Business

The Bond King and Chainaw Al exit

The two colorful leaders, both once headline names, depart the spotlight

Bloomberg

Bill Gross, co-founder of Pacific Investment Management Co., seen in this 2016 photo, retired after four years at Janus Henderson Group.
Bloomberg Bill Gross, co-founder of Pacific Investment Management Co., seen in this 2016 photo, retired after four years at Janus Henderson Group.
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The Bond King and Chainsaw Al — two names once legend in the business world. Both have bowed out in the past few weeks, one through retirement and the other after a battle with cancer.

Bill Gross, who pioneered a style of investing that revolutionized bond funds, announced his retirement this past Monday after a shaky four years at Janus Henderson Group.

“For many years and countless investors, Bill Gross was the most famous and one of the best performing bond managers,” said Todd Rosenbluth, director of exchange traded fund and mutual fund research at CFRA.

“His monthly commentary was widely tracked by investors large and small.”

However, said Rosenbluth, “recent performance struggles have resulted in a retirement decision.”

Gross, 74, known as the Bond King, co-founded Newport Beach, Calif.-based Pacific Investment Management Co., or Pimco.

Through his total return bond strategy emphasizing a bond’s price performance as well as its yield, he helped build Pimco into a $1.7 trillion money manager specializing in fixed income.

He was a frequent television guest, expounding on investing, bonds and the economy from a studio in Pimco’s offices.

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Gross amassed a fortune and a global following while riding a decades-long bull market in bonds at Pimco.

But he left in 2014 after clashing with colleagues, and the resignation shook the investment community.

“One of the biggest investment personnel-related events that I have seen in my almost two decades in the industry,” said Todd Noel, senior research director for global manager research at the Wells Fargo Investment Institute.

The magic at Pimco did not travel with him to Janus Henderson Group, where he invested a large chunk of his fortune in a global unconstrained bond fund.

His fund has underperformed its benchmark since Gross joined Janus Henderson in late 2014, although its nominal performance has been positive over the period, according to Janus Henderson.

The fund returned negative 3.88 percent in 2018, according to Morningstar. It experienced roughly $1.165 billion in net outflows since March 2018 and has lost nearly half of its total assets.

Gross acknowledged the fund’s shortcomings in an interview with Bloomberg TV.

“I look back on it, and the performance of the unconstrained fund in the past four years with Janus has been unsatisfactory, no doubt,” he said.

Gross is a one-time long-distance runner and Midwesterner — from small-town Middletown, Ohio — known as a quirky character. His legend includes a successful, four-month run at Las Vegas blackjack tables that helped fund his MBA at UCLA.

He developed his “total return” strategy at Pacific Mutual Life Insurance Co. in 1971.

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“His real claim to fame was pioneering total return investing in fixed income,” said Miriam Sjoblom, director of fixed-income ratings at Morningstar. “That means you are not just concerned with collecting income. You are concerned with price appreciation and avoiding losses.

“The fact that he was able to popularize a style of investing that didn’t focus on yield changed the industry,” Sjoblom said.

The Pimco Total Return Fund, which he started in 1987, grew to one of the richest mutual funds in the world. Morningstar in 2010 named him “investor of the decade.”

“You really can’t point to any other bond investor who had built such a successful firm around bond investing,” Sjoblom said. “To this day, the team he assembled is still largely intact there and among the best in the business.”

Gross became a multibillionaire, with a world-class stamp collection, art work and a seat on the Forbes 400 list of richest Americans.

The ride began to slow even before his sudden, handwritten resignation from Pimco in September 2014. The departure followed reports of erratic behavior by Gross and infighting at the money management firm.

Pimco chief executive Mohamed El-Erian departed in early 2014, praising Gross amid reports that said the two were in open conflict.

He was dropped from the Forbes 400 last year, and saw his wealth take a hit in an ugly, high-profile divorce that included fights over art, homes and cats.

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Forbes reported last fall that he was in the process of selling off his $42 million stamp collection, “the only complete collection of all U.S. issues with many significant rarities.”

Gross said in a statement accompanying the retirement announcement that he will pursue his philanthropic activities. That includes the $390 million-asset William, Jeff and Jennifer Gross Family Foundation, which the bond investor oversees.

Gross has given away $800 million over the past two decades.

“I’ve had a wonderful ride for over 40 years in my career — trying at all times to put client interests first while inventing and reinventing active bond management along the way,” Gross said in a statement accompanying his retirement announcement.

The turnaround specialist

Wherever Albert J. Dunlap went, success seemed to follow.

A hired-gun CEO, he presided over nearly a dozen corporations, including a disposable-cup company, ketchup bottle manufacturer and toilet-paper giant, and grew profits while firing thousands of employees in the name of efficiency and cutting costs.

An unabashed proponent of downsizing, he became known as Chainsaw Al, “the Shredder” and “Rambo in Pinstripes,” while his own name entered the corporate lexicon as a verb — “to Dunlap” — for turning a wayward company into a high-flying success.

Yet Dunlap, who was 81 when he died Jan. 25 at his home in Ocala, Fla., went on to face allegations of smoke-and-mirrors accounting that led to his 1998 ouster from Sunbeam, a small-appliance company, and to news reports that unearthed similar fraud allegations earlier in his career.

He never faced criminal charges. But in 2002, he agreed to pay the Securities and Exchange Commission $500,000 to settle the Sunbeam allegations and was barred from serving as an officer or director of a public company.

“In all my years of reporting, I had never come across an executive as manipulative, ruthless and destructive as Al Dunlap,” journalist John Byrne, author of the 1999 Dunlap biography “Chainsaw,” later wrote in Fast Company magazine.

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Dunlap, he added, “sucked the very life and soul out of companies and people. He stole dignity, purpose and sense out of organizations and replaced those ideals with fear and intimidation.”

Dunlap denied wrongdoing and insisted that he was nothing less than a corporate doctor, saving “dying” companies that were overburdened by debt.

While he generally disdained charitable giving as an executive — canceling $3 million in charity pledges while running Scott Paper — he refashioned himself in recent years as a leading Florida philanthropist, donating more than $40 million to Florida State University.

Still, his reputation as a cutthroat corporate leader proved hard to shake. Since being ousted from Sunbeam, he was cited in articles such as a Time magazine list of “Top 10 Worst Bosses” and a Fast Company story headlined “Is Your Boss a Psychopath?”

For a 2015 GQ feature — “Your Boss Actually Is a Psycho” — writer Jon Ronson visited Dunlap’s estate in Florida, asking him whether he might not be a psychopath. Ronson based his questions on a list of traits assembled by psychologist Robert Hare.

Dunlap, he wrote, redefined certain psychopathic traits — impulsivity, manipulative behavior — as “leadership positives” and wrote off his Sunbeam years as “a footnote” in his career.

As Dunlap told it, in frequent interviews and a best-selling 1996 manifesto, “Mean Business,” his was an all-American success story, in which “a nothing kid from the slums of Hoboken, N.J.,” rose to graduate from the U.S. Military Academy in West Point, N.Y., and claw his way to the heights of American business.

That image of heroic, self-made success was undermined by accounts from his sister, Denise Dunlap, who told Businessweek that she and her brother had “a very comfortable childhood,” and from divorce filings in which his first wife, Gwyn Donnelly, alleged he had threatened her with guns and a Bowie knife.

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According to “Chainsaw,” Dunlap also could be cruel to co-workers. On one occasion, he threw a chair at Sunbeam’s human resources chief.

On Wall Street, however, Dunlap was long viewed as a hero who could do no wrong. Under his leadership in the 1980s, the cup-maker Lily-Tulip increased its stock price by more than 900 percent, from $1.77 to $18.55, according to “Mean Business.”

He was later credited with tripling the stock price of Scott Paper, which was struggling with $2.5 billion in debt when he was named CEO in 1994.

In both cases, the growth was fueled by massive cuts. Dunlap eliminated about half the staff of Lily-Tulip and about 11,000 jobs, or one-third of the workforce, at Scott Paper.

When Scott Paper was sold to Kimberly-Clark in 1995 for $9.4 billion, Dunlap received a $100 million payout. “Most CEOs are ridiculously overpaid,” he wrote, “but I deserved the $100 million.”

Two days after Dunlap joined Sunbeam, in July 1996, he told analysts in a conference call, “I love every dollar like a brother,” and declared that he “would have hung” the previous management team for incompetency.

Dunlap’s rise was halted suddenly in 1998, amid news reports that he had inflated sales figures through tactics such as buy and hold, in which products such as outdoor grills were “sold” in the winter but not paid for until spring.

When Dunlap was confronted by a skeptical financial analyst at an investors meeting that May, according to one Businessweek account, he responded by grabbing the man by his shoulder, placing a hand over his mouth and saying: “If you want to come after me, I’ll come after you twice as hard.”

The Sunbeam board fired Dunlap that June, declaring that he had misled investors.

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In 2001, the company filed for bankruptcy, struggling under $2 billion in debt. The SEC charged Dunlap with accounting fraud that same year, saying he “orchestrated a fraudulent scheme to create the illusion of a successful restructuring of Sunbeam and facilitate the sale of the company at an inflated price.”

In addition to the SEC settlement, Dunlap paid $15 million to resolve a shareholder suit. Sunbeam’s accounting firm, Arthur Andersen, which was later charged in the Enron scandal, settled a separate shareholder lawsuit for $110 million, after signing off on an audit that allegedly included false profits.

Dunlap effectively retired from business after his ouster at Sunbeam, although he continued to maintain that he had done nothing wrong, and embarked on an international speaking tour with Gen. Norman Schwarzkopf and Soviet leader Mikhail Gorbachev. The subject was leadership.

“The harsh reality of business life is that what works today won’t even be satisfactory tomorrow,” he had written in “Mean Business.”

“The predators are out there, circling, trying to stare you down, waiting for any sign of weakness, ready to pounce and make you their next meal.”

Albert John Dunlap was born in Hoboken on July 26, 1937. He said his mother was a dime-store clerk and his father was a dockworker; his sister said their mother was a homemaker and their father was a successful boilermaker for United Engineers.

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