'If you're going to be a director ....' (Scott Paper Co.) (Transcript)

Turnaround leader Al Dunlap, in the midst of reviving Scott Paper Co., minces no words about the right things to do in the corporate boardroom.

One of the biggest corporate restructurings of 1994 was accomplished at Scott Paper Co. Albert J. Dunlap came aboard the world's largest manufacturer of tissue products in April and began a dramatic overhaul of a company criticized in many quarters of the industry and financial markets as sleepy and stodgy at best. The results have been immediate. As of year-end 1994, Scott's stock price had risen nearly 70%, adding $2 billion in value to the company, and other performance measures indicate a remarkable revival.

Dunlap is an experienced leader in the pulp and paper industry and in corporate turnarounds, having spear-headed by his count some eight turnarounds of other ailing companies, including Lily-Tulip and Crown Zellerbach (the latter once ranked by Fortune as one of the worst-managed corporations in America). He has worked at the right hand of two billionaire industrialists, Sir James Goldsmith and Australia's Kerry Packer, in his rescue missions. He was chosen by the Scott board of directors to be the company's first outside CEO in its over 100-year history. In his inimitably frank style, Dunlap quips, "They could have hired me or they could have hired Dr. Kevorkian, and I'm a hell of a lot more fun than Dr. Kevorkian."

Dunlap shared the story of the Scott restructuring with the participants at the semi-annual meeting of the Wharton/SpencerStuart Director's Institute, held in December. He also took the occasion to dissect a range of management and corporate governance topics, which are excerpted in the roundup that follows. How does this highly credentialed master of change management view the role, makeup, and conduct of boards? Fasten your seat belts for Al Dunlap's lively observations.

On the Restructuring of Scott Paper: We took four actions. The first step in turning around a company that is woefully underperforming is to deal with the management. We eliminated some senior executives, promoted some people from within, and I brought in some people who had worked with me before. In one of our early moves, we changed Scott's executive committee of 11 into an operating committee of five. We now have an executive team that is working.

The second step is asset sales. Inside every corporation is the biggest bank one is ever going to find - its own assets. My philosophy is, before you go looking for outside funding, look inside first at what you don't need. We sold S.D. Warren, a paper subsidiary, for $1.6 billion. It was a fine company but I believe you can't be in two capital-intensive businesses and do well at both. We sold other operations and have another $1 billion of assets on the block. We are on track to be debt-free in 1995. All this from a company that was heavily in debt, whose bonds weren't...