Towns Dread Job Cuts But Investors Applaud The Role of 'Chainsaw'
How do you fight a chainsaw?
In one way or another, that's the question 25 communities nationwide are asking as they await with trepidation the edict of Albert Dunlap.
The corporate pruner, proudly known as "Chainsaw," has a reputation as one of America's most aggressive trimmers of organizational "fat." In July, he became the chairman of Sunbeam Corp., a Ft. Lauderdale, Fla.-based company better known for blenders and irons than gas-powered saws.
Almost immediately, Mr. Dunlap began preparations for the first rip cuts. He said the appliancemaker had too many factories and too many products. He hired a large accounting firm to prepare a report on each facility. Next week, he is expected to announce what factories he will close and how many of the company's 12,000 employees will still have jobs.
To many shareholders, Dunlap is a hero, boosting stock prices and leaving a lean corporate structure in his wake. But for many mayors and workers, his scorched-earth methods evoke apprehension.
At Scott Paper Company, now based in Boca Raton, Fla., Dunlap fired 11,200 workers, about 35 percent of the work force. At Lily-Tulip Company, a paper products firm in Toledo, Ohio, he unloaded 50 percent of the headquarters staff and 20 percent of the workers. At Crown-Zellerbach, a forest products company in San Francisco, Calif., he lopped off 30 percent of the administrative staff.
Dunlap maintains that his actions are necessary to save the company. In his recent book, "Mean Business," he says, "When I fire people, of course, I feel for them! 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." And, cut them, he does. He says, "My philosophy is to err on the side of too much. Too many asset sales, too many layoffs."
While he has been called Chainsaw, and the Shredder, Dunlap is most proud of the rubric "Rambo in Pinstripes." He says a rising stock price proves his case. In Sunbeam's case, the stock surged 30 percent after it was announced he was hired.
That philosophy has a lot of mayors worried.
"If we lose that factory, we'd be in pretty bad shape," says Mayor Clyde Brown of Shubuta, Miss., where the Sunbeam factory employs 350 people in a town of 577 residents. In Coushatta, La., population 2,300, Sunbeam's $10 million payroll supports 450 to 500 workers. "If it shuts down, you can imagine a town this small with a plant that hires this many people," says Mayor Archie Worsham.
Such concerns are not unusual these days. According to the Chicago-based outplacement firm of Challenger, Gray & Christmas, US corporations have laid off 362,297 workers for the first nine months, up 20 percent from the first nine months of last year. However, this is down about 50 percent from the peak lay-off year of 1993. This drop-off has led some analysts to conclude that downsizing has stopped. Not so, says John Challenger, executive vice president. "Downsizing is a permanent part of the landscape."
That's not much reassurance for a community that is about to see its main employer close. This has led some towns to try to deal directly with Dunlap, who has publicly advised, "If you want a friend, buy a dog." Hattiesburg, Miss., sent a representative to a Sunbeam stockholders' meeting to try to get some peace of mind. And, Mississippi Gov. Kirk Fordice has called Dunlap to assure him the state was pro-business.
The mayor of Paragould, Ark., has been steadily meeting with officials from the local plant, which employs about 500 workers. "If we can help, we want to look at it," says Mayor Charles Partlow. Mr. Worsham enlisted the aid of some state legislators to write the company. "I doubt he would talk to me," says Mr. Worsham.
It's uncertain if it would have made any difference. A company spokesman, John DeSimone, says Sunbeam has made no assurances to any community. "Every plant is under review," he adds.
That's not surprising given Dunlap's methods. "He's very aggressive at paring back on the cost side," says Mark Diverio, a securities analyst at UBS Securities, Inc. in New York. While most companies make lay-offs over a period of years, Mr. Challenger says the Scott Paper lay-offs "were large and very quick."
Some mayors and communities are hoping that the criteria for keeping a plant open will be profitability and productivity. "As far as I understand this plant is one of the most profitable they have anywhere," says Fred White, the director of economic development at Portland, Tenn.
Mr. White was surprised when Dunlap's new management asked him if he knew any investors interested in buying the plant and who would lease it back to Sunbeam. "I thought it was strange playing around with their best operation, but they (Sunbeam) said your best ones are the ones you can sell; you can't sell your dogs."
Many mayors and communities are confident their plant is not a dog. Jim Cole, the city manager of Neosho, Mo., population 9,254, says the manager of the Sunbeam facility has assured the town that the Sunbeam facility which makes barbecue grills will remain open. Sunbeam recently expanded the factory, which employs 1,200 workers. "They have spent millions out there," says Mr. Cole, adding, "It would be devastating to us if they closed."
It's not certain if plant expansions will make any difference. In the past 2 1/2 years, Sunbeam has spent $300 million for capital improvements. "Over that time sales have remained flat and earnings have dramatically fallen off," says Mr. DeSimone.
Bob Dodge, director of economic development for Biddeford, Maine, says he is "cautiously optimistic" that Sunbeam will keep open its two factories that employ 350 workers and produces electric blankets. Output has doubled in the past four years at the factories. "Does it make sense to shut down a plant making money for a company?" he asks.
However, Sunbeam has done that in the past, according to Jimmy Wright, mayor or Linton, Ind. In July, Sunbeam closed down its Linton plant, which employed 450-500 people. "It had made money," says mayor Wright. But the facility did not have enough warehouse capacity.
Officials in Hattiesburg, Miss., hope Dunlap will be swayed by the fact their plant opened only last year. But they would like to know now if it's going to stay or go.
"I'd rather have the guillotine than death by 1,000 cuts," says David Rumbarger, head of the Area Development Partnership.