1. directors have a fiduciary duty to protect the interest of shareholders. Give an example of why sunbeam corporation failed to protect the interest of shareholders.

'HACTICES 9 Case study 12.: The Sunbeam Corporation In 1996. Sunbeam. a U5 appllance manufacturer. was In serlous financial trouble. Al Dunlap. known as 'Chainsaw Al' for his approach to cutting staff. was appointed to save the company. Over the next two years. the business reported dramatically Improved results. Investors chased after the shares as the price rocketed. There was tall: of a bid. which would make the investors. and particularly Dunlap and his colleagues. a lot of money. But no bid came. By 1993. some outside directors were uneasy and launched an inquiry. They did not like what they found and Mr Dunlap was fired. The SEC subsequently charged him. other senior executives. and the audit partner at Arthur Andersen. who had approved the accounts. with fraud. The SEC alleged that. on his arrival. Mr Dunlap identied massive previous losses. which he wrote off. giving him a 'coolciejar' to dip into to inate subsequent results. Then he shipped out more goods through his distribution channels than they could possibly sell. taking credit for the revenues. but pushing forward the problem to the next nancial year. Returned goods were overlooked. Dther efforts were made to boost sales artificially: record numbers of outdoor barbecues were reported sold during the winter months. In 2001 . Andersen agreed to pay US$11D million to the Sunbeam shareholders in settlement of a lawsuit alleging that the auditors had failed to Identify the problem. Discussion questions 1. Directors have a fiduciary duty to protect the Interests ofshareholders. In this case. they apparently failed. Why? 2. Investors chased after the shares and the price rocketed. There was talk of a bid. which would have made the investors. including Dunlap. a lot of money. But some of the Independent outside directors were uneasy and launched an Inquiry. Could such a situation have been avoided? 3. Can directors rely on the report of the independent outside auditors