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“Chainsaw Al” is not the sort of nickname that most people would want but Albert J. Dunlap seemed to revel in it. The nickname was featured prominently in obituaries after his death early this year. The New York Times’s obit said that Dunlap earned it because of his “ardor for turning around troubled companies by laying off workers and closing factories.” He had other nicknames, including “the Shredder” and “Rambo in Pinstripes.”
Dunlap first came to prominence in 1994 when he was named chairman and CEO of Scott Paper. He cut costs and arranged the sale of the company to rival Kimberly-Clark the following year in what was hailed as a highly successful deal. Two years later, Dunlap became chairman and CEO of Sunbeam Corp., a publicly traded consumer products company based in Florida. Sunbeam’s products ranged from toaster ovens and hairdryers to barbecue grills. When Dunlap’s appointment was announced, the company’s stock price soared on the assumption that Chainsaw Al would work his magic.
Wall Street later learned that much of Sunbeam’s supposed profit was illusory, the product of crooked accounting practices. One gimmick involved “selling” barbecue grills to retailers on such generous terms that Sunbeam should never have recognized the revenue.
What should have been done?
A thorough background check should obviously include litigation research in jurisdictions where that is possible, such as the United States. Since it isn’t possible to search every court, pre-employment background checks usually focus on the jurisdictions where the subject has spent significant time – as well as adjacent areas. Thus, for example, if the subject lives and works in Washington, D.C., it would be appropriate to conduct litigation research in D.C., Virginia, and Maryland. If the subject is being considered for a low- or mid-ranking job, the litigation research is usually restricted in time – for example to the past 10 years.
If the subject is being considered for a high-ranking position, such as CEO of a public company, a more thorough search is in order: Including additional jurisdictions and going farther back in time, perhaps to the beginning of the subject’s career. If such a search had been done on Al Dunlap, there’s a good chance that the old allegations of accounting fraud would have been discovered and the Sunbeam catastrophe could have been averted.
The lessons of the Dunlap saga should be clear to all of us. One lesson is that the failure to conduct a proper background check can have dire consequences. The other is that litigation research is a key part of background-checking.