Internal, price Standards together own 42 per cent of its stock. Prior to hiring Dunlap they had tried unsuccessfully, to sell Sunbeam. They believe that he was the one person who could turn the company around and increase stock prices and profits. The increase in stock prices did occur, almost instantly. The turnaround took just fifteen months. On July 19, 1996, the day Dunlap was named Chairman and CEO of Sunbeam, the stock jumped 49 per cent. The jumped increased the share price from 12 to almost 19 adding $500 million to sunbeam’s market value.
The stock continued to increase and reached a cord high of $52 per share in March 1998. The Corporate turnaround specialist Dunlap praised himself for achieving such feat. Later on, the inevitable was unraveled. It was revealed that Dunlap and his ally had been using bill-and-hold strategy that gave rise to its share price. In the light of the analysis, the inferring themes Of Shareholder theory will consider the Executives behaviors unethical and at the same time selfish. Reason being, they all involved in an illicit activities at the detriment of their shareholders.
In the words of Gibson (2000), stakeholder theory suggests that an entity will do service to its stakeholder if it embraces and choose an ethical code of conduct. This theory strongly highlights wide range of responsibilities that lies upon corporations: which states that corporations are not only saddled with satisfying its shareholders interest, but all other constituents such as individuals, groups, that happen to have a vested interest in a specific company (Jennings, 2003). With this in view a conclusion could be drawn that both Dunlap and his SCOFF shunned all these responsibilities.
Based on this, their behaviors are deemed unethical. This has clearly underlined some efficiencies In corporate codes and ethical breakdown which confirms that a concept of code will surely have bearings not only in Sunbeam Corporation but to all other Corporations. As such, corporation should reverse their preference to ethical trainings. Sunbeam Corporation was set up by Stewart and Thomas Clark in 1897. Its first product manufactured and sold were agricultural tools. In 1910, the company began manufacturing electrical appliances; one of the first being was clothes iron.
Sunbeam’s electrical appliances sold well even during the great depression. They capitalize on this to maintain their growth and improve innovation. The next major development came in 1960 when Sunbeam acquired rival appliance maker John Ester Manufacturing Company. This acquisition helps Sunbeam into the leading manufacturer of electric appliances. During the asses, a period of relatively high inflation and interest rates, corporations were going through acquisitions, mergers, restructurings, and closings – doing whatever they could to continue operating profitably.
In 1981 Allegheny Into. An industrial conglomerate, acquired Sunbeam. Allegheny retained the Sunbeam name and added John Kink (air pollution control devices) and Hanson Scale (bathroom scales) to Sunbeam product line. After sales of other divisions of Allegheny Into. Declined, they were forced into bankruptcy on 1988. In 1 990 Michael price, Michael Assistant, and Paul Agrarian bought the Sunbeam division from Allegheny. They renamed it Sunbeam-Ester Company. Later on, Agrarian was forced out of his chairman position and out of the company.
Sunbeam relocated to Florida and purchased the consumer products units of De Bliss Health Care. In 1 994 Sunbeam-Ester acquired Rubberneck’s out-door furniture business. The company changed its name back to Sunbeam Corporation in 1995. By 996 Sunbeam had more than 12,000 stock units, 12,000 employees as well as 26 factories, 61 warehouse and six headquarters. Despite this, the company’s earning had significantly declined by 83% and its stocks were 52% down. Therefore, Sunbeam needed help.
Restructures in Sunbeam Prior to his appointment, Dunlap had acquired a reputation as one of the country’s toughest executives as well as nicknames like “Chainsaw AY”, “Rumba in Pinstripes”, and “The Shredder” because he eliminated thousands of jobs while restructuring financially troubled companies. His reputation and business philosophy were recognized throughout the world. Later in his career, Dunlap authored a book outlining his strategy, entitled Mean Business, in which he highlights four simple rules of business. They are as follows: 1 . Get the right management team.
As Dunlap assumes office, he retained only one senior executive from Sunbeam’s old management team. Dunlap first hire was Russ Seekers, a former employee of Dunlap, as executive vice president of Finance & Admit. The new management team also included 25 people who had previously worked for Dunlap at various companies. Dunlap believed in hiring these people because they had all worked with him ND had been successful in past turnarounds. 2. Cut back to the lowest cost. Sunbeam’s employees also knew of Dunlap reputation for slashing jobs, which left many employees feeling threatened and insecure.
As expected, after less than four months as Chairman and CEO, he announced plans to eliminate half of Sunbeam’s 12,000 employees worldwide. On hearing of Dunlap layoff plan, U. S. Labor Sec. Robert Reich reportedly remarked, “There is no excuse for treating employees as if they are disposable pieces of equipment”. Around the same time, the company’s share price rose to the id-$20 range, and one of its major shareholder, Michael Standards, sold his shares and left Sunbeam. Another method used by Dunlap to eliminate costs was to reduce the number of SKU 12,000 to 1,500.
This enabled Dunlap to close a number of factories and warehouses. He reduced warehouses from 61 to 18. 3. Focus on the core business. After the layoffs, Dunlap and his dream team defined Sunbeam’s core business as electric appliances and appliances related businesses. They identified five categories surrounding the core business as vital to Sunbeam’s success: Kitchen appliances, health and mom, outdoor cooking, personal care and comfort, and professional products. Any products that do not fit into these categories were sold. 4. Get real strategy.
The strategy was to drive grog. VT through the company’s core business by further differentiating Sunbeam’s product from competitors, moving into global markets, and introducing new products that were linked directly to emerging customer trends. Early in 1 997, Sunbeam opens ten factory-outlet stores to increase brand awareness, sales, and ultimately shareholder wealth. By following these four rules, Dunlap claims he helped urn around companies in 1 7 states and across three continents. Sunbeam’s stock price increased by 49% on the day Dunlap was named CEO and Chairman.
The share price rises from $ 12. 12 to $ 18. 58 added $ 500 million to Sunbeam’s market value. Turnaround of Sunbeam Dunlap made all these changes within seven months at Sunbeam. The stock rose to more than $48 per share, a 284 per cent increase since July 1996. Just 15 months at helm of the company, Dunlap issued a press release in October 1997 announcing that the turnaround of Sunbeam was complete. In March 1998, Dunlap announced plans to buy three consumer products companies: Coleman, Signature Brands, and First Alert.
Two days after announcing the purchase of these three companies, Sunbeam’s stock closed at a record high of $52 per share and 1 997 net income reported at $109. 4 million. In Feb. 1998, Sunbeam’s board of directors expressed satisfaction with Dunlap leadership and signed a three-year employment contract with that included 3. 75 million shares of stock. Dunlap publicly praised himself and his Dream Team for saving the failing corporation. Dunlap suggests that all Coos and Board of Directors should read his book and use him as a role model in running companies.
Accounting Practices at Sunbeam Corporation The three companies purchased recently caused a second crisis for Sunbeam. Rumors began surfacing that they were purchased to disgust sis losses through write-offs. Andrew Shore, an analyst had been following Sunbeam since the day Dunlap was hired. Later on, he found massive increases in the sales of electric blankets in the third quarter. He also observed that sales Of grills to be sold, and noted that accounts receivable were high. On April 3, 1998, just hours before Sunbeam announced a first quarter loss of $44. Million, the stock prices had fallen 25%. Finally, it was found that Dunlap had been using a bill-and-hold strategy with retailers, which boosted Sunbeam’s revenue. A bill-and-hold strategy entails selling products at large discounts to retailers and holding them in third-party warehouses to be delivered at later date. The strategy essentially shifted sales from future quarters to the current one and in 1 997 the strategy pay-off and boosted Sunbeam’s revenues by 18%. The strategy is not illegal and follows the generally accepted accounting principles (GAP) financial reporting.
Accusations Nevertheless, Sunbeam’s shareholders filed lawsuits, alleging that the many had made misleading statements about its finances and that has artificially inflated its stock. Another lawsuit was filed on April 23, 1 998, alleging that Sunbeam and Dunlap had violated Securities and Exchange Act of 1 934 by omitting material information concerning the business operations, sales and sales trends. The lawsuit also alleged that the motivation for artificially inflating the price of the common stock was to enable Sunbeam to complete millions of dollars debt financing in order to acquire Coleman, First Alert, and Signature Brands.
Despite such revelations, Dunlap continued to UN Sunbeam and the newly purchased companies as if nothing happened. On May 11, 1998, he tried to reassure 200 major investors and Wall Street analyst that the first-quarter loss would not be repeated. In same day he announced another 5,1 00 layoffs, possibly to divert attention. The tactic failed, and the press continued reporting on Dunlap tactics. On June 9, 1 998, In an effort to contain the on-going problems, Dunlap called an emergency meeting to address the reported charges.
Later on, Dunlap behaviors became suspicious, which led to an in-depth review of Dunlap practices. The view took place during the next four days in form of personal phone calls and interviews between board members and selected employees without Dunlap knowledge. A conversation with Sunbeam’s Executive vice president, David Fanning, reportedly revealed that the 1 998 second quarter sales were considerably below Dunlap forecast and that the company was in crisis.
Dunlap had forecast a small increase, but the numbers provided by Fanning indicated that Sunbeam could lose as much as $60 million that quarter. These revelations led to loss of confidence in Dunlap, the board all agreed that Dunlap had to go. On Saturday, June 13, Dunlap was told, in one minute conference call, that he was the next person to be cut at Sunbeam. On March 15, 1999, Dunlap filed an arbitration claim against Sunbeam to recover $5. 5 million in unpaid salary, $58,000 worth accrued vacation, and $1 50,000 in benefits as well as have his stock options re-priced at 57 a share.
Although the board made it clear that they had no intention of paying Dunlap, but luckily for him the judge ruled in his favor in June 1999. In Swept 2002, Dunlap agreed to pay $500,000 to settle the SEC’s charges that he defrauded investors by inflating sales. According to SEC, such accounting irregularities inflated the company’s income by $60 million in 1997. In settling the charges, Dunlap did not admit or deny any charges and agreed never to work in a public corporation. Dunlap chief financial officer, Russell seekers, agreed to same ban and paid $200,000 to settle the SEC’s suit.
The month before, Dunlap paid $15 million to settle a class-action lawsuit brought by shareholders with similar allegations. Key Players in Sunbeam’s Scandal The key players in this scandal were Dunlap and Russell Seekers- Dunlap was he CEO while the other was the Chief Financial officer (SCOFF) then. They were behind all the accounting deception that gave rise to Sunbeam’s stock price. Such illicit behaviors in turn artificially inflate Sunbeam’s stock price. As such they both work alongside each other and employ such deceptions which were deemed unethical.
Unethical Behaviors In the light of the revelations, it was evident that Dunlap had been using a bill- and-hold strategy with retailers, which boosted Sunbeam’s revenue. This act in turn helps boost Sunbeam’s sales as well as artificially inflating its stock price. Other unethical was omitting of sensitive material information, leaving its shareholders in the dark of knowing the true activities going on. On top of these, Dunlap tried to divert people’s attention by laying-off another 00 workers. This tactic failed woefully.
Worse more, it later emerged that Dunlap had been lying all this while as had engaged in same accounting fraud 20 years ago. Ethical Analysis In reference the above illicit behaviors, such behaviors has further led to the deterioration of the company’s share price and derailed the company aground due to insolvency. Based on this proven insolvency, this has further used other treats such as loss of investments, and worse more deliberate shedding of thousands of jobs. This in turn will certainly jeopardize the livelihood of thousands.
Within this theme of reasoning, the CEO and his ally (SCOFF) seem to have shunned their obligations to wide range of stakeholders. Based on this surface, their behaviors are deemed unethical under stakeholder theory. Deontological, Shareholder, and Utilitarianism Theories Ethically self-minded managers are expected not to indulge in any fraud other related practices. It is certain that Dunlap and his ally indulged in such illegal activities which include alteration of financial statement and suppressing of the true affairs of the company.
Such behaviors if taken into consideration are unethical under “deontological theory’ as behaviors go contrary to the company’s code of ethics. Consequently, it is evident that such acts in general had reckless consequences as it cripples the financial investments of the company’s shareholders. Gender shareholder theory this acts are also deemed unethical. Lastly, under utilitarianism, the theory states that determinations of morality are based on the application of the moral law to an action. This theory is based on the principle of utility or greatest happiness principle (GHB).
GHB states that action is right in proportion to its ability to promote pleasure or happiness. It is wrong in proportion to its ability to promote unhappiness or pain. Looking at the behaviors of Dunlap and his SCOFF, they all engage in illicit behaviors that are detrimental to its entire shareholder and other constituent of stakeholders. For example, Dunlap had been sacking employees in the name of structuring Sunbeam Corporation so as to peruse his selfish interest. Such employee sacking will endanger the livelihood of hosannas.
Based on this, they cause pain rather than ensuring happiness and pleasures. Within this theme of reasoning, their behaviors are deemed unethical under utilitarianism theory.