The Practice Of Egoism In Decision Making By Dunlap Accounting Essay

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The purpose of the report is to be able to understand ethics theories and apply these theories into real life situations and also to learn how to evaluate the ethical dilemma that happened in the case by critically analyzing the issues, solving problems and finally giving recommendations to the company.

From the case study analysis (Sunbeam Corporation: "Chainsaw Al" and Greed), we learn how to identify and apply the relevant ethical concepts and principles to the practical business issues. We also learn from the lesson that whatever we do, we should behave ethical as unethical behavior will eventually results in negative outcome. We should also put ourselves in others shoes and think from their perspectives.

Sunbeam was found by John Stewart and Thomas Clark in 1987 (Ferrell, O.C., Fraedrich, J. and Ferrell, L., 2008). The company was performing well along the way even during the Great Depression until 1980s, the period of high inflation and interest rates where Sunbeam was acquired by Allegheny International but eventually forced into bankruptcy in 1988. Later, Sunbeam was acquired by Michael Price, Michael Steinhardt and Paul Kazarian in 1990. The company's earnings have been declining tremendously since December 1994 (Ferrell, O.C. et al., 2008). In order to save the company, they hired Albert Dunlap as the CEO and chairman.

Dunlap was famous in restructuring and turning around financially troubled companies. (Ferrell, O.C. et al., 2008) His main goal was to make the company profitable and make money for the shareholders. He applied 4 strategies to achieve the goal which by getting the right management team, cutting back to the lowest costs, focusing on the core business, and getting a real strategy (Ferrell, O.C. et al., 2008). In October 1997, he announced the complete turnaround of Sunbeam. Later he acquired three consumer products companies which the acquisition resulted in record high share price. The 1997 net income was reported at $109.4 million.

Even though Sunbeam seemed to perform well, the shareholder wealth did not last. Dunlap's application of bill-and-hold strategy to boost revenue on the balance sheet has rise up concerns. Dunlap and Sunbeam were being sued for violating the SEC Act of 1934 for omitting material information in the business operations (Ferrell, O.C. et al., 2008). The board members even found misconduct of Dunlap and they immediately terminated his position on June 13, 1998.

The next CEO, Jerry W. Levin focused on product quality, good customer service and product innovation strategies which made Sunbeam performed well at the beginning of 1999. However, in 2001, Sunbeam was de-listed from NYSE due to the incompliance with minimum listing criteria and later it even underwent bankruptcy process (Ferrell, O.C. et al., 2008). In September 2004, the Jarden Corporation purchased it and its name has changed to American Household.


2.1 Identification of issue 1: Setting up new management team by terminating the current employees

After three months of taking over, Dunlap only retained one of the senior executive from Sunbeam. He then set up his own management team by employing 25 of people who has partnered with him previously to work in Sunbeam. This shows that Dunlap only believe and give opportunity to the people he know.

2.1.1 Analysis and evaluation of issue 1

Dunlap employed only the members he knew and evaluated them based on their previous success while previous success may be irrelevant to current positions nominate them. However, Dunlap should not underestimate the current employees in company and should assess them based on their duty and work.

According to Kant's theory, Dunlap action on terminating the old management team violates their rights employment because all employees should be treated equally. Dunlap cannot recruit only the employee he know and fire most of the old management team. Dunlap also highly dependent on special relationship with his previous partners and calls them to work with him again in Sunbeam regardless of their current performance. It is unethical because it affects the old management team spirit and not to mention they are being discriminated without proper recognition. If the old team members are being ceased, it will eventually create job insecurity to most of the factory employees because all their hard work to the company after all will not be appreciated by Dunlap.

Next, Dunlap contravenes the principle of equal liberty as he didn't promote fair treatment to each employee. Dunlap terminated all the old management teams without considering them their job performance; on the other hand, he gave fullest support to his own new management team. Dunlap is bias in making decision and not giving fair treatment to all the employees in Sunbeam. Moreover, Dunlap's action is immoral because he didn't give social and economic equality to all the employees. Dunlap never thinks about giving them fair opportunity to continue to work in Sunbeam. Thus It may directly affect employee shortage of income and dissatisfaction.

2.1.2 Recommendation on Issue 1

Hence, Dunlap should give fair and equal chances and reliable evaluations on every employee. Dunlap should set a standard to evaluate the senior management and the new team members. By comparing the employee's performance with the proper standard, he can determine the outstanding employee to work with him. He may disclose performance appraisal to those who get terminated to avoid employee disappointment. Besides, Dunlap may consider organizing a meeting to discuss with the current Sunbeam workers and inquiry them whether they are willing to stay with the company and strive for company's turnaround. Furthermore, Dunlap may employ outsiders who are compatible and suitable to the company especially during the company downturn. Besides that, instead of ceasing all the old team members, he can replace them as an advisor position to guide the new employees. It is a good approach as the new team can easily adaptable to the company and start focusing on their revolving strategy as soon as possible.

2.2 Identification of issue 2: Cease half of the factory employees to cut cost

Dunlap planned his cost cutting strategy to get back Sunbeam turnaround in the fastest time. However, this strategy leads Dunlap to eliminate 6000 employees worldwide after 3 months of his commencement as a CEO in Sunbeam. The numerous waves of laying off employees are not a good attempt as Dunlap never take into the consideration of the employees welfare.

2.2.1 Analysis and evaluation of issue 2

This action taken by Dunlap is unethical because he violates the principle of duty. Dunlap did not respect human dignity by terminating 6000 employees in one time and never give them proper compensation and early notice.

Besides that, according Abraham Maslow Theory, psychological and security are both the most basic needs that every people will strive to get it. Nevertheless, ever since Dunlap became the CEO of Sunbeam, the employee start to feel threatened and insecure due the escalating lay off issue. Employees tend to worry that they will be the next victim of Dunlap's ruthlessly job elimination. This eventually will lead to demotivation and inefficiency of workload to be done. Thus, Dunlap action on ceasing employees to save huge strain of cost in the company has breach the principle of rights. Every employees has the right to be protected themselves from wrongful termination. (Barbara Repa, J.D., 2010) and they have the rights to claim back their compensation if the company does not act in good faith and fair dealing. In addition, employees have the rights to have freedom from torture as they should not be fired without prior notice. This will lead to increasing employment rate in the country and not to mention some of the employees are the family main source of income.

In addition, Dunlap also violates the principle of ends in Kantian Theory because he exploited the employees by terminating half of the worldwide employees and treated them as a means to achieve the ends. Dunlap only intention is to stream down the company cost to minimum but never concern about the employee welfare.

2.2.2 Recommendation on issue 2

However, the termination of employees to cut down the company cost is appropriate if the employees get proper reimbursement and also earlier notification so that they have sufficient time to find a suitable work before their lay off from Sunbeam. Dunlap should stand on employee's view point before he made any decision. Besides, Dunlap can consider other cost saving alternatives, for instance reducing the employee salary to the moderate satisfaction level, or giving employees 2 to 3 working days in a week with appropriate salary to avoid too much workers with too little workloads. Non monetary method such as outstanding employees shall be recognize and reward to achieve their needs of self actualization. This is essential to motivate the employees to work harder and commit to the company. Proper training and guidance shall be given to the employees to improve their competency and efficiency.

2.3 Identification of issue 3: The practice of egoism in decision making by Dunlap

Sunbeam positioned its brand to affordable and middle class customers. Dunlap differentiated their product with other high-end brand in terms of design, package and advertising. However, Dunlap also created Sunbeam's brand responsiveness and shareholder wealth by opened up ten factory outlets within seven months. This impetuous action is not ethical as it does not consider the stakeholder benefit in maintaining the investor wealth in long term.

2.3.1 Analysis and evaluation of issue 3

The theory of Egoism applies here as Dunlap put his own interest for all the decisions made. Dunlap has an exaggerate sense of self importance to prove to everyone that he is capable to boost up Sunbeam sales and share price within seven months. Dunlap action on commencement of ten outlets in seven months is not morally right as it only promotes on short term desires rather than long term interest. Dunlap never takes into the consideration on the company long term financial position. Thus, Sunbeam might face financial difficulties because of the overrun operating cost.

2.3.2 Recommendation on issue 3

Hence, Dunlap should put himself on company's shoes to consider the effect on company reputation in case of bankruptcy happened. In order to satisfy and retain the investors, it is crucial to take an in depth consideration on company long term financial performance rather than focus only on short term profit. As a leader in Sunbeam, Dunlap should not impose unrealistic demands but instead invest for long term success. Besides that, proper planning prior to any decision made especially in Dunlap's fourth rule in developing and implementing the company business is a critical step to ensure continuous success and stay competitive advantage in the market.

2.4. Identification of issue 4: Dunlap tend to mislead the stakeholders by providing false information

Dunlap issued a press release in October 1997 announcing that Sunbeam had successfully turnaround and it had hired a financial services firm to find a buyer for Sunbeam. Dunlap also spread a rumor that Philip was interested to purchase Sunbeam for $50+ per share but Dunlap demanded it for $70.

2.4.1 Analysis and evaluation of issue 4

Dunlap didn't practice his fiduciary duty as a CEO in Sunbeam. Professionals are said to have fiduciary duty towards the interested party and they should give their priority on the professional and ethical responsibility rather than their own personal interests. As a board of directors, they have the duty of loyalty, care, disclosure and extra care when selling company. (Black, B. S., 2001).

Nevertheless, Dunlap breaches his fiduciary duty by spreading wrong information to the public to popularize the company image. It indicates that the company does not show fair and reliable information to the users. Dunlap should also consider the effect on the faulty information given because any breach of fiduciary duty might get penalty. Sunbeam is also highly dependent on Dunlap whereby every decision is made solely by him. However, even though Dunlap spread the news on the takeover by Philip, but legally, Dunlap should get approval from every shareholder for any selling off businesses.

2.4.2 Recommendation of issue 4

A true leader is ambitious to his company and they always commit themselves to strive for the best to the entity. In this case, Dunlap's should avoid the violation of fiduciary duty as a board of director by complying with laws and regulations for every decision made. On the other hand, the team in Sunbeam should continuously understand that as a public corporation, they have social responsibilities to build long lasting relationship with the public. Thus, Sunbeam shall provide true and fair information and gain back the public confidence.

2.5 Identification of issues 5: Dunlap considers the most important goal of any business is making money for the shareholders.

Dunlap's management philosophy stressed that the most important goal of any business is to make money for the shareholders. His operating philosophy was to make extreme cuts in all areas of productions, including extensive layoffs, so as to streamline a business and return it to profitability (Ferrell, O.C. et al., 2008).

2.5.1 Analysis and evaluation of issue 5

Dunlap applies the shareholder theory which focuses on financial and economic relationships with the shareholders as primary beneficiaries of managerial decisions. All his managerial decisions are focusing on maximizing returns for the shareholders. Dunlap's management philosophy is unethical as he should also consider the influences to the stakeholders for the decision he makes.

Dunlap makes the decision of extreme cost cutting regardless of the effects to the stakeholders (Ferrell, O.C. et al., 2008). He extensively terminates the employees and closes down many factories. The action is unethical as he ignores the primary stakeholders which in this issue are the employees and suppliers. He fails to consider the problems and consequences that he will bring to the stakeholders from his decision.

Despite the shareholder theory, Dunlap should take into account the stakeholder theory which consists of non-market forces that will affect Sunbeam, such as moral and economic factors. He should consider the welfare of the employees and the effects to the suppliers. The extensive layoffs may affect the livings of the employees and their families. If the layoffs are not properly handled, the company's employees may use their economic power to influence Sunbeam's operation by forming a coalition. The action may disrupt Sunbeam's normal operation. Other than that, the extensive layoffs may also pose economic and social issues to the country due to the high unemployment rate. This may affect Sunbeam's image.

Besides, Dunlap's decision to close down the factories will influence Sunbeam's major suppliers as they suddenly lost major income from their major customer. The suppliers may also suffer losses due to the canceled order as they have partially or completely produced the order. Then, they may also face the risk of uncollectible debt. That situation may create dissatisfaction among the suppliers. As a result, the suppliers may take action against the company by suing it to the court.

2.5.2 Recommendation on issue 5

Therefore, it is important for Dunlap to get to know the stakeholder groups as to assess the potential sources of risks and disruption to Sunbeam's operations and also to determine the area of conflict and tension between the stakeholders groups that can influence the company's operations. However, if Dunlap really has to retrench the employees, he should appropriately compensate the employees. Other than that, he should also give notice of retrenchment earlier to let the employees find new jobs before the factories' operations shut down.

Dunlap should clear the debts which the company owed to the suppliers before the factories shut down. Early notice about the company's decision of factories closing should be given to the suppliers so that they can get prepared and find new customer. Dunlap should also cancel the orders that the company made and he should inform the supplier immediately after the making of the decision to shut down the factories.

2.6 Identifications of the Issue 6: Abusive accounting practices

Sunbeam Corporation has employed some abusive accounting practices under the leadership of Dunlap. One of these abusive practice is "Bill and hold strategy". It involves selling products for large discounts to retailers and holding them in third-party warehouses to be delivered at a later date.

2.6.1 Analysis and evaluation of issue 6

Generally, Bill and Hold is permitted under the U.S (GAAP), if there conditions are fulfilled. First condition is the buyer must request that the transaction to be billed and hold and secondly the buyer must have substantial business purposes in doing so, and thirdly the risks of ownership must have passed to the buyer. However, none of these requirement was fulfilled by Sunbeam Corporation instead they used this strategy only as a tool shift sales from future period to current quarter to inflate its quarterly earnings. Dunlap, put excessive pressure on the sales people to meet aggressive sales goals. As a result of this pressure, for instant, the sales people employed in a "parking arrangement" whereby a wholesaler held Sunbeam merchandise over a quarter-end, without excepting any of the risks or rewards of ownership. The acceleration of sales revenue and the improper accountings and other earnings management tools used by the Dunlap in the 1st and 2nd quarters of 1997 led that the company didn't meet the sales target of the third quarter. Apart from the issue of improper accounting they also failed to disclose this practice in its quarterly filing.

In our understanding these behaviours apparently looks unethical, because the many reasons, first sunbeam managements are supposed that their actions will inline with legal, moral, societal, spiritual and human values, but rather they were the opposite by employing an abusive accounting techniques. They didn't disclose the required information into the public. They tried to manipulated investors' choices by showing artificial profit. The accountants are supposed to be the guardians of integrity in financial dealings and they have violated their fiduciary responsibilities. The accountants especially auditors are expected to be as gatekeepers and safeguard the interest of the stakeholders. They powered to give independents assurance service, but rather they jeopardised the reputation of accounting profession producing knowingly unqualified audit opinion while the financial statement were materially misstated by helping Dunlap with his short term goal.

2.6.2 Recommendation on issue 6

To avoid such as these management and accounting failure Sunbeam must choose right management team who can set right tone at the top that and encourages good ethical culture throughout the organization. The accountant must maintain their integrity and professionalism as an accountant and not allow any conflict of interest when dealing their clients; In this case they must not help the CEO to use abusive accounting techniques to serve his short term goals. The auditors (i.e. Author Anderson) must adhere to ethical guidelines and behave as independent external assurance providers.

2.7 Identification of issue 7: The financial controller and auditor failed to perform their fiduciary duty.

The auditor and financial controller agreed to the company's 1997 financial statements that it was in compliance with accounting standards in a board meeting (Ferrell, O.C. et al., 2008). However, the board members found that there was fraud after an in-depth review of Dunlap's practices. The financial controller later revealed that the financial statements were prepared in accordance with GAAP, but allegedly it has been pushed to the limit (Ferrell, O.C. et al., 2008). The 1997 net income was restated from $109.4million to $38.3 million when Sunbeam was required by SEC to restate its audited accounting reports (Ferrell, O.C. et al., 2008).

2.7.1 Analysis and evaluation of issue 7

In this case, the auditor fails to detect the material misstatement of the 1997 financial statements, the overstatement of revenue of 71.1 million. On the other hand, the controller tends to conceal the misconduct of Dunlap in the board meeting by agreeing to the auditor's statement even though he knows that the financial statements have problem.

Both the auditor and controller eventually fail to provide accurate and reliable financial statements to the company's shareholders who have appointed them. They fail to perform their fiduciary duty of trust and care towards the interested parties. The approved 1997 financial statements can mislead the shareholders and stakeholders making wrong investment decisions which may lead them to losses.

2.7.2 Recommendation on issue 7

Sunbeam is undergoing decentralize process in 1997 and the audit risk is high. The auditor should perform more substantive audit procedures to detect any misstatements in the financial statements when they audit Sunbeam. The controller should immediately inform the board members about Dunlap's misconducts when he knows it. He has the duty to inform the board members about the information that may cause the company to suffer loss and bad reputation.


In this case we have discussed many unethical issues that Sunbeam Corporation has faced from 1996 to 1998. First, we looked the Dunlap's setting of new management team and firing old management by assuming that the new team will outperform the old team without having any valid performance appraisal. We have also touched the issue of excessive layoff of employees as well as his extreme downsizing of the company. In this issue we have mentioned that Mr. Dunlap has violated employee's right of employment and fired without giving them any advance notice. Then we discussed Dunlap's egoistical behavior where he promotes his personal interest while he violated the other in many different ways. Then we mentioned Dunlap's misleading information to investors while he claimed in press release that the Sunbeam was successfully turn rounded. After that we pointed that that Dunlap's main goal was only to promote shareholder's interest at all cost, as claimed in his book (Mean to Business) and used the employees as a mean to reach his turn rounding objectives. We also bit talked about his abusive accounting practices he used to inflate sales revenue and shift from future period to other particular period and finally we looked the failure of financial controller and auditor of their judiciary duties which helped Sunbeam's management to manipulate accounting rules and report artificial profit.