Socially Responsible Downsizing

Employees of General Electric began referring to CEO Jack Welch as "Neutron Jack" because of the severity of his restructurings and layoffs from 1981 to 1985, which akin to the neutron bomb left buildings in tact while decimating human life. Brigham Young University professor of organizational behavior, Kim Cameron, refers to this style of layoff as "the grenade strategy," in that it is a non-strategic policy mindlessly tossed into a group of people haphazardly eliminating jobs.

Cameron believes there is such a thing as socially responsible downsizing.   She points to Mead, Hughes, and Sears Merchandizing Division as companies which avoided the heavy handed "grenade" and instead deliberately worked to make their layoffs as painless as possible. Instead of the mere chopping off of a company's head count to blindly cut costs, Cameron proposes that companies conduct in-depth explorations of alternatives. Often tweaking processes and organizational relationships can create cost cutting opportunities.

Even when it is absolutely determined that downsizing is the only solution, there are many ways in which this process can be more socially responsible.  George Starcher, head of the European Baha'i Business Forum, submitted a report to the ILO regarding socially responsible restructuring. Starcher believes that companies which have Corporate Social Responsibility firmly embedded into the corporate culture tend to handle downsizings better. Firstly, and most importantly, employees must be considered as assets rather than mere cost factors.

Companies should prepare themselves and employees well ahead of any scheduled layoffs. Starcher proposes embracing a philosophy of "continuous improvement." In part, this means streamlining with a view towards  preventing shortsighted overstaffing which would lend itself to future layoffs. This requires vigilance in anticipating trends that might alter staffing needs. He also recommends better assessment of the duration of personnel needs, which might be better served by using temporary workers. Other strategies would be retraining or moving employees to other units; work sharing; hiring freezes; eliminating hours; etc. The goal is to make every effort to avoid layoffs. Obviously, increases in salaries and large bonuses for top executives during a painful downsizing operation do not earn the respect of survivors or supervisors directly involved in these efforts.

When a company or plant closes, leaving the carnage of a large group of unemployed, it is just as toxic to the social environment as a chemical pollutant is to the natural environment. This is particularly true in a community where there are few employment alternatives. Many communities have been decimated by the loss of a company or industries - think Flint, Michigan for example. Companies should work closely with suppliers and other community facilities  which might be adversely affected. Reconstituting an abandoned plant or store is also recommended,  so that it is not left unused desecrating the landscape.

A responsible company would strategize over a couple of years before causing such devastation, and should partner with communities creating safety nets to help cushion the company's withdrawal. Starcher quotes from Danone's Social Report ' No employee should be left alone to deal with a job problem and jobs must be created wherever they are destroyed.' A responsible company is one that will "provide maximum support to each employee" to find other employment.  In fact Germany and France have in place social plans which require companies to assist employees in their search for new work.

Companies often disregard the hidden costs of downsizing. Organizational learning suffers, as longtime experienced employees are exiled the company loses its historical memory. Frequently informal networks of information sharing and work relationships are harmed during a company purge. There can also be quality and service diminishment, lower productivity, and a fear of risk taking which limits innovation. Job insecurity can drastically hurt morale, while loyalty wanes as people see co-workers booted out and fear they could be next. This type of atmosphere also causes good talent to walk out while making a company less attractive to new talent. There is usually higher turnover, more absenteeism, and a host of other costs that generally are not measured next to the layoff strategy itself.

According to George Starcher "Revitalization and growth strategies have many advantages over time-worn practices of cost cutting and downsizing. All stakeholders benefit from this more responsible approach."

Photo Credit:  by kanu101