When corporate downsizing is inevitable

Tuesday, January 23, 2007

MANAGING FOR SOCIETY, THE MANILA TIMES By Evelio G. Echavez When corporate downsizing is inevitable

In the first half of this decade, several companies in the US, some belonging to the Fortune 500 List, filed for bankruptcy causing a great uproar among investors and the clamor for reforms in the regulatory oversight of the securities industry. Many of the executives of said companies that included Enron and WorldCom were haled to court and some subsequently convicted. While the nature and magnitude of the scandals varied significantly, they all had common denominators: greed and the absence of ethical values. As an aftermath of these corporate scandals, companies have become more circumspect in their financial transactions and reporting; and have given more attention to their corporate social responsibility (CSR). In the aftermath of the Asian crisis in the late 1990s and the increasing pressures to be competitive, some companies in our country adopted the practice of manpower retrenchment, or what is more known as downsizing. Recently, businessmen have warned that legislated minimum wage increases could lead to layoff. One of the areas of CSR that is often neglected by business organizations is the process of separating their employees, such as in the case of corporate down­sizing. It will be good for companies to review whether the process they are employing is ethical or not. An employee hired by a company, in return for his faithful service, expects the company to practice fair play, provide safe working conditions and job security. An employee is also concerned with the personal and emotional bonds between him/her and the employer. Violation of these obligations, such as the separation of an employee during an organizational restructuring or downsizing, can have some effects on the psychological and physiological well-being and the financial condition of a separated employee. That is why it is important for companies to handle the dismissal process ethically to ensure the emotional, psychological, physiological and personal well-being of an employee. It is clear that long-term human resource planning is needed to avoid or minimize layoffs. Some companies employ one or more of the following alternatives to avoid downsizing: freeze-hiring and allowing attrition to draw down excess employees; redeploying current employees to other units; curtailing subcontracted work; sharing the economic loss through work sharing; offering early retirement and pay cuts. There have been recent examples in the US of some labor unions agreeing to have pay-and-benefit cuts of the workforce to avoid the filing of bankruptcy or massive layoffs by management. However if layoffs cannot at all be avoided, companies are expected to treat employees to be separated with dignity, respect and fairness. Some studies have shown that employees prefer that they be given advance notice of the impending separation and that a responsible person in the organization communicate with them directly about the matter rather than them hearing about it from others. Many companies, in anticipation of having to implement downsizing, provide their employees with training in skills of the latter’s choice to help them get employment elsewhere. Some companies provide outplacement services to their to-be-separated employees. Others allow separated employees to take over some of the services or functions being presently outsourced. Some even extend counseling to help affected employees cope with the emotional and psychological impact of separation. Whatever the approach, the challenge is to make the separation as humane as possible.