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Condominium Self-Management Guide
By Marilyn G. Lincoln
Marilyn Lincoln wrote this self-published guide to assist condominium
board of directors decide if they should consider becoming a
self-directed corporation and to assist the condominium boards who are
Marilyn and her husband were superintendents at a townhouse condo
complex for 15 years. They then bought their unit and helped setup the
condominium as a self-managed corporation.
The guide’s 17 chapters are well organized and comprehensive covers
everything from soup to nuts. The first chapter gives the board ideas
on how to evaluate the performance of your existing property manager
and the last discusses finding common ground between the board and the
I would recommend this guide to all condominium owners in Ontario that
want to understand what a condo corporation is and how it is suppose to
work. For sure all board members should have access to a copy.
Marilyn makes it clear that there is a lot of work involved in running
a self-managed corporation but if you have skilled and hard working
board members, the owners can find it to be a very rewarding endeavor.
To order a copy of her guide send $39.95 plus $4.98 shipping and
The Condo Guide, 163 Thaler Ave. Suite #302,
Kitchener, Ontario N2A 1R4
Reasons Not to Buy a Condo
by Tim Sutter
Kindle: $5.06 at Amazon.ca
Tim Sutter (a pen name) does not really have 101 reasons not to buy a
condo because he
repeats a few of the really important ones but he does have a
Better yet, he is a local boy who writes about
the Toronto condo market.
anybody who is thinking about purchasing a condo, this is a must read
for general information and knowledge related to condo buying.
Regardless of whether you are thinking about buying a condo, or are
already living in one, this book serves as a valuable cautionary tale.
The author's work experience as a condo consultant/engineer has
with exposure to situations that most people are unlikely to go through.
It is not all negative as he does give fifteen reasons to buy a condo
in a different Kindle book.
For Share Capital and Non-Share Capital
Hartley R. Nathan
Publisher: CCH Canadian Limited; 9th edition
ISBN #: 9781554966684
Price: $159.00 at http://www.cch.ca plus $16.00 S&H
Features a new chapter on condominium corporations.
Every condominium should have a copy to instruct the directors on how
conduct board and owner meetings.
The Condo Bible For Canadians
by Dan S. Barnabic
Paperback: 208 pages
Publisher: Neon-Publishing Corp (June 1 2013)
Price: $15.12 from Amazon.ca
This little yellow and black book is far thinner than I expected for a
$20.00 book that claims to be a condo bible. A guide, sure but a bible
cover everything there is to know about condos and this book doesn't do
that. It does, however, give condo buyers ten commandments.
The cover makes this book look like it is part of the popular “PCs for
Dummies” series and the writing style fits in that mode so it would
make a good
bathroom or subway read.
It is mainly a guide to anyone thinking of buying a condo. It should
make potential buyers think twice—three times maybe—before buying,
especially those who can barely
afford the down payment and initial total monthly costs.
It also does a great job of informing potential buyers how risky condo
ownership can be as condos are now more used as investment vehicles
The book warns buyers about the dangers of
buying into a condo where low-income owners may lose their units if
they lose their job or there is a drop in condo prices and his warning
that a self-serving or dysfunctional board can create a lot of damage
is dead on.
I disagree with a few of Mr. Barnabic’s points. They are:
Condos with over 25% rental units
I agree that a condo having more than 25% rental units is undesirable
but it is difficult to find a Toronto condo tower
that has less than 50% of the units being rented. What’s more, a buyer
can’t trust the number of rental units stated in the status certificate
as the managers either doesn’t know the true figure or they lie.
Want to know the real figures? Use the computer terminals at city hall
and check the owners’ home addresses on the city’s tax assessment
records. Their records are far, far from perfect but it will give you a
Information from residents & owners
Many condo residents don’t have a clue what is going on in the building
let alone how many renters live in the building. Renters, who have no
financial interest in the building, will be far more honest about a
building’s defects than owners who hide their building’s dark
Condo towers have a limited lifespan
I think that a well-constructed condo tower can last indefinitely if
the maintenance was kept up right from the beginning. Why not? Europe
is full of 100-year-old buildings. How old is the Royal York Hotel?
Older condos will be terminated
I see no sign of this happening. The rundown and underfunded condo
corporations manage to keep going. Sure they may look bad and they
may have roaches, bedbugs and mice, the underground garages may be
being condemned, the common areas are dirty and unkempt, the water
pipes leak, vandalism is a headache and crime is a big problem but as
long as the water runs and they have lights, they'll
Many low-income owners are trapped
there. If they sell their apartment for $40,000 to $100,000 where can
they buy anything better with the money they'll get? Other owners may
be slumlords who are making good money renting out
Research the management company’s
author gives no hints on how a buyer can do this. Keep in mind that
Channel (Manzoor Khan) was a proud ACMO 2000 accredited company so
industry accreditation is no guarantee of ethical performance.
|Condos in Ontario cannot ban
children. (page 63)
||The quorum for owners meetings
is 25% to hold the meeting and 50% plus
one to remove a director or change a by-law. The stated quorum
of 85% must refer to changing the declaration but that is seldom
required. (page 69)
||Reserve funds are for expected
not unexpected major repairs and replacements. (page 73)
||The reserves cannot be used for
any purpose the condo corporation may choose. (page 74)
||There is incorrect information
about foreclosed units not being liable
to pay condo fees. This is true in the United States but not in
Ontario. (page 86)
||In Ontario, all loans must be
passed as a by-law by 50% plus one of all the owners. This is not made
clear. (page 88)
|Distressed condos being bought
up by financial institutions who then
force owners out and then pay them only a fraction of what the owners
paid for their homes is a serious problem in some American states,
especially Florida, but I have not heard of this happening here in
Ontario. Maybe one day it will be a problem, if and when the condo
market collapses, but it hasn’t happened yet. (page 91)
Some of Mr. Barnabic's ideas are sound, such as government agencies
educating condo buyers and adding far more information to the status
certificates but others, such as holding an AGM every three months,
demanding that buyers have a minimum down payment of 25% or forcing the
buyers who have low down payments to pay an extra 25% in condo fees to
go into a "rainy day fund" are impracticable. So is having a committee
to monitor the directors' performance with the power to fire them.
His reforms include these errors:
||Professional projections. The
corporation's peformance audit and first reserve fund study states all
the construction problems that the engineering companies find. (page
||The quorum for a special owners
meeting is 25%. It takes a vote of 50% plus one to remove directors not
Who should buy
Anyone thinking of buying a condo, or a co-op, can learn a lot from
this book. The
main message is that buying a house is a far safer investment than
buying a condo and that is something I strongly agree with.
Never Buy a Condo and
Other Things I Have Learned from the Practice of Law
By Dick Blankenship
Kindle Edition sold through
small book with eight chapters, just a pamphlet really. Yet it
contains $5.00 of good advice for everyone, not just condo owners.
particularly thought that these chapters were of value:
People with no money have nothing
hire the contractor who offers the lowest bid if there is any reason to
think he may not be around long enough to finish the job or to honour
the warranty period.
Silence is Golden
quiet when you get angry or upset. Your mouth can get you into a
Get it in Writing
A written agreement can save you
a lot of grief.
Never Buy a Condo
his best chapter but worth reading if you are thinking of buying a
condo in Florida. Keep in mind that American laws covering condos are
different than in Ontario.
to Surviving Life in a
the Dream not the Nightmare
is a fictionalized account of new condo buyers who run into problems
with their board on the day after they moved in.
found this to be an interesting story, well written, very informative
and it is offered at a give-a-way price.
only thing I didn’t like was the advertising that is on some of the
Fees, Cash Calls and
or Pay Later
Williamson and Bernie Winter
small booklet describes the reasons that condominiums have special
assessments or loans. (In Alberta they call them “cash calls.”)
is an excellent description on why condo fees are required and why
condo fees that seems very low is not a sign that the board is doing a
good job but that most likely maintenance and repairs are being ignored.
booklet gives the warning signs that indicate when special assessments
will be required.
HOA Warrior: Battle Tactics for Fighting your HOA, all the way to court if necessary
by Shelly Marshall
Kindle Edition—$5.07 CDN
A highly-recommended guide on the basics on fighting against an HOA or condo board.
First you need to decide whether the dispute is worth the time, money
and stress that it will take especially when winning is not guaranteed.
Then you have to decide if you have the time, mental fortitude, enough
support from the other owners and money to take on the battle.
Finally, you need to be sure that the new directors are not as bad, or worse, than the ones you got rid of.
The Creepy Case Against Your Homeowners Association
by Ward Lucas
Paperback: 411 pages
Publisher: Hogback Publishing (October 20, 2012)
There are 310,000 Homeowners Associations in America. Sixty-two million
homeowners have discovered, often to their dismay, that they now belong
to an entirely different form of government, one they never expected.
Almost all new housing developments are inside these private compounds
and in many places it's impossible to buy a house not governed by a
private HOA board.
In effect, traditional government is now forcing homeowners into these
HOA compounds, and once inside, it's often impossible to leave with
your finances intact.
An Emmy award winning investigative reporter, Ward Lucas examines this
new housing system and has some startling revelations about how this
changing landscape is impacting Americans.
Ward Lucas fought five major lawsuits against two adjacent Homeowner
Associations, winning four out of five of the cases. It cost him
This book is a history of his battles and much more.
Up to 25% of all Americans have given up many of their constitutional
rights when they bought a home in an HOA or condominium. The courts see
people who buy into condominiums of HOAs as having voluntarily joined a
private corporation and therefore must follow their by-laws and rules.
This puts ordinary people in great financial peril.
He tells us about the bigotry, stupidity and arrogance of many board
members. Furthermore he describes the corruption and fraud that runs
amuck through shared home ownership such as HOAs and condos.
Then there are the corporation lawyers who will do anything to win and
see homeowner disputes as a cash cow to be exploited. Finally, there is
the threat of liens that have snatched thousands of homes from
How to fight back? Well, you must pay your fines and penalties
immediately to stop them from ballooning out of control. Then sell and
If you decide to stay, pay your fines and then fight them in the court
of public opinion. Seek publicity and use the Internet to expose what
your HOA or condo board is doing to their owners.
Then lobby your politicians to get the laws changed.
In many ways, this book mirrors what this website says. Buying a home
in a shared ownership corporation can be a very dangerous proposition.
Condo Owner's Answer Book: Practical Answers to More Than 125 Questions About Condominium Ownership
by Beth A. Grimm
For many, the first home they purchase is a condo. What seems like an
apartment that you own, in fact comes with a lot more responsibilities
than a single-family home as you and your neighbors are sharing walls,
floors and other common areas.
The Condo Owner's Answer Book covers all of the common issues with
condos and condominium ownership presented in easy-to-follow question
and answer format. It addresses the unique and specific type of home
ownership that comes with buying and owning a condo. It also covers
your rights and responsibilities as a condo owner and as a member of a
home owners association.
Beth A. Grimm is a California condo/HOA lawyer.
Condo Board Election Revolt
How Florida’s First Condo Ombudsman Became
the 500-Pound Gorilla
Valmore R. Lucier
Published by: Dr. Joyce Starr
When Florida appointed America’s first Condominium Ombudsman one task
he had was to appoint election monitors to conduct board of director
elections. Preventing election misconduct and manipulation was seen as
a priority. The author was Florida’s first Volunteer Chief Election
In 2004 condo owners in Florida gained the right to petition for the
removal of board directors. The incumbent boards lost 50% of these
elections. As the owners found out how much money was being saved by
kicking out the incumbents, more condos started signing petitions.
The author points out that most condo board members do not have a clue
on what their responsibilities are. However board elections are often
manipulated by board presidents, property managers and lawyers who do
know what they are doing and who do not want to lose cash-cow accounts.
He also states that most condo owners do not know how board elections
are suppose to be run so that the elections are fair and reflect their
true desires. This ignorance gives the incumbents and their condo
lawyer the ability to manipulate the process.
The author listed 50 different ways elections were tampered with
including letting renters and deceased owners vote, changing the
location or date of the meetings and using dated owner lists.
Although this book deals with a very important issue, it is of only
some help for anyone looking for guidance in running condo elections in
Ontario. The rules followed in the United States are far different than
in Canada and the useful information that this book contains would have
been better published as an essay or pamphlet.
However it should be mandatory reading for
the bureaucrats, lawyers and
politicians that will be re-writing Ontario's Condominium Act.
Your Condo & Homeowner Rights
What You Must Do When the Board Turns Your Life
By: Dr. Joyce Starr
Dr. Joyce Starr Publishing
Dr. Joyce Starr was a member of her condominium board and a long time
owner in her Florida condo corporation. It was a pet-free condo but
that rule had been ignored from the beginning.
Every was going well and Joyce enjoyed living in her unit. Then one day
she found a serious mould problem in the common hallways in her
building. When she brought it to the attention of her board president,
the stonewalling began.
For the next year and a half Joyce would not stop lobbying to get the
mould fixed. When it was plain that her board was not going to do
anything, she brought in a health inspector and contacted the local
police, her local state representative and the state condo ombudsman.
She then testified before the Governor’s Advisory Council on
Condominiums questioning the accountability and practices of her condo
The board fought back—hard. They sent her a letter stating that she had
to get rid of her cat. A letter from the condo’s lawyer followed. That
started a bitter and expensive two-year legal battle over the fate of
Who are the villains in this story? Entrenched and combative condo
boards and their lawyers who are eager to generate billable hours and
who have strong political clout to prevent meaningful changes to
protect owners in the condo legislation.
This small but very well written book describes unbelievable incidences
of board mismanagement and the use of the legal system to wreak the
lives of homeowners who run afoul of their boards.
If you think that arbitration is a cheap alternative to going to civil
court, this book will open your eyes. Arbitration is a very expensive,
time consuming and hazardous process. Joyce estimates that an owner
could spend up to $150,000 in legal and paralegal fees.
This book gives a very good idea of what you need to do once you
receive your first warning letter from the board. Joyce gives excellent
advice on how to limit your liability and on how to defend yourself.
I highly recommend this book to all condo owners especially those who
may fall afoul of their board. If you know anyone who is thinking of
buying a condo, make sure they read this book first.
This book is available in print and can be purchased from the author’s
The Homeowners Defense Kit contains three books:
1. Defend Your Condo & Homeowner Rights
2. Condo Board Revolt
3. How to Create Home Owner & Condo Documents
This package of three .pdf books can be downloaded for $30US and you
can pay by credit card. Within a couple of minutes, you can download
your books and start reading.
Print versions of three books are available at slightly higher prices
plus shipping charges.
Frailties in the Canadian Condominium Industry
By: Alfonso Carcamo
Keystone Communications 2012
IN this self-published book, Alfonso Carcamo tells the story of being a first-time home buyer who
bought a condominium apartment in the first building his real estate
salesman showed him.
He loved his large apartment and his spectacular view of the Toronto
skyline. After living in his new home for a year, Alfonso realized the
condo was suffering from serious financial and leadership difficulties.
What follows is the story of how Mr. Maverick and Alfonso organized the
owners and gained full control of the board of directors.
Condo Saga tells the reader how they organized and communicated with
the owners and how the existing board, the property manager and the condo lawyer
worked hard to discredit the owners who were trying to gain control of
Alfonso also describes the secret world of corruption that plagues the
Finally, after being on the board for almost two years, Alfonso
believed that his work was complete and so he resigned as president.
With three board positions open, the three new board members seized
control of the board and undone some of the good work that Mr. Maverick
and Alfonso accomplished.
As of this review being written, the new board has not released audited
or even unaudited financial statements for the last two fiscal years.
I would have liked Alfonso to have written more about the financial
difficulties his board faced and how they dealt with them. I also would
have liked to have heard the difficulties the three different condos
had running their shared facilities.
Order copies by e-mail at: www.alfonsocarcamo.com
How to Recall Your Condo or HOA Board in Ten Precise Steps
Dr. David Goldenberg
Starr Publishing (May 19 2012)
$5.93 from Amazon.ca
This electronic "book" is actually a pamphlet. It also uses
state laws which are different than Ontario's. That is two
against this "book".
Yet what does six bucks buy you these days? A Whopper? Feed your mind
instead of your stomach and help change the world; one condo
at a time.
For anyone who knows nothing about how to organize a requisition
meeting, this booklet has some sound ideas which makes it worth buying
This little booklet, along with the advice of an experienced condo
lawyer, should help you bring justice to your condo corporation.
Auditing and Tax Guidelines for Ontario Condominium Corporations
Chartered Professional Accountants Ontario
13 October 2013
Accounting, Auditing and Tax Guidelines for Ontario Condominium
Corporations October 2013 is a publication that updates an earlier
Guidelines issued by the Institute in 2008. (It was first published in
They reflect the Condominium Act, 1998, Part III - Canadian accounting
standards for not-for-profit organizations of the CPA Canada Handbook -
Accounting and Canadian Auditing Standards (CAS) of the CPA Canada
Handbook – Assurance, all as of October, 2013.
This 48 page accounting and auditing guide for Ontario Condominium
Corporations, (available on-line in a pdf format), although
designed to assist accountants, is an excellent guide for condo
directors, officers and
Sara E. Benson (Author), Don DeBat (Author)
$18.00 CDN [Kindle Edition]
Buying into an HOA with your eyes wide open!
This self-published guide to buying an American HOA makes some very
good points and is especially of interest to anyone buying a condo or
HOA in the United States.
Although much of the material does not apply to Canadian condo corporations, there is some material I found to be very relevant.
I especially liked these points:
|The condition of the community
is your first sign of potential issues with mismanagement, and the
possibility of a special assessment.
|Too often people join the Board with their own agenda...to
stop any special assessments, to even small things like being able to
dictate how the landscaping is done around their unit. They like the power to control owners, good luck if they don't like you
|You become business partners in
a non-profit corporation with all of your neighbors. And you become the
guarantor on all debts, loans, lawsuits,
liabilities, settlements, construction defects and disaster rebuilds.
Or anything else the board deems necessary to assess you for.
|If you have problems in your HOA, here are some options:
The most important part of this booklet is at the very beginning where
it asks if starting a campaign to recall your condo board is worth the
time, effort and grief it will cause you.
Once you decide that you will go ahead anyway, this book will
disappoint an Ontario condo owner as it focuses mainly on Florida laws
and therefore has limited value for a Canadian condo owner looking for
||Airbnb Hell: Travel Nightmares from Hosts & Guests... and how to avoid them!
by Turner Wright and Dan Weber
Kindle: $ 6.68
by Paul Goldberg
Hardcover: 384 pages
Publisher: Picador (13 February 2018)
Set during the week before Trump’s inauguration, Goldberg’s novel
unfolds within the Château Sedan Neuve, a crumbling high-rise
condominium in Hollywood, Florida. Governed by a corrupt board—rigging
bids with contractors doing shoddy work while longtime residents get
evicted—it’s a metaphor for America itself."
―Mike Fischer, Milwaukee Journal-Sentinel
Abraham J. Briloff
Harper & Row 1972
Abraham Briloff (professor emeritus of CUNY Baruch), who for years
wrote a column for Barron's, is a noted critic of the accounting
profession. He constantly analyzed breaches of ethics and audit
professionalism among CPA firms. This is his most influential book.
The majority of people assume that auditors pursue their tasks
diligently and have ferreted out all the aberrations from a
corporation’s financial statements with their gimlet eyes and red
pencils. This is not so.
The author describes a number of accounting scandals carried out by
major American corporations that the auditors deemed “fair under GAAP”
guidelines but where the courts and the public saw the outside auditors
giving undeserved legitimacy to dishonest financial statements.
Professor Briloff explains the game. Management takes the initiative in
looking for flexibility (or “creative accounting”) under existing
accounting rules. The outside auditors go along with the corporation’s
management or they lose the contract.
The most serious aberrations in financial statements that resulted in
major scandals were deemed by the auditors to be “fair” in accordance
with generally accepted accounting principles (GAAP). That is not the
same as “fair” as the word is used in normal society.
We get introduced to why 2+2 doesn’t always = 4, massaged earnings,
incest trusts, game plans, comfort letters, earnings inflators, dirty
pooling and big-bath accounting.
So what does all of this have to do with condos? Lots. It convinced me
that if a condo board wants to minimize the bad news in their annual
financial statements they can hire an accountant who will write a
report that will make it difficult for the owners to understand the
extent of the problems in the financial statements.
This book, which may not yet been equaled in describing the failings of
the accounting profession, makes it clear that condo owners have to
insure that they elect honest and ethical board members to run their
corporation as outside auditors make poor whistleblowers.
A Portrait of Saul Alinsky
Nicholas Von Hoffman
Nation Books 2010
For ten years, Nicholas Hoffman worked for Saul Alinsky as a community
organizer in Chicago. After Nicholas left Alinsky’s organization to
become a newspaper reporter, they remained friends until Saul’s death.
Hoffman writes about Alinsky’s views on community organization; the
nourishing of democracy at the neighbourhood level. At the core, there
are several basic principles that can be used to organize condominium
Start with what you have. Build from there.
People are moved to action by self-interest. Let them know what’s in it
| It is going to be a lot of work
and it will take time.
| The owners will have to do it
| You will not always succeed.
|Few community organizations last
forever. Don’t make it a one-man band.
You must train and encourage successors.
|Don’t get sidetracked by
fighting the board about one owner’s personal
issue, something the other 200-odd owners don’t care about.
| If a tactic doesn’t work, stop
Community organization is a frustrating and difficult
undertaking so it is easy to get discouraged. However, it is not always
futile. Barack Obama used his community organizing experience to propel
himself into the White House.
Paperback: 224 pages
Publisher: Vintage Books
An excellent paperback handbook on community organizing.
The Best of Abbie Hoffman
Four Walls Eight Windows 1989
Edited by Daniel Simon with the author
Abbie Hoffman was a life-long radical and a civil rights, anti-Vietnam war organizer. He was a member of the Chicago Seven
(originally known as the Chicago Eight), which included fellow Yippie
Jerry Rubin, David Dellinger, Rennie Davis, John Froines, Lee Weiner,
future California state senator Tom Hayden and Black Panther Party
co-founder Bobby Seale.
Later, Hoffman became a wanted fugitive for six years. He went into
hiding ending up in Fineview, New York near Thousand Island Park under
the name "Barry Freed". There he helped coordinate a successful
environmental campaign to preserve the Saint Lawrence River (Save the
This book is divided into four parts. The first three parts are
excerpts from three books that were written from 1968 to 1971. The
final part is called New Writings and were written from 1981 to 1988.
I strongly urge anyone trying to organize condo owners to study Part 4,
the New Writings. Abbie was a brilliant organizer and these essays
explain what is necessary to educate and organize the residents in a
Unwin Paperbacks 1982, 1984
It is commonly believed that honest contractors will drive the cheats
out of business. Dr. Gerald Mars, an anthropologist studied cheating in
the workplace and discovered that the crooks drive the honest
contractors out of business because they convince the clients that they
are giving them a great deal.
Discounts on the work provided are made up for by unnecessary repairs,
used parts instead of new ones or charging for expensive parts that
were never replaced.
These are just a few of the tricks used to make the
uninformed customer believe they are getting a bargain.
at a Glance
Labour Research Institute 1974
This out-of-print hardcover book is an excellent source for anyone
wanting to understand the arbitration process.
Chris, a former Staff Representative with the Steelworkers Union, wrote
this book as a training manual for union officials to help
prepare and present disputes in front of an arbitrator. (I was
fortunate to have taken a training course on arbitration that
Chris presented at a union training centre in Port Elgin, Ontario.)
Although Chris focuses on labour disputes, his book is the
primer for anyone taking a dispute to mediation or arbitration.
A copy can be found on-line from a number of used book stores.
British news, investigative journalism, satire and gossip magazine
The "Eye" is a British bi-weekly that exposes corruption, hypocrisy,
fraud and dishonesty in all the major sectors of British society. It
may be best described by a letter sent in by a reader.
I took out a year's subscription last year because I think your
magazine is just about the best there is to read on the market today.
However, after a year of reading about unremitting, blatant stealing,
double dealing, lies, etc in local and national government and
companies and banks and and and... I just can't stand it any longer so
I'm having to do an ostrich and bury my head and pretend it is not
To this end and to my eternal sadness and shame I'm not going to renew
my subscription and will in future just buy the odd issue now and again
because I think it's all I can stand of the dishonesty in high places.
Yours in shame,
Career of Al Dunlap in the Era of Profit-at-Any-Price
John A. Byrne.
is the logical extreme of an executive who has no values, no honor, no
loyalty, and no ethics. And yet he was held up as a corporate god in
our culture. It greatly bothered me.”
—David M. Friedson, CEO of
Windmere-Durable Holdings Inc.
|Written by a
Business Week Senior Writer. Chainsaw tells the story of
blind greed and how Al Dunlap used his manager’s position to destroy
and bankrupted Sunbeam in order to satisfy his lust for money.
Dunlap perfected his management style at Scott Paper where Dunlap and
his assistant Russell A. Kersh, greatly assisted by outside auditors
Arthur Anderson, were able to artificially boast the stock price by
slashed costs, laying off thousands of employees and used accounting
tricks to boast profit margins.
For his plan to work, Dunlap had to flip Scott Paper quickly before the
charade was exposed. Lucky for him Kimberly-Clark bought the company in
1995 and Al and Russell Kersh walked away with millions made from stock
Al Dunlap promoting his book
Sunbeam hired Al Dunlap as its CEO in July 1996. As a condition
employment, Al Dunlap was allowed to stack the Board of Directors with
close friends and admirers; people who he could control.
“If you want a friend, get a
I’m not taking any chances; I’ve got two dogs.”
Chainsaw belittled and then fired most of the Sunbeam executives,
brought in Russell A. Kersh to be the Chief Financial Officer and a few
other executives who worked with him at Scott paper and hired Arthur
Anderson as the outside auditors. He proceeded to shutdown or sell
two-thirds of Sunbeam's 18 plants and eliminated of half its 12,000
His methods resulted in Sunbeam's reporting record earnings of $189
million in 1997. However, he was unable to find a buyer by 1998. Dunlap
then decided to buy controlling interest in camping gear maker Coleman,
coffee machine maker Signature Brands (best known for making Mr.
Coffee) and smoke detector maker First Alert. Within two days,
Sunbeam's stock jumped to an all-time high of $52 per share in March
Not everyone was
Andrew Shore, an analyst with PaineWebber Inc. followed Sunbeam
After meeting Dunlap in mid-1996, Shore immediately put out a buy on
the stock. ''I didn't necessarily like him or trust him,'' he recalls,
''but I thought my clients could make money on him. I knew they just
had to get out at the right time.''
After the company reported its results in the second quarter of 1997,
Shore says he began ''getting pangs in my stomach.'' The numbers showed
that Dunlap was building what Shore considered abnormally high
inventory levels and accounts receivable.
Bill and Hold
Sunbeam was billing customers for products they had no immediate need
and holding them in third-party warehouses. Shore picked up on it but
said nothing. “No one [had] soured on him yet. Very few picked it up,
only the smart shorts at the hedge funds” Shore said later. I thought
it would take several more quarters to play out.''
He was right. Sunbeam's shares kept climbing, even though the company's
third-quarter results created even greater cause for concern. Shore
noted in one of his reports that there were massive increases in sales
of electric blankets, usually a fourth-quarter phenomenon. Then, in the
fourth quarter of 1997, he was alarmed by enormous increases in sales
of grills, at a time when virtually no one buys those products. Still,
Shore says, ''I didn't think the story was over just yet. The market
hadn't caught it.''
By booking these sales before the goods were delivered, Dunlap helped
boost Sunbeam's revenues by 18% in 1997 alone. In effect, he was
shifting sales from future quarters to current ones. The approach was
not illegal, but the extraordinary volume made it unusual.
Sunbeam's auditors, Arthur Andersen & Co., later insisted it met
Finally, Shore advised his clients to get out of the stock. He
frantically downgraded the stock on Apr. 3 at 9:00 a.m., and it quickly
fell by 4 points. Some two hours later, Sunbeam disclosed that it would
post a first-quarter loss. By day's end, the stock fell 25%, to 34 3/8,
and shareholders soon filed lawsuits charging deception.
The board wakes
as much as possible, we tried to do things in accordance with GAAP,
(generally accepted accounting principles), but everything has been
pushed to the limit."
Robert J. Gluck—Sunbeam controller
The board of directors tried to find out what was going on. Russell A.
Kersh, CFO, and Controller Robert J. Gluck led the board through the
charges by the financial analysts, denying virtually all of them. The
Arthur Andersen partner assured the board that the company's 1997
numbers were in compliance with accounting standards and firmly stood
by the firm's audit of Sunbeam's books
The board was not fooled. On June 13, 1998 the board fired Al Dunlap.
Three days later, Kersh was fired as well.
Dunlap's ouster elicited unrestrained glee from many quarters. Former
employees who had been victims of his legendary chainsaw nearly danced
in the streets of Coshatta, La., where Dunlap shut a plant. Other chief
executives, many of whom considered him an extremist, agreed that
Dunlap's demise was a welcome relief.
Even members of his own family--long estranged from the man--seemed
ebullient. Upon hearing the news of his father's sacking on television,
Troy Dunlap chortled. ''I laughed like hell,'' says Dunlap's
35-year-old son and only child. ''I'm glad he fell on his ass. I told
him Sunbeam would be his Dunkirk.'' Dunlap's sister, Denise, his only
sibling, heard the news from a friend in New Jersey. Her only thought:
''He got exactly what he deserved.''
Lessons to be
Feeding his personal greed, Al Dunlap drove Sunbeam into bankruptcy.
Thousands of employees lost their jobs, towns lost their main employer
and the stockholders left holding the bag lost their shirts.
The story in Chainsaw makes it clear the board must closely monitor
management's actions. It also shows that the board and the owners may
not be able to rely on getting clear and straightforward reports from
the outside auditors.
all my years of reporting, I had never come across an executive as
manipulative, ruthless, and destructive as Al Dunlap. Until the
Securities and Exchange Commission barred him from ever serving as an
officer of a public corporation, Dunlap 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.”
—John A. Byrne—editor Fast Company
In 2001, the Securities and Exchange Commission sued Dunlap,
that he had engineered a massive accounting fraud. Also named in the
suit were four other former Sunbeam executives and the lead partner for
Sunbeam's account with Arthur Andersen LLP.
An SEC investigation revealed that Dunlap and others had created the
impression of a greater loss in 1996 in order to make it look like the
company had experienced a dramatic turnaround in 1997. By the SEC's
estimate, at least $60 million of Sunbeam's 1997 earnings were
He also offered incentives for retailers to accept products that would
have otherwise been sold later in the year, a practice known as
"channel stuffing". The SEC also argued that the purchases of Coleman,
Signature and First Alert were made to conceal Sunbeam's growing
problems. Dunlap's actions forced Sunbeam into bankruptcy.
Dunlap was also suspected of irregularities at Scott Paper. Not long
after the shareholder settlement, he agreed to pay $500,000 to settle
the SEC's charges. He was also banned from serving as an officer or
director of any public company.
Not long after the SEC sued Dunlap, The New York Times reported that
he'd engineered a massive accounting fraud at Nitec, a paper-mill
company in Niagara Falls, New York.
He'd been the company's president from 1974 to 1976, when he was fired
due to his abrasive management style.
“Boards should be
absolutely certain that the company is run properly from a ﬁduciary
standpoint in every degree. I am a great believer in the audit
committee having full access to the auditors in every way, shape and
An audit by Arthur Young (now part of Ernst & Young) revealed
numerous irregularities, including inflated inventory and nonexistent
sales—circumstances similar to the Sunbeam case. The final result was
that Nitec's $5 million profit for 1976 was actually a $5.5 million
Nitec sued Dunlap for fraud, but was ultimately forced out of business.
Based in Chicago, Arthur Andersen was once one of the "Big Five"
accounting firms among PricewaterhouseCoopers, Deloitte Touche
Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and
consulting services to large corporations.
In 2002, the firm voluntarily surrendered its licenses to practice as
Certified Public Accountants in the United States after being found
guilty of criminal charges relating to the firm's handling of the
auditing of Enron, an energy corporation based in Texas, which had
filed for bankruptcy in 2001 and later failed.
praise of greed
point is, ladies and gentleman, that greed, for lack of a better word,
is good. Greed is right, greed works. Greed clarifies, cuts through,
and captures the essence of the evolutionary spirit. Greed, in all of
its forms; greed for life, for money, for love, knowledge has marked
the upward surge of mankind."
—Gordon Gekko—Wall Street
Chainsaw is a book that should be studied by theology students as it
makes clear that corporate ethics and society's ethics are different.
Business executives like Al Dunlap preach that shareholder value must
be the primary goal for corporate executives. What that means is far
different than what you and I think that should mean.
Al was not thinking about small shareholders when he preached this, or
even the huge industrial or financial shareholders; he cared as little
for them as the small-fry. No when he talked about increasing
shareholder value he was talking about making the company's executives,
him most of all, rich by their being given free stock options.
When Dunlap used accounting tricks and slash and burn tactics to push
the stock up in the short term, he was making himself and his cronies
rich. After all, they would know when to sell before the crash came,
and the crash was sure to come.
a disgraced profession
Dunlap could not have lasted as long as he did at Sunbeam if the
company's internal accountants didn't go along with his accounting
tricks and falsehoods. In this they were helped by the outside auditors
from Arthur Anderson.
Chainsaw is just one more example that shows that outside auditors
often fail to protect shareholders and have a long history of covering
up accounting irregularities in order to earn huge fees.
Andrew Shore is no hero. He knew what Dunlap was up to but instead of
sounding the alarm, he helped Dunlap by encouraging his clients to buy
Sunbeam stock. They were the only constituents he cared about and he
would look out for their interests, and only their interests—as long as
they remained his clients and he was making money off of them.
That Dunlap was laying off thousands of employees, closing factories
and laying waste to a couple of small American towns was of no concern
to Andrew Shore. He also did not worry about the thousands of
small-time investors who were getting sucked into buying a stock that
was sure to crash.
He was like a witness to a rape who did not call 911.
Yet, Andrew Shore delivered value to his clients. He got them out when
the stock was close to its peak so their profits were safe. All
others—well sheep get slaughtered, don't they.
of the Lion's Paw
Ireland wins Her
Macdonald & Co (Publishers) Ltd
The Anglo-Irish War, which lasted for two years starting in the summer
of 1919, resulted in Ireland, England's first overseas colony,
achieving its independence. This amazing victory, won in such a short
time with so few resources, was studied by the rest of the
colonial world and its lessons lead to victories throughout the 20th
century from Algeria and Cyprus to China and Vietnam.
Micheal Collins was the architect of the Irish victory and his
achievements were won, not in battle, but in in a silent intelligence
war fought between him and and British Intelligence based in Dublin
Collins knew everything that the British were up to. Irish postal
workers in London read the government's mail and Irish operators tapped
their telephones. Collins had high-level informers working within
Dublin Castle and he successfully prevented the British from knowing
what was going on in Ireland.
Irish seamen acted as couriers between Britain, Ireland and their
American supporters and Collins assassins murdered their British
opponents while the British stupidly engaged in mass punishmnet among
The British administration in Ireland became paralyzed so Irish victory
was certain. This was the beginning of the collapse of the mighty
British Empire, the mightiest the world has ever seen.
The lesson for disgruntled condo owners? If you don't know what the
board and the property management is up to, you will have trouble