Businessweek Archives

How To Lose Friends And Influence No One


Top of the News

HOW TO LOSE FRIENDS AND INFLUENCE NO ONE

As corner-office firings go, the ouster of Sunbeam-Oster Chairman Paul B. Kazarian would have been swifter only if the directors had used a guillotine. In late December, the board rewarded him for turning in strong financial results by giving him a hefty bonus on top of his $1.75 million annual pay. Then, on Jan. 9, Director Peter A. Langerman flew to Chicago, where Kazarian was at a consumer-products trade show. At 11 p.m., Langerman went to Kazarian's hotel room and told him the board had voted him out earlier in the day.

Kazarian says he has "no idea" why he was fired. But interviews with current and former Sunbeam employees, as well as outsiders who came in contact with him, suggest an explanation: As they tell it, Kazarian's problem went beyond a simple lack of "people skills." He went out of his way to abuse and humiliate employees, suppliers, and adversaries in negotiations. The ill will he generated reached such a pitch, says a Sunbeam insider, that the company's directors hired an outside counsel last year to conduct an independent investigation of employee complaints against Kazarian.

Relying on the report of the lawyer, the board concluded that the hostility was serious enough to make Kazarian no longer able to lead the company effectively. Says Director Roderick M. Hills, a former member of the Securities & Exchange Commission: "Regardless of his role in turning the company around, we have lost confidence in him going forward."

No one at Sunbeam would say a word against Kazarian's intelligence or motivation. The 37-year-old former Goldman, Sachs & Co. investment banker led a group of investors, including Michael Steinhardt's Steinhardt Partners and Michael Price's Mutual Shares Corp., in the 1990 hostile takeover of Sunbeam, formerly Allegheny International Inc., while it was still under bankruptcy-court protection. The group paid $660 million to buy what is turning out to be a gold mine. "It was one of the best analytical jobs I've seen of demonstrating value where previous management didn't see it," says Steven R. Fenster, a Harvard business school professor.

'OBSCENE, VULGAR.' Former executives, though, say Kazarian was far better with numbers than people. After the takeover, he moved Sunbeam's headquarters from Pittsburgh to Providence, where he presided over a culture that was like a "military barracks," says a former executive. Kazarian's comments often took the form of "obscene, vulgar haranguing," says another former exec. "Every other word was the F word." Kazarian denies using unusually coarse language and says he wasn't the only one cursing. "If someone got too bad," he says, "we were sure to close the door."

Managers' concerns involved more than issues of style. Last summer, James J. Clegg, the head of Sunbeam's household-products division, signed a $3.7 million deal with ad agency Foote, Cone & Belding Communications Inc. in Chicago for a fall TV and print campaign promoting Sunbeam and Oster kitchen appliances. But Kazarian abruptly canceled the campaign, faxing Foote Cone a letter saying the contract with Clegg was "unauthorized," according to Foote Cone Managing Director Mitchel Engel. Engel promptly sued Sunbeam. The case is still pending. "He sure made a lot of people nuts," says Engel. Clegg has declined to comment.

Others at Sunbeam say Kazarian was known around the company as a micromanager. For example, he initially insisted on approving all capital expenditures over $5,000.

Kazarian started rubbing people the wrong way even before he took control of Sunbeam. During the Allegheny bankruptcy proceedings, participants recall, he had shoulder-length hair and routinely showed up at court hearings wearing blue jeans and a baseball cap. In one meeting with lawyers representing Allegheny management, he bit off the end of a cigar and spat it on the floor, recalls Bruce McCullough, an Allegheny attorney. McCullough, an experienced lawyer, is aware that negotiators' tempers can wear thin. But he says Kazarian sometimes went to extremes with foul language, and in one instance nearly came to blows with McCullough. Kazarian denies McCullough's version of events, but won't give his own.

The ousted chairman defends his actions as necessary. "You don't change a company in bankruptcy without making a few waves," he says. "I wasn't there to be a polite manager. I was there to create value for shareholders." He says some 20 top managers became millionaires from stock options.

BLINDSIDED. Like Kazarian, investors and outsiders did not see the dismissal coming. Sunbeam had just reported a 40% jump in third-quarter profits, to $12 million, on sales of $200 million, up 11%. Yet Kazarian's departure has had little effect on the stock. Since his firing was announced on Jan. 11, Sunbeam shares actually have risen a bit.

The market reaction has been muted, in part because Kazarian appears to have left Sunbeam in excellent shape. Before the takeover, the company was a hodgepodge of businesses, some losing millions of dollars a year. Kazarian sold off the losers, restructured the remaining appliance operation, and turned a $40 million loss in 1990 into a $47 million profit in 1991. He uncovered overlooked assets, including some $60 million in foreign bank accounts. Last year, he sold 23% of Sunbeam to the public at 12 1/2, raising $236 million in a transaction that implied a value for the entire company of $1.05 billion. Sunbeam stock has since risen to about 17.

Shareholders now are enjoying improving performance, thanks to new products and lower costs. Sunbeam's hottest wares include a new line of high-end small kitchen appliances and a heated throw blanket. PaineWebber Inc. analyst Andrew Shore sees Sunbeam's sales growing 8% in 1993, to over $1 billion, and profits rising 40%, to $86 million.

Kazarian's personal financial outlook also is pretty bright. Because he was not, strictly speaking, fired "for cause," he will continue to collect his salary for the five years remaining on his contract. That's $8.75 million worth of consolation.Geoffrey Smith in Boston, with Michael Schroeder in Washington and Lois Therrien in Chicago


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus