Sunbeam Case

Sunbeam Case

I’ve learned that there are three conditions that are likely to be present when fraud occurs. These three conditions are also known as the “fraud triangle”, and it consists of incentives/pressures, opportunities, and attitudes/rationalization. As I read through the Sunbeam case, I noticed that the most prevalent condition that’s apparent throughout the case is the incentive/pressures condition. There were multiple instances where management and other employees were pressured into fraudulent financial reporting. They were provided with strong incentives that made them more susceptible to committing fraud.
Albert J. Dunlap was appointed to becoming CEO and Chairman of the Sunbeam Company in April of 2006. Very soon after taking his new position with the company he invested $3 million of his own money into the Sunbeam stock shares. This is a major risk factor of the incentives condition because he had a very dominant position on the executive board and this meant that his personal net worth, with respects to his investment, were dependent on the performance of the company. He even stated himself, “If I make a lot of money here [at Sunbeam]—which I certainly intend to do—then the shareholders will make a lot… I’m lockstep with the shareholders.”1 This statement was a clear shout to the public that he wanted to make a profitable outcome of his investment and that in fact, he was determined to make a return off of his investment.
In Dunlap’s restructuring process, he hired a new Chief Financial Officer and he replaced the vast majority of top management. The new CFO was Russell Kersh, who jointly entered into a profitable 3-year employment agreement with Dunlap, anticipated strong financial incentives from raising the company’s stock price. The new replacements of the top management were also assured strong financial incentives for improving the share price of the company. These incentives placed more than enough pressure on these high board members...