Poor doggy, held hostage by that bad clown. OK, what else do we have going on here...

>Survivorerist is distracted by a flash of color peeking out
>from under the corner of what used to be the tent
>(brought to you by our proud sponsors at Coleman!)

GT, Coleman was acquired by Sunbeam, and Sunbeam is broke thanks to the inspired leadership of "Chainsaw Al" Dunbar. I'm not sure they could afford a sponsorship ... but what an opportunity for a hijack!

Chainsaw Al is one of the great stories in American business; I've hated this bozo for years and wrote a paper once that called him the biggest phony in American business, back in the days when he was still riding high. Imagine my delight to find this story today in the NY Times (and I don't apologize for its length one bit):

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An Executive's Missing Years: Papering Over Past Problems
By FLOYD NORRIS
NY Times, July 16, 2001, page A1

For the young executive, it must have appeared that his world was falling apart. He had landed a job running a company despite being fired by his previous employer. But then he was fired again, with the company's board accusing him of overseeing a huge accounting fraud.

Twenty years later, that executive, Albert J. Dunlap, was famous. As the chief executive of a major consumer products company, Sunbeam (news/quote), he was firing thousands of workers and wowing Wall Street. His memoir became a best seller.

Along the way, Mr. Dunlap erased both jobs from his employment history. No one who checked his background discovered the omissions.

But his soaring career soon crashed. He was fired by Sunbeam in 1998 and confronted with fraud allegations — accusations remarkably similar to the ones he had faced two decades before. In both cases, amazingly high profits were reported and used to justify big payouts to Mr. Dunlap, only to have auditors later conclude the profits were fictitious.

Neither Sunbeam nor the Securities and Exchange Commission, both of which claim he acted fraudulently, knew until now that Mr. Dunlap had faced similar allegations a quarter century ago. Those allegations are detailed in court records that The New York Times (news/quote) obtained from the National Archives, where they had been stored for years.

Mr. Dunlap declined to comment on whether he had misled employers about his employment history, said his lawyer, Frank Rizzano. The first fraud accusations, which Mr. Dunlap denied when they were made, were never proved, and Mr. Rizzano described them as "old and stale" and of no interest now.

Jerry Levin, who succeeded Mr. Dunlap at Sunbeam, disagreed. "We were shocked when we heard about this," he said. "I find it most unusual that anyone could be hired as a chief executive of a major company without having their background thoroughly checked," he added. "This seems to have escaped everyone's attention."

Mr. Dunlap has denied doing anything wrong at Sunbeam and has taken the company to arbitration to force it to honor the contract he was given in early 1998, months before he was fired. He is also preparing to defend himself in two court cases, one filed by Sunbeam shareholders and one by the S.E.C. Now 63 and living in Boca Raton, Fla., he has not taken a job since leaving Sunbeam.

The similarities between Mr. Dunlap's early troubles and those he faces today are striking. At both the Nitec Paper Corporation, a paper mill he ran during the 1970's, and at Sunbeam, high reported profits led to lucrative deals for Mr. Dunlap. At Nitec, his bosses agreed to pay him $1.2 million. At Sunbeam, they agreed to double his base pay to $2 million a year.

"It is remarkably analogous to our situation," Mr. Levin said.

Like virtually all major companies seeking a senior executive, Sunbeam relied on an executive search firm to find the best person for the job. Daniel Margolis, a spokesman for Korn/ Ferry International (news/quote), said his firm "conducted an exhaustive search that resulted in the Sunbeam board selecting Dunlap." When asked how the firm had missed the holes in Mr. Dunlap's employment history, he said, "It is our policy not to comment on our clients' business issues."

Sunbeam has filed a bankruptcy reorganization plan that would hand the company over to its bank creditors, leaving nothing for shareholders or bondholders.

The Nitec Years: Reported Profits Turn Into Losses

Mr. Dunlap was 36 years old in May 1974 when he became president of Nitec, which operated a paper mill in Niagara Falls, N.Y. Six months earlier, he had been fired by Max Phillips & Son of Eau Claire, Wis., after just seven weeks. Phillips said Mr. Dunlap had neglected his duties and spoken so disparagingly of his boss that he hurt the company's business, court papers show.

At first, all went well at Nitec. Not only did the company report small profits in 1974 and 1975, but Mr. Dunlap shared Christmas dinner in both years at the home of Nitec's chief executive, George S. Petty. "Petty and Dunlap appeared to be pretty good friends," recalled Richard Cutting, who audited Nitec's books as a partner at Arthur Young.

Profits surged in 1976, and Mr. Dunlap was given credit. But his management style was grating, and on Aug. 30, 1976, he was fired by Mr. Petty, the principal owner of the company.

Although he was fired, Mr. Dunlap left Nitec on excellent terms. The fiscal year that was to end a month later was expected to produce profits of almost $5 million. Mr. Petty agreed to have another company he controlled pay $1.2 million for Mr. Dunlap's stake in Nitec, a stake that had cost him only a nominal sum. The money was to be paid in 1979.

But weeks after Mr. Dunlap departed, the audit team from Arthur Young concluded that there were no profits. Instead, a loss of $5.5 million was posted.

The auditors found evidence of expenses that were left off the books, of overstated inventory and nonexistent sales. Nitec's books had overstated its cash by $201,700. Mr. Petty canceled the agreement to buy Mr. Dunlap's stock, and Mr. Dunlap responded by suing in federal court in New York. Nitec countersued, alleging fraud.

That case dragged on for years, as did a related case in which Nitec sought to force an insurance company to pay $2 million on policies it had issued, for $1 million each, to protect the company from misconduct by Mr. Dunlap and Nitec's former financial vice president, Albert J. Edwards.

Mr. Edwards at first denied wrongdoing, but later became the chief witness against his former boss.

Mr. Edwards, who moved to the United States from his native Britain in his 20's, retained both his accent and "some of the British mannerisms," recalled George Fraas, another of Nitec's outside auditors.

He was, said Mr. Cutting, the Arthur Young partner, "a nice, good straight guy and a competent accountant."

Mr. Edwards testified that the books had been falsified on orders from Mr. Dunlap, who sometimes would tell him what false entries to make and sometimes would simply tell him how much profits had to increase in a month and leave Mr. Edwards to accomplish it.

"He would say, in substance, he wanted X dollars in profit, and go get it," Mr. Edwards testified in an account that strongly resembles the S.E.C. allegations that Mr. Dunlap and his chief financial officer at Sunbeam falsified profits to meet Wall Street expectations.

Nitec was a private company, unknown to Wall Street. But Mr. Dunlap needed to satisfy Mr. Petty, who spent much time at other companies he controlled.

"Did he tell you why it was necessary to show more profit than you were showing?" Mr. Edwards was asked in his deposition.

"Because we were not reflecting what we had forecast we would show," Mr. Edwards replied.

By Mr. Edwards's account, Mr. Dunlap always assured him that the exaggerated profits could be made up, and the falsifications thereby concealed, when results improved later.

"I asked Mr. Dunlap how he felt that you could improve sales one month on the financial statements and hope to have it covered by the end of the year," he testified.

"His response in the case of sales was always, `We are improving our sales department,' that we will gain the extra sales back by the months to come and by year-end we will have it nicely straightened out," he said. Mr. Dunlap advised him, "Don't worry about it," he added.

Mr. Dunlap testified he had never told Mr. Edwards to do anything but report accurate numbers. The only time he asked that a number be changed, he said, was when he saw a profit figure that seemed to be too large and suggested it be checked. An error was discovered, Mr. Dunlap said, and the number was reduced.

Nitec management also claimed in court that the accounting fraud had masked serious operating problems. It claimed that a new production process, purchased from a company that had paid for a trip to Las Vegas for Mr. Dunlap, was responsible for a sharp decline in the quality of an important product, the toilet paper that Nitec made for the A.& P. grocery chain. A.& P. had canceled its purchases after complaining of poor quality.

Mr. Dunlap denied that process had lowered quality, and said the Las Vegas trip had not influenced him.

Mr. Cutting, then Nitec's outside auditor, recalled examining the toilet paper on a visit to the Nitec plant. "I told him this was like telephone-book toilet paper," Mr. Cutting said in a recent interview. "He did not take well to that," he said, adding, "He was assertive about how wonderful he was."

Nitec said Mr. Dunlap's firing reflected conflicts with colleagues. "There were growing and increasing personal difficulties between Dunlap and the other senior members of Nitec's management," Mr. Petty said in papers filed in court. "These difficulties had become so serious that virtually all of Nitec's senior management below Dunlap threatened to resign en masse if Dunlap remained at Nitec."

Mr. Dunlap, in his deposition, said he had done nothing wrong. He never conceded that the profit numbers he had reported were incorrect, and disclaimed any responsibility if they were. "I did not have a strong financial background," he said, adding that he received financial reports from Mr. Edwards and passed them on to Mr. Petty, sometimes without even reading them. How many did he read? "Maybe half, maybe a third," he said.

He dismissed Mr. Edwards's testimony as "outrageously false" and said he thought Mr. Petty was simply trying to depress earnings so he could buy Mr. Dunlap's stock for very little. "If they could make it look bad, Mr. Petty could come in and buy a bigger share," he testified. Mr. Dunlap's lawyers suggested that the company had just taken an "accounting bath" by choosing to use different accounting methods.

The case dragged on for years, with Mr. Dunlap enduring 38 days of depositions. In 1982, Nitec filed for bankruptcy. The mill was seized by the city of Niagara Falls for nonpayment of taxes and remained closed for years. It was eventually reopened by Cascades Inc. (news/quote), a Canadian paper company, and now employs 140 people, a fraction of the 700 who worked there when Nitec ran the plant. When the bankruptcy was finally settled in 1994, creditors collected pennies on the dollar.

Nitec's legal battles with Mr. Dunlap ended inconclusively. In July 1983, Nitec told the bankruptcy court that it would cost $600,000 to bring the case to trial, money that the company did not have. The case was settled with Mr. Dunlap being paid $50,000, an amount that was far less than his lawyer's bills. The case seeking recovery from the insurance company was dropped.

Had the case gone to trial, Nitec would have faced some obstacles. Mr. Edwards testified that all the orders to alter the books had been oral, and did not mention any documents directing alterations. Moreover, in an earlier deposition in a suit between Nitec and a supplier, Mr. Edwards had denied any role in rigging the books. Under cross-examination by Mr. Dunlap's lawyers, he stuck to his testimony that the books had been falsified on Mr. Dunlap's orders, but did not explain the discrepancy with his earlier testimony.

Mr. Dunlap had sued Max Phillips after he was fired, and that suit was more successful than his later one against Nitec. Phillips eventually agreed to pay him $55,000, which included $10,000 for breach of Mr. Dunlap's three-year contract, $30,000 for unspecified personal injuries and $15,000 for "all damages to Mr. Dunlap's reputation and good will in the industry." Officials of Max Phillips did not return phone calls seeking comment.

Growing Reputation: A Memoir Omits Unpleasant Facts

By the time Nitec's bankruptcy case was closed in 1994, Mr. Dunlap had become chief executive of Scott Paper, where he fired thousands of workers and gained a reputation as a determined cost-cutter.

After leaving Scott, he wrote his autobiography, "Mean Business," which became a best seller after he joined Sunbeam. "Most C.E.O.'s are ridiculously overpaid," he wrote in the book, "but I deserved the $100 million I took away when Scott merged with Kimberly-Clark (news/quote)."

The book discussed his time at Sterling Pulp and Paper, where he worked before Max Phillips, and at American Can, which he joined after being fired from Nitec. But it did not mention Max Phillips or Nitec. Nor did it mention the Manville Corporation, which he joined in 1982 and left the same year. But that job, from which former associates say he was fired, was known to later employers.

Scott retained Spencer Stuart, an executive search firm, when it was looking for a new chief executive. Like Korn/Ferry two years later, Spencer Stuart did not discover the omissions in Mr. Dunlap's employment history.

Asked about its work, Spencer Stuart issued a statement. "Mr. Dunlap made no reference to holding any jobs between working for Sterling Pulp and Paper and American Can," it said. "If, in fact, he was employed by others during that period, he concealed that information from us."

The firm added that it had talked to many people who had worked with Mr. Dunlap at previous jobs, but "did not believe that his record prior to American Can was relevant to the Scott Paper assignment." The firm continued, "We are confident that the portrait we developed and presented to Scott Paper reflected his pertinent experience and executive talents."

It would have been possible to learn that Mr. Dunlap's résumé was inaccurate. American Can knew he had worked at Nitec, and included it in a 1981 news release, still available on electronic retrieval services, announcing a promotion. And Mr. Dunlap was quoted in a number of publications while he was at Nitec. (One of Nitec's allegations, in fact, was that Mr. Dunlap had used company funds "to conduct a personal publicity and self-glorification campaign.")

Different Paths: Witness in Case Is Less Fortunate

While Mr. Dunlap prospered in the years after Nitec accused him of fraud, the chief witness against him was not so fortunate.

After being fired from Nitec, Mr. Edwards moved to Dallas, leaving his family in Buffalo. In Dallas, he moved from apartment to apartment and, when Nitec sued him, chose to represent himself because, he said, he could not afford a lawyer.

"He appeared to be a very nice guy, a smart man," said Thomas P. Earls, a Dallas lawyer who accompanied Mr. Edwards to some of his deposition sessions but did not represent him. "If he had not been so likable, I would not have tried to help him."

An extensive effort to locate Mr. Edwards, who would now be in his mid-60's, was unsuccessful.

"I last saw him nine years ago," said Annette Cohen of Avon, Conn., a daughter. At that time, she said, he was back in the Buffalo area. Two years ago, Ms. Cohen said, she and her mother tried to locate him after the death of his brother, but were unable to find him.

Others who had dealt with Mr. Dunlap at Nitec noted his rise to celebrity but did not speak up about his past.

"I sort of wondered why Nitec never came up," said Mr. Cutting, now retired from Arthur Young, which has merged to become Ernst & Young. "But it would have been inappropriate of me to bring it up."

Mr. Petty said he was just too busy with his companies to discuss Mr. Dunlap during those years. But his wife, Ginger, said her husband was afraid that Mr. Dunlap would sue them again.

The closest she came to speaking out publicly was three years ago, Mrs. Petty recalled. "I was taking my daughter to a private school in New Jersey," she said, and decided to visit West Point on the way. At the visitors center, she recalled, they saw a film that praised two great graduates of the United States Military Academy, Gen. Douglas MacArthur and Mr. Dunlap.

"I had a fit," she said, and complained to the staff at the visitors center. She was told to write to the commandant if she thought the film was wrong, but did not do so for fear that Mr. Dunlap would learn of her complaint and perhaps file suit.

Now she is taking pleasure in Mr. Dunlap's problems. "What goes around," she said, "eventually does come around."

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Facts do not have to be dull, and American business has more stories like this than your average soap opera!

I'll put the rest of my comments into a separate post.