HE GAVE THEM THEIR SWORD

By moving quickly to fire Al Dunlap, the Sunbeam Corp. board has proven that the corporate governance reform movement is paying off in the real world, with boards demanding stronger shareholder results — and kicking butt if they’re not delivered.

Mr. Dunlap’s well-chronicled slash-and-burn turnaround techniques have obscured his status as a strong supporter of boardroom reforms. At Sunbeam Corp., as in his earlier posting as CEO at Scott Paper Co. Inc., he pushed the envelope on governance innovation.

“Chainsaw Al” added independent-minded outside directors, convincing them to not only pay themselves exclusively in Sunbeam stock, but to personally load up on the company’s shares. As Dunlap told me in a 1997 interview: “If you’re a good board member, you can really help influence the company. If you don’t want to take the risk, God help the shareholders.” The result: directors who are better able to share investors’ gains but also feel their pain — and sharply — if results lag.

Mr. Dunlap also added a noted corporate governance activist to the Sunbeam board — a first for such a major company — and supported limits on both director terms and the number of outside board seats. Mr. Dunlap won support from major investor groups and investor activists, such as the Lens Fund and the Council of Institutional Investors. They saw beyond all his Darwinian hubris; he was making shareholder value not just a talking point, but a religious conviction.

So then, what did all those empowered, stock-poor directors do when the Sunbeam turnaround fizzled this year, with the share price falling to $18 from $53 in March? Mr. Dunlap’s new board mechanism did precisely what it was designed to do: It showed him the door.

Although there was some early fear that board members might be too intimidated by the Dunlap legend, directors who have a big chunk of their personal equity tied up in a company are not very forgiving. Indeed, one Sunbeam outside director told me that he had more invested in the company than in his house.

Better still from the shareholder viewpoint, Sunbeam’s turnaround had only started to sour over the last quarter. Mr. Dunlap’s results as well as his own governance policies took him from savior to unemployed in just three months. This is remarkable speed for an old-line industrial company. When the General Motors board sacked its CEO in 1992, market share had been falling for decades.

The outcome for Sunbeam may be a short-term failure in results. But we now have strong proof of just how well and how fast a corporate board can work to limit that failure. In the end, Al Dunlap best proved his support of shareholder value by giving his directors a sword to use on him when he failed to achieve it. As Shakespeare wrote of the rebel thane of Cawdor in “Macbeth,” “Nothing in his life became him like the leaving it.”

Ralph D. Ward is publisher of the online newsletter Boardroom Insider, editor of Corporate Board magazine and author of “21st Century Corporate Board” (John Wiley & Sons, 1997).