Wall St. and Business Wednesdays: Downsizing Corporate America Chooses The Easy Way Out: You Should Have A Plan B by Ronald Stephenson,CPA

After over 20 years in various financial executive positions within two giants of Corporate America, I am now disabled and no longer participating in the rat race. As a result I have had plenty of time to think about some of my work experiences and what I have learned about the corporate world. The one thing that amazes me is that the large corporations seem to ignore the importance of employing talented business managers and then holding them accountable to deliver on an agreed upon set of objectives that would ideally result in a positive contribution towards the corporation’s success. Instead they are satisfied with improving their bottom lines with a quick fix by “restructuring” their organizations end to end (corporate jargon for downsizing).

We’ve all seen the headlines “Company XYZ to eliminate 3,000 positions”. Of course a company can improve its bottom line when it downsizes, but a company does not improve its business by downsizing. It has been my experience that once a corporation decides to downsize they look at it as an opportunity to target all the folks that they want out for whatever reason. Usually a disproportionate number of those targeted are Black.

It’s amazing how they lay out the employee totals by such factors as race, age and sex to obtain a clearance from the Legal Department. I’ve seen situations where the hate was so bad that management actually went against their legal advice, spouting such arrogant statements as “let him or her sue, if we lose it’s just a cost of doing business”. Unfortunately a disproportionate number of Blacks always seem to get included in these downsizing exercises.

Generally when a company is under pressure to improve financially, a company has two major levers to use to improve results. The two options are to increase sales or decrease expenses. If the company has talented managers, those managers should be creating an action plan to identify those initiatives that will increase revenue/sales and be held accountable for executing those initiatives.

The corporations are generally compensating their managers very well with competitive six figure base salaries, cash bonuses, stock grants and options. When you think about it, it is ridiculous to compensate managers so well. Some of the more senior managers are receiving seven figure incomes, in some cases, simply for laying people off. If they were being compensated for growing the business, that would be different. Compensation based upon actual growth would be more reasonable because, in that case, the managers' actions are actually improving the business. I can remember when not so long ago CEOs such as Jack Welch at General Electric (GE), now retired, had reputations for surrounding themselves with strong management teams and supporting ongoing company-management development programs. Jack Welch made development of his mangers an integral part of his way of doing business. It certainly improved GE’s business then and is still having an impact as that particular corporation continues to grow and prosper (without laying anyone off).

In conclusion, my advice to employees would be make sure that you have a plan B no matter how well you think that you are doing. It is too easy for management to choose a downsizing initiative, instead of performing the real work that would improve the company’s financial performance. It is too easy for them to look at what other companies are doing and copy those companies instead of doing the right thing. Corporations should place some portion of manager’s compensation at risk, with the final compensation dependent upon how well the managers are able to develop and deliver on their initiatives.


The author Ronald Stephenson may be contacted at rnldstephenson@yahoo.com

Ronald Stephenson,CPA

Wednesday, April 27, 2005