3. Job Security

First, a caveat: the fact that we treat job security as basic for employee morale and performance does not mean that we advocate lifetime employment guarantees. That’s impossible for just about any organization. We do urge, however, that if an organization seeks to have enthusiastic workers, it must understand that those employees cannot be treated as fungible objects.

How do workers, in general, view their job security? The “norm” (or average) is 67 percent, which is not too bad, but the range across companies is enormous: 39 percent to 89 percent.

To be sure, the lowest scores are, in part, explainable by reality. For the most part, organizations with scores at the lower end of the range are, in fact, those that recently experienced employee layoffs, had announced plans to do so, or were rumored to have a downsizing soon. For example, in one such company, a very large downsizing had just been completed. In another case, the company had sharply cyclical sales, more than most, so it was repeatedly laying off and staffing up by large numbers. It, too, had a low score for this item.

Another similar company went through a series of layoffs (three waves in only three and a half years), even though the company had promised that there would be no more layoffs after the first wave. Surveyed employees expressed a belief that the layoffs were merely short-term measures to please the investment community and were driven by broad percentage quotas (paying no attention to the critical skills the company lost), had destroyed morale, and had a devastating impact on one small community.

One conclusion might be simply that when workers express anxiety about their job security, it is because their jobs are insecure! But that is only part of the answer. It does not, for example, explain why some companies report much more positive scores on attitudes toward job security despite the fact that they, too, have experienced layoffs caused by economic downturns. Nor does it address the rather straightforward notion that if job loss is the result of financial necessity, why don’t workers simply understand that and “suck it up” (emotionally speaking)? Why, in so many cases, is there anger? Why don’t “these people” simply understand that job loss is one of the most commonly used and necessary organizational responses to the ups and downs of the economy and that business conditions are often unpredictable?

The fact is that workers often experience layoffs not as prudent business stewardship but as base inequitable treatment. Where does this attitude come from? The answer has two parts: the sense of “substantive equity” (whether the thing itself is fair), and the sense of “procedural equity” (whether what is done is done fairly). First, consider substantive equity.

Alan Sloan captured the spirit of a new era in a 1996 Newsweek article:

Firing people has gotten to be trendy in corporate America, in the same way that building new plants and being considered a good corporate citizen gave you bragging rights 25 years ago. Now you fire workers—especially white-collar workers—to make your corporate bones... Wall Street and Big Business have been in perfect harmony about how in-your-face capitalism is making America great.¹

This new management attitude includes ordering layoffs when a company is doing well. In the early 1990s, several large corporations downsized despite being profitable. In 1993, The New York Times reported that “...despite being consistently profitable, the Xerox Corporation...(stated)...that it would cut...nearly 10 percent of its workforce over...three years to improve productivity.” In so doing, Xerox became another big company trying to improve the efficiency of its operations by dismissing large numbers of people. The day it announced these layoffs, its stock went up about 7 percent.

What message does management convey by these and similar actions? It might be an encouraging message to the investment community (although later we argue that it should not necessarily be), but to workers it is simply this: “Forget all that talk about you being an asset to the company; you are really a cost and a disposable commodity. And we will keep our costs down!”

How do workers react to the type of corporate conduct described by Sloan or displayed by Xerox? Consider these comments made to open-ended questions in our surveys:

...the greatest detriment to morale in this company...(is) the frequent layoffs. Layoffs have become a lifestyle. You may feel such action is necessary so that a real profit can be made even in bad years, but you are paying a huge cost in disloyalty of employees, stress-related illnesses, etc. I understand you feel you have no choice, but I can’t help but wonder if there wasn’t another way.

There is no job security. Skills and training do not provide job security. Employees are commodities, not assets. No one gets credit for past performance; now it is passed performance.

How can an employee feel any loyalty to a company whose top management keeps reaping benefits in the millions of dollars and keeps laying off employees to better their position? The golden umbrella is another example of upper-management benefits.

People react strongly to a loss of security and the lost sense of fair treatment that comes with it in circumstances such as these. We already noted that the need for people to feel that they are being treated fairly is basic, and nothing is more basic for most employees than job security. The impact of employees feeling that they are not treated equitably in this respect can be strongly negative on the organization. Again, look at a few more real-life comments:

How can people be expected to grow and better themselves when faced with constant layoffs? As a young person, I know there is little opportunity here for me. That is why I have recently accepted an offer with another company and will be leaving soon. (The result: “brain drain.”)

This company’s plans for the future are easy to state—layoffs. Isn’t that what they keep saying? I am a contributor...(but) now they say they may consider outsourcing! The moods and attitudes are worse than they have ever been, except for the execs! (The result: polarization.)

There is absolutely no loyalty to people here—it’s here today, gone tomorrow. What’s the point of working hard? Whatever you do, you’re just as likely as not to be out on the street tomorrow. (The result: lessened effort and performance.)

These continual layoffs lead me to believe it’s time we got union representation. We hear they’ll be outsourcing jobs while they’re laying off domestic employees. Unions have the power to protect against that. We need that power. (The result: industrial conflict.)

Although companies can preach forever that “our people are our most important asset,” that means little when dismissing workers in times of economic difficulty is the first thing a company does instead of the last. What’s even worse is laying off people despite the business being successful. The impact is equally negative when standards of “procedural” justice are violated, such as when employees who are laid off are provided with minimal financial and other assistance or where the layoffs occur with little or no notice. No magic potion exists, and no one would rationally suggest that companies should not lay off workers when there is no other choice. However, even where workers understand the financial necessity, the manner and methods used by the company may be seen as unfair.

Again, look at some real-life comments:

I feel the layoff policy is unfair. I am leaving the company soon and told my manager so because we know that layoffs are coming in our group.... He told me I would probably save someone’s job by telling him and creating a vacancy. However when I asked for the package, I was denied. He did not even try to see if it was possible. My feeling is this: if they are going to let a certain number of people go and my job will be considered as one of those, why should I not be entitled to the same treatment (the layoff package)? Management has consistently said it’s not voluntary, but this case is different. They’re counting my vacancy as one of their “numbers” to lay off.

We are treated as stepchildren compared to other companies! I come to work, do my job, and go home at night wondering... I really don’t think the company realizes what its employees go through with all these layoffs. If you are going to lay off, “do it all at once.” Get it over with and stop the phony promises that “this is the last one.” These people who don’t get laid off this time are not survivors because you’ll do it again! Please do what you have to and get it over with.

A major issue is the amount of notice that employees get before being laid off. Here are some horror stories from dot-com companies as they downsized during the implosion of the industry in 2001:

• In one company, emails were sent to 20 percent of the workforce telling them to be at a meeting at a local hotel in 15 minutes. There, they were told that they were being laid off; they were locked out of the building and had to make appointments to clean out their desks.

• In another company, 60 employees met in a large conference room where the names of the 40 who were being laid off were announced.

• Employees in a company went to a meeting where they were told that some of them would be laid off; they were instructed to return to their desks and check their emails. Forty of them received emails that communicated their dismissal.

• An employee in a company returned from his vacation to find his work-team’s desks occupied by an entirely new group of people. Half an hour later, management told him that he had also been laid off.

How companies deal with job security is one of its defining characteristics in its employees’ eyes. It is a defining characteristic because, in addition to its economic effects, a decision to lay off people sends a message of fundamental importance to the workforce about the way the company views its people: not as assets but merely costs (necessary evils).

We argue that the way many American companies now seem to operate, by essentially using downsizing as a strategic maneuver rather than as a last resort compelled by economic necessity, is largely misguided and self-defeating. It violates a fundamental need of workers and, in doing so, severely damages the sense of equity that’s necessary for effective organizations.

Some people urge that this argument is old-fashioned and that today’s workers have different attitudes about job security. Their view goes something like this: starting in the mid 1990s, a “new generation” of workers entered the American workforce—young people who readily move from company to company and for whom job security is a low priority. These thinkers posit that the “new workers” want an environment where they feel “empowered” and “self-actualized” and, above all, in which they can develop the necessary skills to find a job in another company when they decide to leave.

Suppose, however, that employment elsewhere is difficult to find. How uninterested in job security are these young people then? It was not security in general that became unimportant for many young people in the 1990s—instead, it was security in one company. The late 1990s were boom times with plentiful job choices; why be concerned about continued employment in any one company if employment elsewhere is so easy to obtain? But, times changed in late 2000. The high technology sector imploded, and the country experienced its first economic downturn in a decade. Hundreds of thousands of workers were laid off and, once again, the media were filled with tales of high anxiety in the workplace. Surveys clearly showed that job security rose to its usual high position on the list of worker concerns. For example, workers in the telecom industry, whether currently employed or not, ranked job security as the number-one attribute they looked for in employers.

The impact of the Great Recession on workers will be discussed in Chapter 5, “The Impact of the Great Recession: Flight to Preservation.” We just note here its recent, enormous impact in the political arena. The predominant theme of the 2012 presidential campaign was “Jobs! Jobs! Jobs!” Does anyone still believe that job security is unimportant for American workers and their families, “new generation” or not?

Don’t believe for a moment that stable employment—the predictability, not just the size, of a paycheck—is ever a trivial issue for workers. An environment in which many jobs are available is, by definition, a secure environment. The late 1990s-type boom is uncommon in the career experiences of the great majority of workers, so for most people most of the time, the employment stability that a company offers is critical.

Equally momentous is a company’s decision not to downsize when other companies in the industry take that path. Such companies do exist. The in-your-face capitalism described by Sloan and others, while increasingly prevalent, is not a universally accepted model; if it were, our survey data would be nearly all negative! The alternative philosophy is exemplified by these comments from two highly successful CEOs:

“Sure, we could take out a lot of our people. But we could give up our future. One, we’d demotivate the people who remained. Two, they surely wouldn’t have the loyalty they have now. Three, if there were any good people left, they wouldn’t be here long. They’d be looking around. And uncertainty reduces risk taking.”²

—Wolfgang Schmitt, Rubbermaid CEO, when growth of his company slowed

“I had always figured out how to maintain full employment, because I totally believe that when you bring people into your workforce, they’re taking on debt, they’re building families. They’re trying to go forward in terms of their lives. To pull that from under them is probably one of the biggest disgraces I could ever imagine.”³

—Jack Stack, CEO of Springfield Remanufacturing Corporation

The policies represented in these views are not just humanitarian—they are the best for the business. How do we know that? Let’s examine the heart of the claim, which is that layoffs are good for a company in the ordinary course (the implication being, of course, that the financial benefit trumps the human issues). To some readers, Xerox’s actions (described earlier) will no doubt sound like good business. These are the kinds of actions that, we are told, have finally dispensed with old-fashioned and inefficient paternalistic management.

Sure, a layoff often results in a short-term spike in a company’s stock price. However, the impact on the long term can be quite different. There is now a mountain of evidence that casts doubt on the efficacy of downsizing for many companies as a cost-reduction strategy. At the least, the projected savings are greatly overestimated. Basically, the studies show that only about one-third of companies that downsize gain increased productivity and profits over the subsequent 3- to 5-year period. Further, these companies underperform the stock market over that time. Research done in the mid 1990s found that downsizing companies outperformed the S&P only slightly during the 6 months following news of a restructuring, then lagged badly, netting a negative 24 percent by the end of 3 years.⁴

The theory of keeping a company “lean and mean,” then, may really be only “mean.” One study found that, on average, a 10 percent reduction in workers resulted in only a 1.5 percent reduction in costs.

Why the surprisingly poor results for downsizing companies? Lester Thurow of MIT argues that, “Layoffs are painful and costly. There are innumerable reasons they should be avoided if possible.” Among the reasons he cites are the cost of severance payments, the loss of skilled workers who will have taken other jobs and not be available when the company rehires, the retraining of new hires, and, when the layoffs are made, the lower morale and reduced loyalty among the surviving workers.⁵

Contrast the in-your-face-capitalism approach with the approach of highly successful enterprises that have made it company policy to avoid or minimize layoffs:

• Southwest Airlines has never laid off any workers, not even after September 11, 2001. CEO James F. Parker said at that time, “We are willing to suffer some damage, even to our stock price, to protect the jobs of our people.”

• Federal Express is dedicated to the principle that its people are its most important asset, as evidenced by its “People, Service, Profit” corporate philosophy. People are deliberately placed first because, in the company’s view, putting people first makes good business sense. These are not just words: FedEx has an explicit commitment not to lay off employees except under the most extreme circumstances as determined by the CEO.

• Lincoln Electric is a Cleveland manufacturer, famous in the management literature both for its extraordinary business success over more than a century and for its innovative management practices, which include guaranteed job security for its employees. The former chairman, James F. Lincoln, wrote, “The greatest fear of the worker...is lack of income. The industrial manager is very conscious of his company’s need of uninterrupted income. He is completely oblivious, evidently, of the fact that the worker has the same need.”⁶

• Nucor, a successful steel company—by far the most profitable in its industry—has never had a single layoff. Ken Iverson, Nucor’s former CEO and the creator of its culture, writes, “‘Painsharing’ has helped us get through the tough times without ever laying off a single employee or closing a single facility for lack of work, even when the industry overall was shedding thousands of jobs. But, our history of no layoffs is not noble, altruistic, or paternalistic. It’s not even a company policy. We’ve told our employees time and again, ‘Nothing’s written in stone. We’ll lay people off if it is a matter of survival.’ The question is, when is laying people off the practical and sensible thing to do? To compete over the long term, a company needs loyal, motivated employees. Can management expect employees to be loyal and motivated if we lay them off at every dip of the economy, while we go on padding our own pockets?”⁷

• The well-being of employees is a “central value” and layoffs “a last resort” in world-renowned Mayo Clinic. Chief Administrative Officer Shirley Weis says that,“It is our physicians, our scientists, our allied health staff, our nurses that really make a difference.... We are very committed to job security. We’ll do everything we possibly can to preserve jobs. Of course, we can’t guarantee anything.”⁸

Our point, obviously, is not that companies should never lay off employees. For some, that would be suicidal. The real issue is whether employees see the company’s decisions as balancing its immediate business interests with a consideration of how those decisions affect employees. Or, is it all just this quarter’s earnings and stock price, and everything else be damned?

Few people would expect employee well-being to be the sole, or even the paramount, consideration in business conduct. Certain actions had better be taken in the short term because, otherwise, there might not be a long term! However, things are rarely that black and white. Many factors affect a decision, and the problem, from the point of view of employees in so many companies, is that employees’ interests are a distant last—if they count at all—in top management’s calculations.

As we have seen in most companies, downsizing the workforce is frequently a short-term solution with little or no long-term benefit.

A short-term business orientation is decidedly not characteristic of highly successful organizations such as Southwest Airlines, Federal Express, Lincoln Electric, Nucor, and Mayo Clinic. A significant part of their longer-term perspective is a respect for employees as assets that are not lightly disposed of. Another example: Fortune, in its 2002 “100 Best Companies to Work For”⁹ report, describes the philosophy of Edward Jones, a stock brokerage that is now Number 1 on the list. The sinking stock market had a major negative impact on the company, and it cut bonuses but fired none of its 25,000 employees. John Bachman, Jones’s CEO explained: “We want...the kind of relationship with workers that make them willing to go the extra mile. You can’t do that if you get rid of them whenever times are rocky.’”

The Fortune report explains that steps such as hiring freezes and reduced pay may not be sufficient, making layoffs necessary; but it gave the companies credit in its “Best Companies” ranking for handling these layoffs with generosity and compassion. Cisco (Number 15) is an interesting example. Among the steps Cisco took was to provide laid-off employees with their full benefits and one-third of their Cisco salaries if they volunteered to work for a social service agency. They also had preference if rehiring commenced.

The Fortune report also contains a description of how Agilent Technologies responded to suddenly plummeting sales and a large workforce surplus. Agilent is a Silicon Valley company whose major products are chips, electronic components, and testing and measurement devices, mostly for telecommunications companies. The story describing what Agilent did in this time of distress is titled, “How to Cut Pay, Lay Off 8,000 People, and Still Have Workers Who Love You.” The title is not facetious. Agilent management worked long and hard—indeed heroically—to, first, avoid layoffs, and when that was no longer possible, to cushion the blow. This company exemplifies the kinds of steps that demonstrate a genuine concern for people and their interests. The Agilent story starts with a description of Cheryl Ways, an employee who was told she would be laid off. Ways, responding to the news, worked harder and longer than ever and was typical, Fortune reports, of thousands of other Agilent employees faced with the prospect of a layoff. Three months after being laid off, Ways said of Agilent management: “I felt horrible they had to do this. This was my gift to them: To leave my job in the best way possible.”¹⁰

Can a better example be offered of employee dedication to a company? Can anyone doubt the enormous value to a company of such dedication—a value in both good times and bad? Cheryl Ways is not that unusual as a personality—she is what many people are like under the right conditions. It is the policies and practices of companies such as Agilent that are unusual.

An implicit theme of our argument and the evidence we have marshaled is that companies should unhesitatingly scrap the notions that “loyalty is dead” and that displaying a genuine concern for the interests of employees is a sign of inefficient, outmoded, paternalistic management. “You get what you give” should be emblazoned on the office walls of all executives wondering why their employees are indifferent to the goals of the company. Perhaps this motto should be placed on their mirrors because the problem stems from the executives themselves. For, ultimately, workers will not reward the indifference of managers to their employees’ basic interests with high levels of enthusiasm and performance. Practices relating to job security are central to employees’ basic interests.

1. They are dedicated to exhausting all possible alternatives before laying off people.

2. When layoffs are impossible to avoid, they use voluntary methods if at all possible.

3. When layoffs are impossible to avoid and voluntary methods are not feasible, too costly, or do not achieve the required numbers, these companies handle involuntary layoffs with generosity and care.

4. They communicate honestly, fully, and regularly with their employees throughout the entire process.

5. They are cognizant of the impact of the layoff on the survivors and take steps to minimize that impact.

The specific practices are as follows.

• Providing meaningful work for surplus employees through measures such as the following:

– Freezing hiring that, because of normal attrition, opens up jobs that surplus employees might fill, or be trained to fill.

– Eliminating or severely restricting the use of temporary employees, which again results in jobs that surplus em-ployees might fill.

– Bringing in work that had been subcontracted.

– Accepting lower-profit work the company would normally reject.

– Having people perform other useful tasks, such as deferred maintenance.

– Providing the training that had been postponed because of the prior heavy workload.

– Putting people into sales to increase demand.

– Building inventory.

The solutions for dealing with surplus employees are, of course, easier to implement when the surplus exists in only one segment of a company that has other growing segments that seek workers. In that case, the company’s own people have preference over outside hires, assuming that they have the required skills or can be trained in those skills.

• Reduction of nonlabor expenses through measures such as the following:

– More efficient purchasing and use of resources (materials, and so on).

– Deferring capital expenditures.

– Travel reduction.

– Cutback in minor expenses, such as newspaper subscriptions and holiday parties.

– Reduction in dividends to stockholders.

• Reduction of labor costs through measures such as the following:

– Major work-process restructurings that enhance labor productivity.

– Reduction or elimination of overtime.

– Deferring or reducing salary increases.

– Salary freezes.

– Across-the-board pay cuts.

– Elimination of bonuses.

– Shortened workweeks.

– Unpaid vacations.

– Unpaid leaves of absence.

– Reduction in company contributions to employee benefits.

– Temporary loan of employees to other companies, such as customers and suppliers.

Taking these steps before considering layoffs has a major positive impact on employee morale, but there are significant ancillary benefits as well. For example, a policy that seeks to avoid layoffs imposes a planning discipline on the organization: workload and staffing projections must be made carefully. When a company is clearly committed to avoiding layoffs, recruiting and hiring are likely to be more purposeful and far more carefully carried out. We are not aware of research on the matter, but it is our impression that, by and large, companies that engage in these policies are more selective in their hiring practices and wind up with significantly more capable workforces. Because these companies typically gain reputations as good places to work, the pool of prospective workers from which they can draw is larger than for an average company. Such organizations also do more training and retraining than the average because a premium is placed on workforce flexibility. They will also more likely promote from within the company. These mutually reinforcing policies and practices help make a reality the company’s orientation toward the workforce as a genuinely valued asset.

A particularly impressive demonstration of the impact of a layoff-avoidance policy on planning can be found in Reflexite, which is a small U.S. manufacturer of reflective materials. As described in a publication of Business for Social Responsibility,

“[Reflexite] has a Business Decline Contingency Plan (BDCP), designed to take the uncertainty out of the situation when faced with a downturn or flat sales. The BDCP outlines four levels of severity, the symptoms of each situation, the actions to be taken at each level, and the expected results of that action. So, for example, at Stage I, with ‘sales below budgeted sales but ahead of the same period in prior year,’ the plan dictates that the company ‘defer some budgeted hires,’ ‘defer some budgeted activities,’ ‘heighten awareness of current situation,’ ‘discuss at staff meetings,’ and ‘monitor overall economic conditions.’ In the middle stages, the plan calls for, among other things, soliciting ideas to cut costs and improve productivity and efficiency; cutting overtime; accelerating new product introductions; voluntary leaves and furloughs; deferring lower-priority capital items; deferring raises; and reducing hours. At Stage IV, the most severe condition, where Reflexite ‘generates losses for a period of two quarters or more,’ the plan calls for ‘salary deferments or reductions for balance of exempt employees,’ ‘trim benefits,’ ‘early retirements,’ ‘voluntary resignation offering,’ and—finally—layoffs.”¹¹

The major reason the programs succeed is that, for many employees, the offers are simply too good to refuse. They make it financially possible for people nearing retirement to retire early and for others to begin new careers that might otherwise not have been feasible. Also, employees who do not accept the packages leave themselves open to the possibility of involuntary layoffs if the company cannot achieve a sufficient number of volunteers from their efforts.

For many companies and employees, therefore, voluntary downsizing is, to a large extent, a win-win situation. The downsides of these programs for the company are that, in the short term, they’re more costly and time consuming than involuntary layoffs. Also, by offering voluntary separation, a company might lose some employees with the most-needed skills because of opportunities that, prior to the offer, the employees could only dream of. Companies that have successfully downsized often make a special point of telling these employees how much they are valued and encouraging them to stay.

Doing it right has three components: financial assistance, outplacement assistance, and communications. With regard to financial and outplacement assistance, the best companies tend to be uncommonly generous and helpful in what they do for employees. Thus, while a fairly typical severance for lower-paid employees is one or two weeks for each year of service, these organizations might offer a month’s pay for every year of service, plus assistance with medical insurance coverage. Although it has become the norm to provide outplacement assistance to help find a new position, these companies might provide supplements such as financial consultation (including preparation for the tax implications of their severance packages) and an allowance for education and retraining costs or a small-business startup. They often actively help employees find other jobs. Also, they usually guarantee laid-off employees priority consideration for rehire when business conditions improve.

Whatever the specifics, the basic principle is simple: Provide the assistance to employees that makes it clear that the company is doing a great deal to buffer the impact of the layoff. This is a company putting its money where its mouth is and, when preceded by visible and genuine attempts to do whatever possible to avoid layoffs, has a large positive impact on the morale of those laid off and those who remain with the company.

We showed previously how insensitively some dot-coms acted in laying off employees. Although those actions are not necessarily typical of American companies—they might not even be typical of dot-coms—most organizations are not particularly adept at communicating in ways that promote an appreciation on the employees’ part that the company genuinely cares about their circumstances. We are referring not just to communications at the time of involuntary layoffs but also to communications from the time that it begins to appear that there is a reasonable possibility the company will have surplus employees. What have we learned from companies that do it well?

For one, these companies communicate to employees as early as possible—even when the need for downsizing is just a possibility. In addition to the “need to know” criterion that causes little information to be communicated, a common management assumption is that it is important to shield employees from upsetting information. Although it’s ostensibly an attempt to be helpful to people, this attitude is profoundly unhelpful. If a company is truly interested in assisting its people, it would supply as much information as possible as early as possible so that employees could make important decisions on a more informed basis, such as whether contemplated major expenditures should be postponed.

The credibility of management is one of the factors that most affect employees’ sense of being treated justly. This is nowhere truer than in relation to job security. Being seen as hiding known information in this respect—or providing it only when it is absolutely necessary to do so, such as at the last minute—is extraordinarily corrosive to employee morale and to the performance the company receives from its workers. The converse is equally true: leveling with employees, when combined with clearly genuine efforts to maintain security to the extent possible and to buffer the impact of job loss, is a precondition for workforce enthusiasm as we have defined it.

Are we serious? Can we speak of employee enthusiasm when there is a serious prospect of being laid off? Isn’t that a contradiction? Of course, no one is enthusiastic about being laid off. Here, we refer to how employees—those who have been laid off and those who remain—view the company. People are realistic. They know about business cycles and the ups and downs of individual companies. As we have said, the basic question for them is, “Is the well-being of employees given serious thought in management’s decisions?” If so, employees can be enormously appreciative of their organizations, even in times of pain. We saw this in the case of Agilent, and Continental Airlines is another example. The airline laid off thousands of its employees—about one-fifth of its workforce—in the wake of September 11. In its story on the event, KPRC, a Houston radio station, reported how the employees seemed to bear little resentment toward the company, repeatedly expressing their appreciation for the Continental “family.” Said a former employee, “I’m being laid off, but I’ll be back. It’s the best company I ever worked for, and I’ll be back. They’re going to rebuild, they’re going to need people back.”¹² See our discussion of Continental’s culture in Chapter 14, “Translating Partnership Theory into Partnership Practice.”

Continental’s problems, of course, came on suddenly. More typically, the problems emerge over a period of months. The following should be continually communicated to employees from the time that a labor surplus becomes a possibility:

• The company’s business environment, both current conditions and, to the extent discernable, future prospects.

• The company’s vision and strategy to deal with the business environment, such as new product development, sales initiatives, and the restructuring of work processes to make them more efficient.

• How the company seeks to enlist employees’ help to deal with the business conditions, such as getting ideas for cost reduction.

• How the business environment can affect employees and what the company will do to buffer that impact.

• What, to the best of the company’s knowledge, employees can expect—in general and as individuals.

Here are some additional communications guidelines:

• The communicators should include various levels of management, especially top management and the immediate supervisor. Employees greatly appreciate the involvement of the top person. Lower levels of management can handle more specific questions and concerns, and managers must receive training to learn how to conduct these meetings.

• Formal media, such as the house organ, should supplement—not be a substitute for—face-to-face meetings.

• The meetings should be designed to give employees the opportunity to register their concerns, ask questions, and make suggestions.

Although business operational and strategic issues are beyond the scope of this book, note that an additional key variable in determining the impact on the survivors is the degree to which downsizing takes place in the context of a serious business improvement plan. That is, the impact is a consequence of the way people are treated and the way the company is, in effect, treating itself by effective business management.

We previously mentioned that layoffs may yield little in terms of long-term cost reduction and profitability. In addition to the harmful consequences of lower employee morale, a major factor in these failures is that the efforts are often undertaken as short-term fixes rather than as part of a plan that involves rethinking a company’s culture, structures, systems, and processes for lasting improvement. When not part of this broader plan, the likelihood is high that, over time, costs will again inflate as the company seeks to complete its work in the original, inefficient ways.

Survivors’ morale is both a cause and an effect of business inefficiency. A downsizing that’s handled poorly in terms of employee treatment has a negative impact on employee morale and, therefore, business performance, but morale is also markedly influenced by whether employees view the downsizing as just a short-term fix. In those times, it is especially important that the survivors have a vision of where the company is heading and their role in it. They want to know how the downsizing will serve to not only cope with the company’s immediate business difficulties, but also provide it with competitive advantage and a more secure future. Laying off individuals without basic changes in the company’s operations and strategies doesn’t provide much ground for optimism. We previously noted that the company’s approach to coping with current business difficulties and its vision for building a successful future are key elements of what needs to be communicated to the workforce.

In conclusion, another caveat: do not confuse providing employment stability with tolerance for unsatisfactory employee performance. We must distinguish between conditions over which employees have no control—such as a market downturn or the introduction of labor-saving technology—from those where an individual simply chooses not to perform. The latter—whom we estimate to consist of about 5 percent of the average workforce—should, after appropriate counseling and warnings, be terminated. Let’s face it: some people would rather not work, at least not hard. This chapter is not about them.