Not so long ago Al Dunlap was the hottest CEO on Wall Street. He was considered a turnaround wizard. He would come in and takeover tired companies and turn them into lean, competitive, up-to-date machines, suitable to be sold to the highest bidder. His methods were simple. He used massive layoffs, plant and factory closings, and asset liquidations to give the illusion of a trim, modern, efficient corporation, which would rally the company stock and lure potential buyers. For his ruthless pursuit of this strategy, he earned the nickname Chainsaw Al.
It was his tenure at Scott Paper that really elevated Dunlap to cult status in the business community. When he took over at Scott, the company's market value was $3 billion. He fired 11,000 employees, closed factories, virtually eliminated the R&D budget and ended the company's philanthropic endeavors. At that point he sold the company to Kimberly Clark for more than twice what the market value of the company had been when he took over. He walked away with a $100 million golden parachute, and moved on to Sunbeam Electronics, which is where the story gets interesting.
At Sunbeam, Dunlap used the same techniques, he had successfully employed at other companies. He fired 25% of the workforce, sold off assets and closed factories. The company’s stock skyrocketed, but one problem arose, Dunlap could not find a buyer for Sunbeam, which meant he now had to actually run the company he had created. No problem, profits soared and Sunbeam was now making acquisitions like Coleman and Signature Brands. Everything seemed to be operating smoothly until some insiders became suspicious of the numbers they were being fed.
It turned out Chainsaw Al was a little loose with his accounting practices, as well as highly creative in the area of defining profits and losses. Profits turned into losses, Dunlap was fired and eventually Sunbeam filed for bankruptcy. Dunlap was sued by the shareholders and investigated by the SEC. Evidence of irregularities and fraud turned up in prior Dunlap tenures. This was before the age of Enron, and Dunlap was able to skirt with penalties, fines and settlements. In another time he probably would have been indicted. He is also prohibited from ever serving on the board of an American Corporation again.
A telling profile was written by David Plotz in Slate, while Dunlap was still highly regarded and before things had come a cropper for Chainsaw Al. Prophetically, Plotz makes the point that what Dunlap has really done is make the shareholders money at the expense of destroying the companies he has run, not by improving the companies situation, but by prettifying it.
If capitalism is "creative destruction," Dunlapism is simply destruction. He prettifies struggling companies for Wall Street, but undermines them in the long term. Both Barron's and Business Week have chronicled how Dunlap has built his "turnarounds" on cosmetic measures designed to pump up stock prices. At Sunbeam and Scott, he has sold assets to raise quick cash, cut prices to artificially boost sales, and squeezed suppliers for short-term savings at the price of long-term reliability. His R&D cuts have come at a time when other American companies are investing in new technology.
Which brings us to Paul Ryan, or as I like to think of him, Chainsaw Paul Ryan. His sin is not that he submitted a proposal which would alter the social safety net for future Americans. It’s that he practices the same kind of economics and accounting that Al Dunlap used to destroy corporations a generation ago. Cut, slash, burn and then massage the numbers. And voila, everything fits perfectly into a picture of a bright future, until someone bothers to closely examine the consequences of the actions and assumptions that were used to paint the pretty picture.
The ideas Chainsaw Paul has proposed will not play out in vacuum, they could be the thread that unravels an enormous fabric that supports much of our economy. Just as Al Dunlap did not have a single idea which actually bettered the corporations he ran, Paul Ryan does not have a single idea which actually benefits the real economy of this country. He has only one guiding principle, if it exists, it can and should be cut. Actually I am being unfair, I should include a second principle, don't raise taxes on the wealthy, but that's another topic. This is both reckless and destructive. To be so cavalier with the futures of so many Americans, as well as our intellectual and environmental treasures, cannot have good consequences.
Paul Ryan is not courageous, he is irresponsible and foolhardy, his motivations are political and his real ideas are non existent. This is what should be understood.