Downsizing for Fun, Profit, and Chaos

Behind every defective U.S. private enterprise, suggests a surprising new report from inside Corporate America, sits a top executive effective at grabbing for windfalls.

Corporate takeover deals that pay off big — for executives — typically follow a standard pattern. One company swallows another. The swallower grabs the swallowed company’s customers, then fires its workers. That does wonders for corporate bottom lines — and horrors for corporations as workplaces.

Employees left behind at “downsized” companies turn out to “often suffer from low morale.” They show “reduced commitment” to the enterprise. They no longer make “personal sacrifices for the good of the organization.”

Who’s making these charges? Some anti-business professor? Some angry labor organizer? Not exactly. All these observations about the chaos corporate downsizings create appear in a new report from the American business community’s oldest and most prestigious research body, the Conference Board.

This new paper [1] — Mission Accomplished? What Every Leader Should Know about Survivor Syndrome — is essentially ringing an alarm. The basic message: America’s top execs have no idea how much damage their downsizing is doing.

Managements “that engage in downsizing to cut costs, increase profits, and reduce redundancies,” as the Conference Board paper notes, “prematurely proclaim ‘mission accomplished’ when these targets have been achieved without taking into account the human capital assets within the company.”

These “human capital assets” take a damaging hit whenever companies downsize. Loyal employees who've seen co-workers axed feel betrayed. They go about their jobs disengaged, “constantly waiting for ‘the next shoe to drop.’”

Meanwhile, notes the Conference Board study, too many top executtives simply dismiss this increasing organizational dysfunction. They'll mutter that employees “should be thankful to have a job and should just get back to work” or blame the discontent on “chronically underachieving employees who may derive satisfaction from gossiping and by infecting others with their dissatisfaction.”

But the walking wounded after a downsizing, the study contends, include not just malcontents, but “star” employees, too, prized people with “commitments to achievement,” veterans “seasoned and sharp.”

In fact, the study observes, downsizing can be especially devastating to mid-level managers, the corporate core. These managers have to personally drop the downsizing ax. They face “stress from the increased workload” left after downsizings and “the negative emotions that their role evokes from others.”

To counter this chaos, the Conference Board has some suggestions. Most of these boil down to touchy-feely human resource department bromides. Managements that downsize “should take a holistic approach to employee engagement.” They should ready a “crisis communication” plan. They should “offer one-to-one career counseling.”

[2]Executive downsizers should probably not count on any of this advice actually working. The companies most “likely to limit the detrimental effects of downsizing,” as the Conference Board study acknowledges in passing, tend to be firms with “a history of fair human resources practices” that have been offering employees generous benefits like sabbaticals and on-site childcare.

In short, companies that unselfishly share rewards with workers and only downsize when hard times leave them no choice may be able to navigate around a downsizing’s devastation.

But that’s not much help to modern American CEO downsizers. They’re not downsizing because they have no choice. They’re downsizing to keep mega rewards pouring into executive pockets.

Consider Hewlett-Packard CEO Mark Hurd, the computer industry titan who wheeled and dealed his way to 31 mergers [3] over his first 46 months as H-P’s chief exec. Hurd last year took home [4] just under $40 million in salary and new stock incentives — and gained another $25.8 million from incentives he had collected in previous years.

In the first quarter of this year, Hewlett-Packard registered a $1.7 billion profit. H-P, in that same first quarter, announced a 6,400-worker layoff.

You might call that a holistic approach to greed.

Sam Pizzigati edits Too Much [5], the online weekly on excess and inequality.