Scott Paper Company

Abstract:     

SUBJECT AREAS: Executive compensation; Labor negotiations; Paper industry; Reengineering; Restructuring; Shutdowns.
CASE SETTING: Geographic Setting: Philadelphia, PA; Industry Setting: paper products; Number of Employees: 31,000; Case Time Frame Start: 1994; Case Time Frame End: 1994


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Case No: 9-296-048, Scott Paper Company
Case No: 5-298-088, Teaching Note


Scott Paper Company provides an inside look at a major corporate downsizing program led by the controversial turnaround manager "Chainsaw" Al Dunlap. In less than a year, Dunlap oversaw the elimination of almost one-third of the company's 34,000 hourly and salaried employees, through layoffs and asset sales. By the end of the restructuring in late 1995, when Scott was acquired by Kimberly-Clark, the market value of Scott's common stock had increased by more than $3 billion (over 200%). Dunlap's personal wealth increased over this period by nearly $100 million, reflecting his compensation and appreciation in the value of his Scott stock holdings and executive stock options.

The Scott case highlights the key challenges that senior managers face when overseeing a corporate downsizing program. One of the most important challenges is determining the extent of layoffs. The employee layoff decision is conceptually similar to the decision facing managers in a debt restructuring as to how much the firm's debt should be reduced. The analytics of the layoff decision are usually much more complicated, however. This case provides students with the opportunity to discuss how such a program should be designed and implemented to create
maximum value for stockholders and other corporate stakeholders. It also allows students to analyze the sources of value in corporate downsizing (i.e., whether stock price gains that result from downsizing reflect value creation or value transfers).

Case and Teaching Paper Series