Layoff by Profitable Companies - Is it Ethical?

Jan 2009 has been a bad month for US with around 598k jobs being laid off. This is on top of the 2.3M layoffs in 2008. One of the trends that we saw during this cycle was lay-offs by profitable companies like Microsoft, IBM, Intel etc. This garnered a lot of press coverage and prompted a big debate on whether layoff's by profitable companies is ethical.

IMHO layoff by profitable companies is ETHICAL. Here's are some of the reasons why i feel it is ethical:

• Shedding excess baggage: Most large companies over a period of time build up a lot of fluff (redundant positions, over staffing etc) in their operations and this typically goes unnoticed when they are growing well and are profitable. When the going gets tough and margins are starting to take a hit they wake up shed lot of these excess baggage, trim down their operations in order to be more efficient & competitive.
  

• Rollback of excess hiring for anticipated growth: It normally takes between 6-12 months to induct a new employee and have him fully productive in a typical enterprise. Lot of companies do anticipatory hiring based on their targeted growth. When a downturn occurs, most companies realize that a slowdown is occurring only when they start feeling the pinch. When growth suddenly starts tapering out and they don't have sufficient work for the folks that were hired ahead of time. Hence leading to lay-offs.

• Declining Demand/Consumption: One of the key reasons for economic slowdown is decline in consumption. People tend to spend lesser due to risks/tough market conditions and this leads to worsening of the condition. A lot of industries take a hit due to reduced consumption/demand. Its only natural that they reduce operating expenses(shutdown factories, layoff workers etc) to remain profitable.
  

• Weeding out the Non-Performers: Weeding out the bottom x% of non-performers is a standard practice in most enterprises. When the going is good the tolerance level in the system is higher and non-performers get more leeway and lesser folks are laid off. Non-performance related lay-offs also get very little attention/coverage. During difficult times, companies utilize this opportunity for flushing out the non-performers. In most Fortune 500 companies the bottom 2-3% itself can be sizable(few thousands). This whole process also gets more press coverage in tough market conditions.

• Protecting share holder interests: One of the key agenda's for boards and CEO's is to maximize shareholder value. These days there is an enormous amount of scrutiny on company performance, operational metrics, profitability etc more so when the going gets tough. We as share holders & individuals also demand better performance and improved value from corporates. Due to this boards and CEO's take a very conservative & precautionary approach during tough economic conditions to optimize their operations, reduce costs and minimize risks. If boards/CEO doesn't take these tough decisions they will be replaced with folks that can take these decisions.
  

In most cases lay-offs are done due to a combination of one or more of the above factors and hence it is ethical. Pls let me know your views on the same. Also if you feel there are other factors in addition to the ones listed above pls feel free to add to the above.

Satyam Fraud - Ethical/Moral Crisis

In my previous post I had covered my analysis of the Satyam fraud. In case you haven't read it here's the link. In this blog I will be covering some of my thoughts on what led to this crisis and what can we do to prevent this in future.

How did we get here?

I read couple of interesting posts in the net that the world is going through not just economic crisis but also ethical crisis with the mis-management of banks & financial institutions, Ponzi schemes, Corporate frauds, Bribes etc. This is very true. While we can have rules, compliance procedures, multiple levels of cross-checks etc, end of the day if someone wants to cheat he very well can find his way around the system. All our systems and processes are built on the basis of trust & ethics. When these fundamental qualities of an individual/organization fails the whole systems comes crashing down.

What happened in Satyam's case is precisely that. It was a breakdown of trust and ethics. Satyam was bound by SEC, GAAP, SOX regulations, they have independent third party audits etc and still managed to get away with their fraud that too for around 7+ yrs (This came from Raju's statements during enquiry). The current society is becoming more and more materialistic and power, greed, fame, market/peer pressure etc are taking over and some of the basic human values are forgotten. As history has shown us repeatedly those who don't operate in a moral and ethical manner will eventually fail as in the case of Satyam/Raju.

What can we do to prevent this?

In the near-term as an outcome from investigations/analysis Govt will come up with more rules, regulations and compliance procedures. These are more like patchwork and will address some of the outcomes of this fraud and add more overheads to the system (similar to SOX regulations in US where businesses spend millions/billions of $'s). However putting more regulations will not address the root-cause of this issue. This whole episode will keep repeating itself time and again till we reach a stage where our rules and regulations become more of an impediment to our businesses instead of enabling them and defining boundaries/acceptable norms. I'm not saying that we don't need rules & regulations just that rules and compliance alone can never be sufficient.

For us to fix this issue each of us need to look within and ask ourselves if we are doing the right thing. Just like there are rules & regulations for the society, each of us need to operate under the boundaries of personal ethics and values. We as a society need to encourage moral values like honesty, integrity, ethics etc and reward people who follow them. The value system needs to imbibed into the future generations through our education systems and by parents setting an example to their children. While this may sound very philosophical it is essential that we fix this as failure of personal ethics and values is root cause of this issue.

We as individuals need to take ownership and drive this change both in us and in our societies. Lets start with ourselves and kick-off this change one at a time!