Ethical Performance
inside intelligence for responsible business


How to act responsibly when jobs are on the line?

March 2009

As the recession leads to significant cutbacks in all business sectors around the world, EP looks at some recommended good practice on ‘downsizing’ in an ethical manner

Consider whether lay-offs are really effective

There is a business case for responsible practice in this area. The International Labour Organization  says recent research ‘does not seem to support the notion that lay-offs improve company performance’. It argues that mass redundancies are usually ‘devastating tales of waste and incompetence’. Companies often discover that the long-term costs of downsizing are greater than short-term savings – mainly due to significant hidden costs. These include the loss of key talent and valuable corporate memory; falling trade due to declines in quality and service; lower productivity; less innovation, and an erosion of external reputation.

Look to alternatives
Explore every possible alternative to redundancy. There are many options, including temporary reductions of hours, part-time working, job-sharing, paid or part-paid sabbaticals, as well as retraining. Some unions have agreed to wage cuts or freezes to save jobs, notably at JCB in the UK, though significant lay-offs have since occurred. More radically, Aluminum Corporation of China, whose rivals are slashing thousands of jobs, has responded to falling profits by halving senior executive pay.

Think laterally
Faced with making redundancies in Italy, Indesit gave cash incentives to local companies that agreed to take on any of its employees, while Posten, the Swedish post office, provides a personal jobs mentor to advise redundant workers. Some companies have persuaded suppliers to take on ex-staff, or have used in-house expertise to help employees set up their own small enterprises, while others have begun to look at insourcing work that might have been outsourced earlier.

Retain skilled staff
Companies can underestimate the cost of losing talent. A scarcity of skilled labour hampers recovery and can make outsourcing and, eventually,
re-hiring more expensive. At Ellesmere Port in the UK, Vauxhall’s parent General Motors agreed a deal with unions under which some staff agreed to stay away from work for up to nine months on less than a third of basic salary to ensure skilled people were retained. When BP cut staff at a plant in northern England, the site staff council co-operated in selecting redundancies on the basis of the skills needed to keep the place going. Staff representatives favoured speedy restructuring to minimize uncertainty, which saved six months of discussions and cut costs.

Use government resources
Governments can act as partners and contribute services in the downsizing process. There’s often state money on offer to help employees who have just lost their job, especially in the form of training and careers guidance. Companies should therefore work in advance with relevant government agencies to see how staff can receive such assistance.

Consider the effect on the local community
Localities in which one company is a dominant employer can be badly affected by a plant or office closure unless companies plan beforehand and liaise with local authorities, and even suppliers, to create alternative employment or offer the use of office and plant facilities after closure. At a Boots factory in Airdrie, Scotland, redundancies were discussed with the area development agency and the local authority. Wages were guaranteed until the scheduled closure, and at the end of this period workers, with support from employment consultants, were given an incentive to seek alternative jobs. Woolworths made similar moves after its bankruptcy at the end of last year.
Communicate well
Informing workers and unions well in advance allows staff to suggest alternatives to job losses. But it also makes the process slightly less painful for everyone. The European Baha’i Business Forum says half of the effort in implementing a downsizing should be put in before the announcement – and the consensus advice is to ‘over-communicate’ on this area.

Know the law
Understand your legal obligations. Most countries require notice periods, consultation and certain compensation levels if there are lay-offs. In continental Europe there are laws requiring social plans and prior consultation with workers’ representatives.
Remember, though, that reputation can be better protected by going beyond legal requirements.

Exercise sensitivity
When redundancies have to be made, the moment of truth is at the end. Lots of considerate work can be undone by thoughtless, mechanistic ways of issuing bad news, such as by fax  or email – or with instructions to vacate the premises in a couple of hours.

Ethical Performance | Global | People

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