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Scott Paper Company's Root Problems and Ethical Issues.

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COMPANY: Scott Paper Company
INDUSTRY: Consumer Paper Products
In late 1993, Scott Paper had tired product lines, some extraneous business ventures, and a lagging revenue stream and stock price. Scott's board of directors wanted to breathe some life into the slumbering giant. In April 1994, Albert J. Dunlap, a self-proclaimed "Rambo in pinstripes," was named CEO of Scott Paper, and he immediately created his very own crisis to get the company moving. It was as if he lobbed a fire bomb through the doors of corporate headquarters.

Dunlap began by quickly selling off $2 billion worth of nonessential businesses.
He also quickly terminated one-third of the total workforce of
Scott—over 11,000 workers lost their jobs. But perhaps the most painful blow to the Philadelphia area was Dunlap's decision to move Scott's corporate headquarters out of the city where it had been founded 116 years earlier to Boca Raton, Florida, where Dunlap had a home. According to some sources, the move was prompted by Philadelphia's climate, which Dunlap didn't like.

Scott's stock price increased 146 percent in 14 months, and its profits doubled after one year of Dunlap's management. The company was sold in mid-1995 to Kimberly-Clark Corporation for $6.8 billion in stock. Some stakeholders were delirious. Scott shareholders made out like bandits. Wall Street financial types did a jig. But no one was more gleeful than Dunlap, who pocketed $100 million in salary, stock profits, and other perks. Not bad for 15 months of his time.

There are many people who think of Dunlap as a hero, including Dunlap himself. Many others, however, think of him as the worst kind of villain, as "Chainsaw Al," as some of his detractors call him. Though measures of that sort are painful, many people can understand why they might be necessary to
turn around a company that could no longer compete. What infuriated everyone in the Philadelphia area, however, was moving Scott's corporate headquarters because Dunlap didn't like the weather in Philadelphia. Certainly, it is a very capricious reason to move an organization that was an institution in
the area for over a century. Scott was not just some company. Rather, it had been an exemplary corporate citizen, providing talent and financing for local cultural and civic organizations. In addition, Dunlap's manner was arrogant, and he showed little or no sympathy either toward the long-term employees who had been axed or to the area he gutted.

After selling Scott Paper Company, Al Dunlap went on to become CEO of Sunbeam (maker of electric blankets and outdoor grills) in 1996. In typical Al Dunlap fashion, he quickly announced the closing or sale of two-thirds of the company's factories and the firing of half of its 12,000 employees. The stock rose and Wall Street applauded. In March of 1997, Sunbeam bought three companies: Coleman (camping equipment), First Alert (smoke alarms) and Signature Brands (Mr. Coffee). A year later it became clear to Sunbeam's
board that the acquisitions had not been well managed and that the company was in financial trouble. They also discovered that the company was using highly aggressive sales tactics and accounting practices that inflated revenues and profits.36 In June 1998, Chainsaw Al got the ax himself. In 2002, Dunlap
settled charges with the SEC, paid a fine of $500,000, and neither admitted nor denied that he presided over accounting practices that resulted in Sunbeam overstating its profits in 1997 and 1998. And his legal woes did not end there. The Justice Department began an investigation of Sunbeam for the period it was managed by Dunlap. Even more interesting was the disclosure that, early in his career, Dunlap was fired twice—once with the company's board accusing him of overseeing a huge accounting fraud. Dunlap erased these two firings from his official employment history and news of them only recently surfaced. Another interesting tidbit: in one of those companies that fired him, his relationships with his colleagues were so fractured that the entire senior team below Dunlap threatened to resign as a group unless Dunlap was canned.

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Solution Preview

What are the root problems?
The root problems are that Scott Paper product lines were not that successful, the inclusion of some irrelevant or extraneous business ventures, and stock prices were not very attractive at all.
Another root problem is the fact that Scott Paper promoted Albert Dunlap to become the CEO. The company did not run proper investigation on Dunlap in order to make certain that his action in being a CEO will not hurt the company. However, after his unethical action, the Justice Department then did the investigation, ...

Solution Summary

This solution provides the root problems and the ethical issues associated with the Scott Paper Company.