UNLOCK HIS ENORMOUS PROFITS IN SUNBEAM BY FREEING HIM FROM SEC RESTRICTIONS ON THE
SALE OF STOCK BOUGHT IN BANKRUPTCY. DUNLAP: That’s a super idea. Let’s do it. NARRATOR: DUNLAP’S CUT-AND-RUN TECHNIQUE HAS FUELED HIS
CRITICS’ OUTRAGE. ROACH: I don’t think that the chainsaw mentality knows anything about growth. It knows a lot about cutting. And, to me, that is a shortterm strategy that is
ultimately a recipe for disaster.SCHACHT: They make a lot of money for the shareholders. But the debris they leave behind seems to be the unthinkable. uh and, if everybody did this, the the society
would revolt, as it as we well should because that isn’t what that isn’t how you provide goods and services. DUNLAP: If people don’t like your views, that’s unfortunate. Stand up and stand for something.
Never give up. Never give in. Act III: ValuJet: A Virtual Company,
Made to Wall Street Standards
STAND-UP:IF WALL STREET WERE TO INVENT A COMPANY, IT WOULD PROBABLY LOOK A LOT LIKE VALUJET AIRLINES. THERE WAS A TIME WHEN VALUJET WAS KNOWN FOR SOMETHING MORE THAN THE CRASH OF FLIGHT FIVE NINETY-TWO IN THE FLORIDA
EVERGLADES. IN ITS EARLY HEADY DAYS, VALUJET WON FAME AND FORTUNE AS A GREAT NEW AMERICAN COMPANY: POPULAR TO FLY, CHEAP TO RUN AND ENORMOUSLY PROFITABLE. YET THE VERY INGREDIENTS THAT FUELED VALUJET’S FINANCIAL SUCCESS
PROVED IN THE END TO BE ITS DOWNFALL. AND TODAY VALUJET, FOREVER STAINED BY THE CRASH OF FLIGHT FIVE NINETY-TWO, IS GONE, MERGED WITH AIR TRAN AIRLINES. YET, IN ALL THE SCRUTINY, ALL THE FINGER-POINTING, ALL THE
BLAME-FIXING, ONE ACCOMPLICE HAS LARGELY ESCAPED NOTICE: WALL STREET. SMITH: You were made to Wall Street’s order, I mean, the way you came on initially. JORDAN: I think that’s right. And that was not entirely
without design. SMITH: I’m sure. JORDAN: I think we had some understanding of what Wall Street wanted. NARRATOR: AND THAT STRATEGY
TRIGGERED THE INITIAL PUBLIC OFFERING OF VALUJET STOCK, LED BY TWO SHREWD AIRLINE ANALYSTS…NARRATOR: …TOM LONGMAN, THEN OF BEAR STERNS… LONGMAN: All I care about is the stock
going up or down that was the case with ValuJet: are you making your clients money or not? NARRATOR: ... AND KIDDER PEABODY’S SAM BUTTRICK. BUTTRICK: We saw a carrier that was making money where other discount carriers were losing money. We saw a carrier that had not just low cost, but the lowest cost in the airline business. NARRATOR: THE PUBLIC SAW SOME OF VALUJET’S COST-CUTTING FIRST-HAND. VALUJET DID NOT SERVE HOT MEALS OR ISSUE FREQUENT FLYER MILES, AND IT PIONEERED TICKETLESS TRAVEL, WHICH IS A BIG COST-SAVER.NARRATOR:
BUT THE LION’S SHARE OF VALUJET’S COST SAVINGS WERE BEHIND THE SCENES. AT VALUJET, THAT MEANT DON’T DO IT YOURSELF: OUTSOURCE IT. VALUJET WAS A VIRTUAL COMPANY MADE TO WALL STREET’S SPECIFICATIONS. THE WORKERS WHO
MAINTAINED VALUJET’S PLANES… BOOKED YOUR FLIGHT...OR HELPED YOU AT THE AIRPORT WERE ALMOST ALL CONTRACTORS OR TEMPORARIES. NARRATOR: ONLY HALF OF VALUJET’S WORKERS WERE REGULAR EMPLOYEES, MAINLY PILOTS AND FLIGHT ATTENDANTS.NARRATOR: BUT THERE, TOO, VALUJET SCRIMPED BY USING CHEAPER, LESS EXPERIENCED, NON-UNION PILOTS.
NARRATOR: AVIATION CONSULTANT MICHAEL BOYD… BOYD: And they paid wages that would embarrass a Third World bus company. Now, the bottom line of the whole thing is, I believe, that,
to keep your cost down, you don’t have to do it on the backs of your employees.WOMAN in assembly: When we started ValuJet, we were told we would make about fourteen hundred dollars a month for a full-time job. Well,
after we pay to park to go to work and after they deduct our monthly uniform payment and we pay for insurance, we bring home approximately two hundred and ninety dollars every two weeks. (AUDIENCE REACTS) NARRATOR:
VALUJET NOT ONLY GAVE WALL STREET LOW COSTS BUT INCREDIBLY FAST GROWTH. B-roll: ValuJet animated commercial
BOY: Where’d everyone go?MOTHER: They’re probably flying ValuJet. NARRATOR: VALUJET STARTED WITH TWO PLANES IN 1993. JUST TWO YEARS LATER, IT HAD A FLEET OF FORTY-TWO.THAT
PLEASED WALL STREET, AND VALUJET’S STOCK TOOK OFF. IF YOU HAD INVESTED FOUR THOUSAND DOLLARS IN VALUJET WHEN THE AIRLINE WENT PUBLIC, YOUR STOCK WOULD HAVE BEEN WORTH FIFTY THOUSAND DOLLARS JUST EIGHTEEN MONTHS LATER.
AND, FOR VALUJET’S FOUNDERS, THE RETURNS WERE TRULY STAGGERING. EACH SAW HIS ONE-MILLION-DOLLAR INVESTMENT GROW ULTIMATELY TO TWO HUNDRED MILLION DOLLARS. JORDAN: We were the
darling of Wall Street. That’s not my term. It was their term.BUTTRICK: The love affair is with profits and things that go up. And ValuJet had profits, and the stock went up. At one point remarkable now,
really ValuJet’s market capitalization was greater than that of American Airlines incredible. NARRATOR: THINK ABOUT THAT: IN 1995, GIANT AMERICAN AIRLINES EARNED
FIFTY TIMES MORE THAN VALUJET…AND YET WALL STREET WAS SO SMITTEN WITH VALUJET’S LOW-COST, FAST-GROWTH FORMULA THAT IT HAD POURED MORE MONEY INTO
VALUJET’S STOCK THAN INTO AMERICAN’S. BUT THERE WAS ONE BIG HITCH…AS VALUJET EXPANDED EXPONENTIALLY WHILE HOLDING COSTS TO A BARE MINIMUM, SAFETY BEGAN TO CRUMBLE. BY EARLY 1996,
VALUJET SUFFERED A SPATE OF BAD ACCIDENTS, LIKE THIS ENGINE FIRE IN ATLANTA…NARRATOR: …TRIGGERING INVESTIGATION BY THE INSPECTOR GENERAL OF THE DEPARTMENT OF TRANSPORTATION.
SCHIAVO: The corporate philosophy was simply to make money. They bought the uh you know, the very old planes. They obviously skimped on maintenance. That’s part of the consent order. And they simply didn’t
put the money into safety. It was their corporate philosophy to skimp on that end to bank the bucks. SMITH: Was ValuJet the most egregious case you saw?SCHIAVO: The worst.
SMITH: How bad was it? SCHIAVO: Well, according to our own government, fourteen times the accident rate of the major carriers, the accident incident rate. That’s a big difference.
NARRATOR: PROMPTED BY SCHIAVO, THE FAA… INVESTIGATED VALUJET. AND IN FEBRUARY 1996, THREE MONTHS BEFORE THE
EVERGLADES CRASH, IT SENT THIS LETTER TO PRESIDENT LEWIS JORDAN SAYING THE FAA WAS CONCERNED THAT VALUJET MIGHT HAVE “AN ORGANIZATIONAL CULTURE THAT IS IN CONFLICT WITH OPERATING TO THE HIGHEST POSSIBLE DEGREE OF
SAFETY.” LONGMAN: At the time they were doing it, there really hadn’t been any airline that had expanded that fast. Now, in hindsight, maybe there was a reason no airline has
expanded that quickly before.BOYD: I didn’t see one single analyst come out and say, “It’s growing rapidly. Are there cracks in the armor? Is it growing too rapidly?” not one, not one. If one analyst came out
and said that, that would hurt the stock stock price. “We don’t want to hurt the stock price. We want the stock to go up. We want a few more splits.” LONGMAN: Is it a moral issue for us to look at the safety of
the airline? Well, I think in the back of your mind, you do. But but again, up front, what you’re really concerned about are the issues that are going to affect the stock today and affect it over the next year or
two. NARRATOR: WHILE WALL STREET FOCUSED ON THE STOCK PRICE, VALUJET, UNDER PRESSURE FROM THE FAA, AGREED TO SLOW ITS FEVERISH GROWTH.WHEN THAT HAPPENED, WALL STREET LOST
INTEREST, AND VALUJET’S STOCK DROPPED. THEN, ON MAY ELEVENTH, FLIGHT FIVE NINETY-TWO WENT DOWN… AND VALUJET’S STOCK PLUMMETED. LONGMAN: You know, clearly, we weren’t focused enough on safety. And when I say enough because of the effect of the safety issues on the performance of the stock. um now, you know, fortunately
from a career standpoint, I wasn’t recommending the stock, you know, at that point.SCHIAVO: Wall Street may understand a lot of things, but I don’t think they understand aviation safety. uh farming out
everything and losing control of the safety factor, you know, might be good for selling stock, but it’s not good for keeping your airplanes safe. It just doesn’t work.
SMITH: And a hundred and ten people paid the price? SCHIAVO: And a hundred and ten people paid the price for this experiment and economics.JORDAN: I will say that
uh I see no correlation between the growth rate and the tragedy none whatsoever. I can say that, however, given that we were then put under huge scrutiny that resulted in every blemish of the company
becoming widely publicized, there are certainly things that we found as part of the investigation that tied, at least indirectly, to a growth rate. NARRATOR: AND SO, WHEN VALUJET
RETURNED TO SERVICE IN SEPTEMBER 1996, IT ADMITTED MANY FLAWS AND MADE A LONG LIST OF CHANGES TO IMPROVE SAFETY. JORDAN: ...we brought in a senior vice president of maintenance
and engineering, realigned that entire organization. We redid all our training programs. We redid all our maintenance programs. We re-looked at our entire organizational structure. We changed the minimum limits on the
experience for the pilots. We required the captain to make landings and takeoffs whenever there was inclement weather. Just item after item, we took strengthening moves that would make ValuJet have the strongest
operation possible. NARRATOR: IN THE END, IT COST ONLY TWO DOLLARS MORE PER PASSENGER MILE FOR THE NEW VALUJET, VALUJET TWO, TO RUN MORE SAFELY. BUTTRICK: ValuJet Two is a better airline. I’m looking at it from the consumer’s perspective. NARRATOR: BETTER FOR CONSUMERS, PERHAPS, BUT NOT FOR WALL STREET, WHERE
THE NEW VALUJET STOCK SANK FURTHER. BUTTRICK:ValuJet’s not making money... and that’s what Wall Street wants
and isn’t getting. NARRATOR: THE COMMON DENOMINATOR IN THESE DIFFERENT STORIES IS THE SUPREMACY OF WALL STREET AND ITS VALUES, ITS FOCUS ON ONE YARDSTICK: WHAT DRIVES UP STOCK
PRICES. MICHAEL PRICE PERSONIFIES THE POWER OF THE NEW BREED OF MONEY MANAGERS TO CALL THE TUNE FOR CORPORATE AMERICA. VALUJET EPITOMIZES THE COMPANY THAT EAGERLY DANCES TO THAT TUNE……AND AL DUNLAP, THE CEO WHO HAS TURNED THE WALL STREET DANCE INTO A CORPORATE RITUAL PERFORMED TIME AND TIME AGAIN. TO BE SURE, WALL STREET
FUNDS ECONOMIC GROWTH AND INNOVATIVE ENTERPRISES. BUT SOME COMPANIES, LIKE VALUJET, CRACK UNDER ITS PRESSURE. AND HOW MANY NEW VALUJETS ARE NOW PUSHING BEYOND SENSIBLE LIMITS TO BECOME THE NEXT HOT STOCK? THE MARKET MAY
SOAR OR FALTER, BUT ITS HUNGER FOR GAIN IS BOTTOMLESS. AND MILLIONS OF US FEED THAT HUNGER. AND IT’S A FAIR QUESTION, ADDRESSED IN THE NEXT HOUR, WHETHER THE MARKET IMPOSES TOO HIGH A COST ON ORDINARY PEOPLE… …WHILE
THE WINNERS RIDE OFF WITH THEIR GAINS. [back to top] |
