Question: Argue whether downsizing of employees to make the firm more competitive is difficult to fault from a moral viewpoint. Introduction - In a business enterprise, downsizing is reducing the number of employees on the operating payroll. - There are many reasons that contributes to downsizing, for example excessive workforce, merging of companies, economic crisis, introduction of new technology and many others. - Ethical debate exists as some view downsizing being morally wrong while other thinks that it is justifiable. Unethical Kantian - “Do unto others as you would them do unto you”. o No employee would want to be discharged by the company no matter what happen unless they themselves choose to leave the company. - By letting them go when the firm decides to save cost and become more competitive, it shows that the firm use them as a mean to make profit which violates the second maxim. - Looking from the humanistic perspective, punishing the employees for the company’s performance not being on par to shareholder’s expectations is morally wrong. - This practice views employees as a profit-making object which are laid-off when business is bad while employed when business is good. - When then are many alternatives to cut cost, is it really necessary to lay-off workers in order to make the firm more competitive? - In some cases, it is clear that the top management is taking a lion's share of the corporate wealth. When corporate profits suffer because top management misjudged the marketplace or failed to succeed, it is not top management that is accountable, it is the workers who are ''downsized.'' Social Web Model Of CSR - Business exists within a web of social relationships which equally bind all members of a society and respect human rights. - Business should conform to the normal ethical duties and obligations beyond a duty to obey the law. - In this case, downsizing implies that downsizing affects the morale of laid-off workers and gives them a financial blow which affects their family members as well. - Besides, it would also affect the atmosphere in the office negatively and instil fear about the potential of more layoffs. - Subsequently, the productivity of the firm may deteriorate as workers are emotionally unstable. - Good workers may even choose to leave the firm if downsizing is not conducted appropriately. - Hence, downsizing is a not necessarily a good strategy to make the firm more competitive as it leaves a domino effect. Philantrophic Model of CSR - An action done for financial reasons such as downsizing is not fully ethical and not truly an act of social responsibility. - Therefore, based on Caroll’s pyramid, laying off employees fulfils only the economic and legal view which is known as the narrow view. It benefits only the company and the shareholders. Ethical However, during extreme situations such as economic crisis or when the company is in the brink of insolvency, downsizing may be the most effective and efficient way to reduce cost and keep the company operating as labour cost serve as one of the major expenditure of the company. Milton Friedman - Business of business is business. - Profit making is important as it is the only social responsibility of businesses, which is to maximise profit as long as it stays within the law. Capitalism - In a free and open market, it is ethical for business to pursue their self-interest which would eventually be socially beneficial. - Companies are indeed formed to earn profit, hence it is company’s nature to have a profit-seeking motive. In order to survive in the open market, companies would need to reduce cost and sell their products at an optimum price to gain competitiveness. - Therefore, downsizing may be viewed as morally accepted as it is a kind of strategy to manage the firm more effectively. Utilitarian View - Entities ought to act in a way that brings the greatest net benefits and overall satisfactions to the majority. - For example, MAS retrenched 6000 workers as part of its recovery plan. Only by doing so, the company could survive which would ensure that the remaining 14,000 workers sustain their jobs. Moreover, if MAS were to fail, not only shareholders would lose their money, Malaysia would also lose its national airlines. - Hence, in this situation, it is justifiable to say that some people have to be sacrificed for the benefits of everyone. William Ross Prima Facie Obligations - Similarly, under WRPFO’s theory, a prima facie obligation is a conditional obligation that can be overridden by a more important obligation, usually under very exceptional circumstances. - Ross’s theory supports downsizing in MAS’S case as the prima facie obligation of the firm would be the survival of the firm which is also the remaining 14,000 workers’ source of income. - - However, in case of mergers, the intention of downsizing is to restructure in the most efficient way, and that is to reduce workforce and save cost, making “greater benefits for greater no. of people” less applicable. The company is no longer threatened (at least in the short-run) by uncontrollable external factors and hence the greater benefits are only experienced by the company and the shareholders. Stand 1 (In my opinion) - Downsizing is not necessarily unethical during critical periods. In fact, by failing to downsizing during necessary times, firms are risking the whole company and the workers. - Based on Kantian, if we focus solely on shareholders, we treat employees as means (means of reducing costs), but not as ends. On the other side, if we serve only employees’ interest, treating them as ends, then we are treating shareholders as means (means of using their money to save other workers). - Hence, if downsizing is driven by external factors like economic crisis and the action is based on the balance of interest, downsizing can be said to be ethical. - However, it should not be the first choice for firms in order to improve firm competitiveness. - Firms should consider other alternatives such as adopt lower wages for certain periods, consider share ownership or redeployment within the firm. - Studies show that downsizing firms were twice as likely to declare bankruptcy, for downsizing only capture short-term savings while it does not capture long term impact such as reduced efficiency, loss of valuable information and skills, increased workloads which result less engagement and loyalty towards the firm. Stand 2 - Besides, downsizing may occur when there is excessive workforce and duplication of resources. - Although it is a common practice to lay-off extra human resources in real life examples, it does not make it a moral act to do so. - On the other hand, if firms cannot put them in good use and provide them better opportunities, employees themselves may be unsatisfied and eventually become unproductive, affecting the working environment of the firm. - Therefore, if downsizing becomes the last resort, the question that should be asked is: “Did the firm exhibit appropriate care for employees who are laid-off”? - Based on Utilitarian, firms should choose the least painful option when conducting downsizing and manage it appropriately to minimize the impact and loss. - Firms should give notice of an intent to downsize as soon as it is determined and ensure employees who are affected are entitled to severance pay and given a grace period before they are being laid off. - Managers should also be trained to manage the process and deal with the highly debilitating aftermaths as employees breakdown or sabotage may occur. - Take Boeing as an example of successful downsizing, although the company downsized approximately 55,000 people over a five-year period, the company partnered with labor and government to create Reemployment Centers that helped retrain laid-off workers for new jobs. Conclusion - In a nutshell, to determine whether downsizing is ethical or not, it depends on the true intention and the approach of the firm in conducting downsizing. If downsizing is not conduct in a proper manner, not only potential cost savings from the layoff will be wasted, it is also deemed unethical as companies are not taking sufficient responsibilities in the welfare of their employees and treating them as a means to their ends. Meanwhile, if downsizing is only the last option for the benefit of all, firms must take the responsibility to minimize the pain caused to the employees. Only then, it is deemed to be ethical.
