DOWNSIZING: SAVING MONEY WHILE REMAINING ETHICAL

Downsizing has become a commonplace strategy for organizations to adopt in an effort to cut costs, eliminate redundancies, and streamline organizational systems. Over the last 15 years, many organizations have engaged in downsizing more than once. Most companies have learned from the mistakes of the past, but some companies are still trying to use the same tactics today that were used in the mid 1980s, that leave employees reeling.

Read the scenarios below describing two different approaches to downsizing. Analyze the downsizing practices utilized by each company, explain which activities/practices you believe would have been both effective and ineffective, and explain why. If you could have managed the downsizing process, what would you have done differently and why?

Considering the importance placed on ethics in the Human Resource profession, do you believe the companies described in the following scenarios engaged in ethical downsizing practices? If so, how are the practices ethical? If not, what was done in an unethical manner, and how would you correct it?

Detail your answers in two memos addressed to the Board of Directors for each company described. You focus should be to explain what the company did right, what they did wrong, and changes they should make in future downsizing situations.

Company A

The reorganization of Company A resulted in the loss of 1,150 jobs (13% of the total workforce), and the retirement of over 600 employees. Displaced employees were matched to vacant positions, given severance pay if not offered a comparable position, and provided outplacement assistance.

Specifically, the organization reorganized the management of the company first, and trained these managers to make restaffing decisions based on the new objectives of the organization. The company developed and in-placement program to match displaced individuals to vacant positions in the organization. An appeals process was set in place for employees who felt they were not being treated fairly. The process consisted of a board of employees who investigated complaints and made recommendations to management. Severance pay was provided to those employees not matched to vacant positions. In other words, if the company offered an employee a comparable position (even one involving a transfer) and the employee refused the new job, no severance benefits were paid. Relocation packages were provided in the case of job transfers. Finally, the organization offered outplacement services to displaced workers.

Company B

The reorganization of Company B (a small restaurant chain, with 13 locations) resulted in the loss of 30 jobs. The corporate management decided to put several restaurants up for sale, in an effort to refocus the organization's emphasis onto a particular area of the country. One particular restaurant was sold on April 30, 1999. The company did not inform the employee that the restaurant had been sold. Operations ceased on May 16, 1999. Corporate management came to the restaurant location to hold a staff meeting on May 17, 1999 (a Monday, which is a day on which the restaurant was always closed), and notified employees that the preceding day had been their last day of employment for the restaurant. Employees who wanted to continue to work for the restaurant were asked to assist in a one-day packing workday, after which they would be let go permanently.