A man walks past a wall covered in advertisements demanding jobs, room-rents, movers, computer repairs and a one-day trip in Seville January 20, 2009. Spain forecast what could be its worst recession in five decades for this year before a 2010 recovery many analysts judged over-optimistic given the mass destruction of jobs in a credit-starved economy. |
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The recession is here, there and everywhere, and I would leave it to the pundits to predict how long it will last. What interests me is how corporate entities would handle the recession, and their obvious need to find a methodology for restructuring which fulfils their responsibility to stakeholders.
Corporate entities need to focus on socially responsible forms of restructuring.
The normal reaction of an employer in adverse circumstances is to look for ways of trimming what they consider as 'fat'. Strangely, especially in Sri Lanka which is very good at aping the West and often forgets our rich cultural past of social relevance, the first thoughts are of who is redundant at the bottom. The greater number of necks cut, the more satisfied the company would be although the actual fat may be at the top and not at the bottom. I recall that one multinational hotel when it changed to local management merely by sloughing off the 'foreign meat' saved so much money that it could break even in terms of operating profits!
A responsible company would take a close look at what the current business requires in terms of skills and delivery and who is best equipped to make things happen favourably. Surveys have shown that a good number of companies which have downsized have not achieved their projected targets and there are several hidden costs of downsizing which have been realized too late. The costs include the loss of skills; loss of corporate memory; a sense of insecurity for those left which impacts on performance; lower quality and efficiency of service. In fact there is perhaps more sense in flattening an organization and empowering people lower down to manage their tasks so that supervisory/management work is greatly diminished.
Job security
In Sri Lanka, security of employment is a serious issue and employees are still not in the habit of moving from job to job, except in the case of skilled persons who are marketable. The sad fact is that an employee who is greatly skilled in a particular work environment may still find it difficult to adapt to a new employment situation since much of our training is on the job and employees are not given the benefit of learning the theory behind what they do.
Especially in the case of very senior hands, their skills may be relevant only to the workplace where they grew old, performing a task which was in fact repetitive although classified as skilled. For example many companies classify machine operators as skilled but the skills are relative to the particular machine and in general terms the employee remains quite unskilled. Some years back, the Employers Federation had to obtain clarification from the Department of Labour as to who is entitled to be classified as 'skilled' for purposes of Wages Board Decisions. The clarification given was that a skilled worker was one who had some form of certification of his skills after a due period of apprenticeship involving theoretical instruction. On this classification not many of the so called skilled workers are eligible for this classification.
George Starcher, Secretary General of the European Bahai Business Forum (EFFB) identified eight forms of restructuring, all of which could be handled in a manner which is socially responsible:
Strategic - He advocates that before any other drastic step is taken the pragmatic approach is to look inwardly at how redefining strategy or re-directing it would benefit the organization. Some basic questions would be:
* Does the business need to be re-defined?
* Would competitiveness be enhanced through merger or acquisition or joint ventures or alliances or simple synergies?
* Does the portfolio of businesses need 'balancing'.
* Should the company divest any business?
Ownership - In the 1990's many corporations enhanced shareholder value through restructuring their capital or ownership, and assets. Some common responses have been spin-offs, equity carve outs and leveraged buy-outs. Employee buyouts and employee ownership are also possible forms of restructuring which fall under this head.
Revitalization - Where the restructuring involves reducing the workforce by targeting particular occupations, it may still be possible to move redundant employees to other 'new jobs' created with relevant training being provided. Obviously, there needs to be a creative approach with the management looking at new products and markets which suit the current market needs.
Organizational- The restructuring is usually with the reduction of jobs but there are possibilities of identifying means of organizational change which do not necessarily bring about the loss of jobs. Some examples are:
* Proper use of resources - Reorganization by itself does not work. What is needed is the proper use of resources and it could be that with better utilization of the existing manpower through skill training and education, you could make the organization more productive. In other words the under-utilized resources are looked at for better use, and greater interaction within departments and across departments can bring this about. Employees could be challenged to suggest their solutions to prevent job loss by better utilization of their manpower and the materials they handle.
* Re-engineering was defined Gary Hamel and Prahald in 'Competing for the Future', as a fundamental analysis and radical redesign of business processes to achieve dramatic improvements in critical measures of performance such as quality, service speed and cost. These elements are perhaps all the more important when business is in crisis. Re-engineering has become a euphemism for cost cutting through lopping offheads! Surveys reveal that re-engineering has often failed and this is due to the failure to appreciate the human dimensions and lack of buy in. It has caused fear, stress and anxiety which are inevitably going to adversely influence motivation. Re-engineering with consultation and using suggestions from employees always works better.
* Benchmarking - Organizations are known to use the successes of comparators in order to decide on their re-structuring. Benchmarking is fine so long as one compares apples with apples. It could indeed, if done sensibly, be a tool for motivating your own staffby showing what others have achieved under similar conditions. Benchmarking could result in more productivity and motivation to achieve.
* Participative - Many have found that transparency and the involvement of employees in a restructuring in all steps of the process could help to bring about a satisfactory result and to keep employees motivated.
* High Performance Work Systems (HPWS) - Here again the approach involves the inclusion of employees in the dialogue leading to restructuring and also uses the concept of empowerment to share responsibility for performance with all segments of the workplace.
* Cross functional work teams have also been used to help the restructuring process to bear fruit. They could be used to develop processes as well as products.
* Production - The objectives of such strategies is to reduce lead times, to increase market flexibility, reduce inventories, be more reliable in terms of deliveries, and become more competitive on costs. Some methods adopted are JIT, Lean Manufacturing, CAD/CAM, Assembly to Order and outsourcing production.
*Outsourcing - This refers to getting outsiders to do or supply what was handled earlier by the company itself. It could include specific services such as pay rolls or of entire functions such as IT or manufacture. Contract manufacture has become a rather large issue as the company which holds the brand and markets the item could get items produced at lower cost and without administrative headaches and burdens being carried by the principal company. The worries could be in the realm of ensuring that labour standards are met and that there is no exploitation by the subcontractor who wishes to make the maximum profit for himself. Another area of concern is that quality standards need to be met and it may be difficult to ensure compliance except by random checks which may not pick up issues which later lead to loss of orders or penalties.
* Non personnel Costs - Reducing the number of suppliers, negotiating for better terms on supplies of money and materials etc. could be a worthwhile form of restructuring. Tightening up on logistics could also be a valuable response.
Compensation
If employment has to be reduced it is incumbent on the employer to provide compensation to enable the employee to sustain himself/herself at least for sometime or to make a new start through re-training or self-employment. In recent times, many retrenched employees from the blue collar categories used their compensation payments to buy a three wheeler which prompted employers to assess their severance packages on the yardstick of whether the payment was sufficient to buy a 'Bajaj'. Although the Termination of Employment Act (TEWA) has a compensation formula, which is generous, the formula is applied only if the Commissioner grants his permission and he is entitled to refuse it in terms of the Act. Thus, the compensation could be considerably higher if one wishes to avoid the hassle and uncertainty of applying for permission to the Commissioner.
So far no one seems to have negotiated a Severance Package after the SC judgment in the LMS case but it could have a serious impact on worker expectations. The SC decreed that a VRS scheme which was very much more favourable than the compensation formula under the TEWA should be applied in a case where the employees lost their employment only technically as they commenced employment from the very next day under a new employer without a factual break in service.
Business people would probably say that they have no time or inclination to look at CSR at a time like this when their survival is more important. How would stakeholders be affected by restructuring? We have examined the internal stakeholders but there are others towards whom the corporate entity has a responsibility.
If there is mass retrenchment the burden is going to be cast on society as a whole - there could be people asking for handouts and also crime being on the rise due to want. It is therefore important that organizations of employers and trade bodies should address this issue proactively and look at the overall impacts on society, so that they could find solutions which minimize the fallout and help the country at large to realize that the business community is not only being responsible but is working with multiple agencies to prevent too much strife as a result of a global recession.
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