In the late 1980s, things looked good for the newly formed corporation Unisys. The company was boosting its workforce, increasing its product offerings, and acquiring other companies, such as Timeplex. It seemed Unisys would soon be challenging the computer giant IBM for top spot among U.S. computer manufacturers.
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Scandal Rocks Unisys
However, in the late 1980s, a serious scandal rocked the company, already on shaky ground from failing to properly assimilate Burroughs and Sperry. An internal investigation began, but was soon overshadowed by the long arms of the Department of Justice and the Naval Investigative Service. After four long years of close inspection, top executives of Unisys were convicted of serious infractions in their procurement practices.
Nicknamed “Ill Wind,” the scandal involved executives buying influence within the Pentagon and Congress, engaging in high level corporate espionage, cheating their competitors, and defrauding the U.S. government. Executives of Unisys and key military personal pled guilty to charges of bribery, as schemes were revealed of executives rigging defense contract bids, creating secret slush funds, and hiring corrupt consultants.
The Penalties for Unisys’ Activities
The result of the guilty plea led to $190 million in fines and forfeited profits. Unisys had to pay installments over a five-year period, plus forfeiting profits for an ongoing radar contract with the Pentagon, and make contingency payments based on expected profits and assets. The company was down, but wasn’t out of the game.
Unisys Fights Back
Restructuring Unisys and turning it into a profitable enterprise fell on the shoulders of James Unruh, who employed what many describe as “draconian” methods of reviving the ailing corporation. Between the years 1989 and 1991, Unruh slashed its workforce by 23,000, reducing it to half what it was when the company began with the merger of Burroughs and Sperry.
Unruh cut an additional 6,000 jobs in 1992 and reduced its product line of 50,000 by 15,000 after discovering that ten percent of its product offerings accounted for 90 percent of its sales. Unisys cut its mainframe computer offerings from four to two, and divested the unprofitable Timeplex. Seven of Unisys’ 15 manufacturing facilities went to the chopping block.
But, the slash and burn policies of Unruh worked. The company reduced its crippling debt of $3.5 billion down to $1.4 billion. Part of the restructuring process involved axing its involvement in industries outside its primary focus. It went back to serving the industries where it had built its reputation: banking, government, the airline industry, and communications.
Lessons from the Unisys Scandal
What’s to be learned from Unisys’ experience? Obviously, it would be optimal to prevent high level executives from engaging in unethical and illegal acts. As Unruh pointed out, the company as a whole paid a huge price for the actions of a few individuals. The most important lesson is how Unisys didn’t roll over and die. Though it took extreme, and sometimes painful, measures, the company refocused on its priorities and saved a company on the brink of extinction.
After plummeting from over $50 per share down to just over $1 per share, Unisys’ current stock value of over $25 proves it’s possible to get the buggy out of the ditch, even after one of the worst procurement scandals in history. [/show_to]
