When Layoffs are Immoral: Randy Cohen in The New York Times

Sunday's Times had an essay by "ethicist" Randy Cohen that made a remarkably black and white argument about when it is and is not ethical to layoff employees.  I had a mixed reaction to the article.  On one hand, I agree that too many organizations use layoffs as a first or early resort and that there are too many times when senior executives slash employee jobs just to protect their own pay --and there is an argument from some research that companies that do layoffs at the first whiff of trouble are at a competitive disadvantage.  But I think that Mr. Cohen's arguments strike me as too moralistic and too naive at times.  This really bugged me:

"This is not to assert that Caterpillar can never downsize. Companies must be able to shrink as well as grow, to adjust to changing circumstances. (A restaurant with fewer customers needs fewer waiters.) But prudent staffing must be part of an ongoing strategy, not a panicky response to an economic downturn."

The economic collapse that led to layoffs at Caterpillar wasn't predicted most industry experts and economists, let alone by most corporate leaders.  I think that simply calling layoffs at Caterpillar a "panicky response" is sort of like criticizing people for a "panicky response" to Tsunami.  I am sure, in hindsight, that executives might have been better prepared, but I think Mr. Cohen does not show quite enough understanding of how hard it is to manage during times of harsh uncertainty. 

I was also a bit disturbed because,although I think that many companies do not show enough loyalty and humanity toward their workers, Mr. Cohen seemed to saying that any leader or company that did not first try practices short of layoffs was immoral:

"Before adopting the ethics of the overcrowded lifeboat, before tossing thousands of non-millionaires over the side, gentler — and more equitable — methods must be tried. Everyone’s hours might be reduced, diffusing the pain. Dividends to stockholders can be eliminated. Pay cuts can be instituted company-wide, with the deepest reserved for the highest paid (that is, those most able to endure them)."

That "must be tried" really bugs me.  In the case of Caterpillar, I wonder whether the workers, shareholders, and analysts would have agreed with the strategy of reducing hours or more severe pay cuts -- management works under many constraints that sometimes make such actions difficult.  Also, as Cohen notes, Caterpillar executives have taken some cuts (but perhaps not enough).

I spent much of my early career studying organizational death and decline, and am working on the topic again a bit, especially in my current HBR article.  When I first studied declining and dying organizations in Michigan in the early 1980s, I thought that layoffs were misanthropic and any company that did not spread the pain equally was immoral.  But as I have seen the difficult and complex set of constraints that executives face in organizations of all kinds and sizes, I have learned to avoid pointing the morality finger at those leaders who do layoffs -- there too many times when it puts the remaining business at risk or when because of immovable constraints (such as union contracts, work rules, or the nature of the work) cost-cutting short of layoffs is not feasible.  There are also other times when, to save the company, or at least a lot more jobs, a company has too many workers with the wrong skills, and although perhaps they should have realized it sooner, they get in a position where a restructuring is needed to change the composition of the workforce, and layoffs are the only viable path. There are even times when paying no dividend may end-up hurting the stock so badly that layoffs are a better path for the common good over the long haul. 

Layoffs do massive damage to people, I am not defending them as humane acts, but there are too many times when they are the lesser evil.  And if they are the best choice NOW because of PAST managerial incompetence, that is horrible, but life does not have a rewind feature.

I do agree with Mr. Cohen that some CEO's out there are not taking there fair share of the hit, although even then I worry that if we take the finger-pointing too far here that executives won't have the right incentives for managing organizations well on the both the way up and on the way down the economic cycle -- and everyone will suffer as a result. 

Finally, perhaps it is my weird bias in life, but when people claim to be more ethical than others, it always makes me squirm because so often they end-up taking the same --or worse --actions than those they demonize.  As my father-in-law likes to say, "when people talk about ethics, I hide the good silverware."  I agree with many of Mr. Cohen's points, but I guess his moralistic tone bothers me above all else. Too many ethical and unselfish executives I know who have done layoffs have suffered mightily as they tried to balance efforts to keep their companies healthy -- or at least alive -- and to save as many jobs as possible in the wake of the current awful and largely unexpected mess.  Mr. Cohen is mighty quick to trumpet his own moral superiority when discussing executives who did not plan for these extremes or who believe that --for the good of the whole -- layoffs rather than spreading the pain more evenly are the best strategy. 

I wonder, if he walked a mile in their shoes, would he be as ethical or as competent?   Morality, like management, is something that is a lot easier to talk about than to get right every time given the messiness and uncertainty of the world as it exists (rather than the world we wish it would be).

Comments

[Doug Park]

Bob,
Your nuanced thoughts about business ethics are appreciated. I like to believe that some people are more ethical than others, but a recent example really bugs me. Among other things, the Securities and Exchange Information is charged with prosecuting violations of the insider trading laws. I think most of us would agree that insider trading is unethical and should be prosecuted. Recently, the SEC revealed that two of its attorneys are being investigated for insider trading. One attorney in the SEC's Office of the General Counsel and has access to substantial non-public information, while the other attorney works in the enforcement division. http://preview.tinyurl.com/q3b92t What a horrible disappointment.

[Wally Bock]

Thanks for a great and a thorough post, Bob. I think it's important to have people commenting on business ethics. It helps keep us honest and often forces us to examine behavior that we might gloss over otherwise. And, as you know, I'm a strong advocate of the need for shared sacrifice and considering alternatives to layoffs.

So why was I so angry when I read the Times piece? There were two reasons.

One was my frequent problem with people who comment on business from the outside. There was no indication that Cohen has any friends who are business people or has ever engaged in business himself. The result is a massive understatement and misstatement of the challenges that business owners and managers face when they consider layoffs. Don't criticize what you don't understand.

The other reason was the "holier-than-thou" moral tone. Certainly there are a lot of thoughtless people and true assholes in business. You've found the marketing opportunity they provide. But I don't think those folks are over-represented in business. I dare say that academia, perhaps even professional ethicists, has its fair share.

[Wally Bock]

Congratulations! This post was selected as one of the five best independent business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

http://blog.threestarleadership.com/2009/05/27/52709-midweek-look-at-the-independent-business-blogs.aspx

Wally Bock

[Joyce Maroney]

Bob - this is a great post. In my 15+ years as a manager, having had to conduct more layoffs than I care to count, I can tell Mr. Cohen that these are always wrenching decisions and even more wrenching conversations with the affected employees. I've had to lay people off at 4 different organizations, and I can assure you that none of these decisions were made lightly or without exhausting all other feasible expense reduction options.

[Murthy]

Hi Professor Sutton,

Thank you for the fascinating reference to Randy's article - indeed, his argument is significantly flawed though his intent and spirit are obviously very noble ones.

A very simple example of a flaw is the following: many people spend less at home during a recession. Maybe they don't eat out as much. Is it unethical for them to do so? Indirectly, they are causing harm to waiters, chefs, farmers, etc? If businesses have a moral obligation to spend, do consumers have one too? Obviously this line of reasoning is ludicrous.

I think the whole intellectual space of ethics is clouded by the failure to distinguish the "how" from the "what." Ethics, morals, values, etc are conditions on "how" to do something, not what to do. You don't ask, "what's the ethical answer to 5+7?" No, 5+7 always equals 12. The answer to "what" questions are no different whether the answerer is an individual of high ethics or not.

A great example of this confusion is the national debate on the use of torture. The proponents of torture keep advocating how effective it is. They don't realize that the debate isn't about whether it is effective or what information was retrieved - the debate is about whether the practice is consistent with American values - its not about "what to do," its about "how to do it."

Whether a company should do layoffs or not is a "what" question - perhaps not quite as formulaic as 5+7, but its a question that has some kind of relatively rational reasoning behind it. Aside from the rare case of an intentionally psychotic or incompetent management team, I highly doubt the decision is made without consideration of all of the short-term and long-term consequences.

The ethics question, then, is "how to do the layoff." Do you walk people out, do you give them time to say goodbyes, do you provide severance, do you provide outplacement support, etc. These are the questions of ethics and culture that define a company's practice.

I don't mean to say that "what" questions are beyond scrutiny or criticism - obviously there are companies that turn the layoff knob only to have done more damage than they saved - but that's not an ethical analysis, that's a strategic business analysis like one you would conduct on any other similar knob.