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It seems you can't open a newspaper these days without reading another article about some company going through a "downsizing", a kinder euphemism for layoffs. The concept of "doing the right thing" when downsizing and those contemplating downsizing should consider this Every action taken should be consistent with their values. If showing respect is something valued during good times, it should become particularly important during the bad.

The employee's obligation to the firm is a moral duty to work towards the goals of the firm and avoid any activity that might harm those goals. To be unethical, basically, is to deviate from those goals to serve ones own interest in ways that, if illegal, are counted as a form of "white collar crime". And the firm's duties to the employee is a basic moral obligation that the employer has toward employee's according to the rational view of the firm, is to provide them with the compensation they have freely and knowingly agreed to receive in exchange for their services. There are two main issues related to this obligation

The fairness of wages

And the fairness of employee working conditions.

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The above employee/employer obligations to each other has always been a 'given' and upheld by myself and the employers I've worked for. However, even in bad times such as going through a company 'downsize' these obligations should remain for both! My personal experiences with corporate downsizing and eventual layoff from my last two employment's was something I never really thought about in a personal sort of way before. I had always believed if you found a job that you really liked doing then you should stay with that organization for as long as you could, especially if the organization treats you will in return. Now it seems that philosophy is 'old hat' given the way organizations now operate. My bank position with Bank of America/Security Pacific National Bank lasted over twelve years and my healthcare position with Aetna/Prudential HealthCare lasted over five years before being cut short by company mergers and acquisitions.

Downsizing seems like a toxic solution any firm or organization could make and that's especially true if you're on the employee side of things. How downsized employees are treated can directly affect the morale and retention of valued high-performing employees who are not downsized; at least the one's not effected in the beginning of a corporate downsize. I 'm still in communication with co-workers from my last job with Aetna and to this date they are still laying off employees in small groups! The start of the downsize at Aetna began about 8 months prior to my layoff and was very difficult for myself and I'm sure for the rest of my co-workers who had remained as well, seeing fellow long time co-workers being let go at the beginning. When working with someone for as long as I had they become part of your 'family' by attending many corporate functions and meeting various members of their family which makes it even more personal. So it was very difficult to motivate yourself to go to work every day to find out whom the next employee got the 'axe'. Through the downsizing process, lower management and the core of my fellow co-workers were never given any advanced warning as to who the next one was. When it did happen, as in my case, someone from our HR department would come up from behind while you were working at your desk and tap you on the shoulder saying "quickly gather up your personal belongings and follow me! Fortunately, I had previously prepared and had my belongings in a box waiting for this occasion to arrive. No human being cannot help but have a negative effect on you personally and the quality/quantity of your work output. Having been responsible to maintain our units production reports at the beginning of the downsize I saw this effect firsthand.

Make no mistake, downsizing is an extremely difficult phase not only for the employee's but I'm sure taxes all of management team's resources as well and that no one looks forward to downsizing.

Many otherwise first-rate executives downsize so poorly by ignoring all the signs pointing to a layoff until it's too late to plan adequately, then action must be taken immediately to reduce the financial drain of excess staff. The extremely difficult decisions of who must be laid off, how much notice they will be given, the amount of severance pay, and how far the company will go to help the laid-off employee find another job are given sometimes less than adequate attention. These are critical decisions that have as much to do with the future of any organization as they do with the future of the laid-off employee. What usually happens is that these decisions are handed to the legal department, whose primary objective is to reduce the risk of litigation, not to protect the morale and intellectual capital of the organization. Consequently, downsizing is often executed with a brisk, compassionless efficiency that leaves laid-off employees angry and surviving employees feeling helpless and demotivated. Helplessness is the enemy of high achievement and produces a work environment of withdrawal, risk-averse decisions, severely impaired morale, and excessive blaming. All of these put a stranglehold upon an organization that would now desperately need to excel. (In my case, in the area of customer service and retention thereof)

If open communication is a corporate value, it becomes more important during downsizing. How you tell the laid-off employees and how you communicate to your stockholders, the community, the staff that stays are all very important issues that need to be properly communicated too! Again, how a company treats the people who are leaving sends a strong message about how it will treat the people who are staying. This advice holds true for outside stakeholders as well. If I were a potential vendor/client reading about unethical or poorly handled lay-offs, I would be wary about extending business/credit to that company and likewise with current or potential investors. This cannot be emphasized enough, how a company treats downsized employees has a very much impact on a business' reputation and affects investor's assessments of whether financial support is warranted.

'Downsizing' is a hot button topic with companies left with no other alternative and will probably be on the horizon for a lot more businesses as it seems there has been a wave of mergers and acquisitions sweeping the country as per the following article in the Wall Street Journal

Mergers and acquisitions are back - with a vengeance - in the new millenium. Across the global business landscape, some $1 trillion in M&A; deals were completed last year. That figure includes one hundred transactions of $1 billion or more in the United States, a new record for deals of that magnitude in a single year. Those megamergers, combined with thousands of smaller transactions around the country, reached $650 billion, "nearly twice the dollar volume and the number of deals of the peak year of the 10s."

In order to understand why companies choose to 'downsize', we need to look at the big picture of why companies choose to merge and/or acquire other companies. What's going on? Why are so many companies in a variety of industries - aerospace, banking, communications, entertainment, manufacturing, railroads, retailing, and healthcare - opting to join forces with their former competitors? Professor Michael Jensen, a finance expert explains, M&A's are often associated with downsizing and what he describes as "the freeing of equity trapped in old-line, inefficiently managed firms outmoded control systems and nonfunctional governance systems". In the 180s, Jensen said "there were many more takeovers, mergers, leveraged buyouts, and restructuring intended to create efficiency and value. While some of this is happening now, little of today's hostile corporate-control activity is undertaken by those who were usually called 'raiders' in the eighties - entrepreneurs who were putting their own money and reputations on the line". Jensen believes that most current mergers undertaken are to reduce excess capacity and combine related services (i.e. Chemical/Chase merger in the banking industry) would ultimately be successful. And those associated with growth and so-called synergies - such as the Time Warner acquisition of Turner - will ultimately be viewed as unwise. Today's activity, he notes, is more like the 'disastrous' merger wave of the 160's which saw large firms run by managers who, with little of their own money at risk, were spending corporate resources on ill-conceived diversification and empire-building campaigns. He concludes, "Unfortunately, too much of the current M&A; activity falls into the latter category".

Professor Lynn Paine, an expert on corporate responsibility issues, notes that mergers and acquisitions involve a wide array of ethical questions, some of which relate to the degree of 'fit' between the value systems of the merging firms. "A mismatch can sometimes lead to serious problems, such as when one firm invests heavily in employees and the other focuses mainly on shareholders and/or customers". This concept of "The Caring Organization" was discussed on page 4 of 'Business Ethics, Concepts and Cases by Manuel G. Velasquez which states, "that business organizations in which such caring relationships flourish will exhibit better economic performance than the organization that restricts itself to the contractual and power relationships of the rational and political organization".

A secondary category of ethical issues that Paine also notes involves questions arising from the actual M&A transaction. "Some really vexing issues surface in the course of these deals in which management must decide for example, when to disclose plans for the merger, what restrictions to place on insider use of information, what counts as fair and proper accounting and taxation; and how to treat employees who may lose their jobs". In M&A's, that cross borders, these issues can be particularly difficult because of cultural and legal differences. For example, the legal definition of 'redundant employees' varies widely as do requirements for severance arrangements. In the face of such differences, managers of the merging companies have to wrestle with what is fair to the different sets of employees and what will help build a cohesive organization with a single set of ethical standards going forward".

Again, this concept of "The Ethics of Political Tactics" was discussed on page 487 of 'Business Ethics, Concepts and Cases by Manuel G. Velasquez which states, "Utilitarian principles require that managers pursue those goals that will produce the greatest social benefits and the least social harm".

"M&A'd companies have too often seen questions about who will run a postdeal company not fully answered in advance", so says Professor Michael Beer, an expert in organizational effectiveness and change. "Executives from each side may have different assumptions about which strategy and management practices will be best for the new company. These issues are often hidden and not discussed during initial negotiations. After the merger executives from one company may end up feeling that executives from the other company have taken over. All of these human forces can destroy the potential economic value of the merger". And goes on to suggest that cross-company task forces be established to design the structures, systems, and processes needed to support the vision for the new entity. "Only a well-conceived process for integration and a spirit of partnership can prevent a clash of cultures".

I have seen from the readings and research I have done on this matter (some documented in this paper) that an M&A'd company must legally and ethically have their 'house' in order before proceeding with a corporate downsize; which will be an inevitable given the fact that there will be many more M&As to come. They can never act as if nothing has happened after a layoff in which the less said about it, the better; and with luck, everyone will just forget and move on, why keep the past alive? The reality is surviving employees will talk about what's happened whether the management team and/or organization doesn't. When management refuses to acknowledge what has really taken place, it appears emphatically heartless, only feeding the employees' sense of helplessness. If management won't talk about it even after the fact, what else is it hiding? My recent experience with Aetna is proof, as we were not given many details on the 'downsizing' move from our corporate office back east! The more a company tries to suppress these discussions and act as if nothing has happened, the more subversive the discussion becomes. Remaining employees will act as a consequence of what has happened regardless of whether the management does!

On the other hand, from my experience being laid-off from Security Pacific Bank, recovery from a layoff can be greatly hastened if management and employees are allowed to speak their minds freely about what or will happen. We were given opportunity as a team of surviving employees to pull together and renew ties through the bank's employee newsletter column called "Where Are They Now". Through this newsletter we were able to stay in touch with one another by being notified of special get-togethers such as 'pot luck' picnics held in the homes of various co-workers. We also could make announcements when we found jobs either through the bank or an outside one! Even though this was soon discontinued through lack of interest, it was still the thought of a 'caring' company that was the most remembered.

To downsize effectively you have to have empathy with the people who are losing their jobs. An organization needs to keep the following few key principles in mind, not they won't completely eliminate the dangers of downsizing, but will help to avoid the common pitfalls of a poorly planned layoff per the article 'Downsizing With Dignity' by Alan Downs and his book "Business The Ultimate Resource

Is the Problem too Many People or too Little Profit?

This is the critical first question to ask before any layoff. Using a layoff solely as a cost cutting measure is utterly foolish throwing away valuable talent and organizational learning by dumping employees only makes a bad situation worse. When your business lacks revenue, annihilating intellectual capital and thus reducing the efficiency of remaining resources as well as the potential for future growth is not the solution.

If the answer is too many employees, then you've begun the process of a well-thought-out strategy for change. To legitimately determine if you have too many employees, look at the organization's business plan, not its head count. Ask what product and services are likely to be profitable and what talent you will need to run the new organization; these will help an organization to plan for a post-layoff future. Resolving these issues will enable a quick turnaround from the inevitable negative effects of downsizing to positive growth in value and efficiency.

What will the Post-Layoff Company Look Like?

Having a clear, well-defined vision of the company is imperative before the layoff is executed. Management should know what it wants to accomplish, where the emphasis will be in the new organization, and what staff will be needed.

Without being directed according to a clear vision of the future, the new organization is likely to carry forward some of the same problems that initially created the need for the layoff. Unfortunately, many managers underestimate the momentum of the old organization to recreate the same problems anew. Unless there is a clearly defined, shared vision of the new company among the entire management team, the past will be likely to sabotage the future and create a cycle of repeated layoffs with little improvement in organizational efficiency.

Always Respect People's Dignity

The methods employed in many poorly executed layoffs treat employees like children. Information is withheld and doled out. Managers' control over their employees is violated. Human resource representatives scurry around from one hush-hush meeting to another. How management treats laid-off employees is how it vicariously treats remaining employees - everything you do in a layoff is done in the arena, with everyone observing. How laid-off employees are treated is how surviving employees assume they will be treated.

Why this matters is because successfully planning for the new organization will keep it going and improve its results. You must keep that exceptional talent, who are also the employees most marketable to other organizations. When they see the company treating laid-off employees poorly, they'll start looking for a better place to work, fearing their heads will be next to roll.

Respect the Law

While it's important not to allow the legal department to design a layoff, it's nevertheless important that the employment laws be respected as well. In different countries such laws include entitlements tied to civil rights, age discrimination, disabilities, worked adjustment, and retraining. These laws are important and should be respected for what they intend as well as what they prescribe. If the organization has planned the lay-off according to business needs, and not on head count or seniority, then there should be no problem upholding the law. There will almost always be legal problems when the layoff is based on factors other than business needs.

In summary, treat all employees with respect. Communicate too much rather than withhold information.

Research applicable laws and follow the spirit of the legislation and afterward, give employees the psychological space to accept, and discuss, what has happened.

In conclusion, there are two important factors to keep in mind when planning a layoff

Respecting employee dignity

Business planning

No one, from the mailroom to the boardroom, enjoys downsizing; but when the need for a reduction in staff is unavoidable, a layoff can be accomplished in such a way that the problem is fixed and the organization excels.

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