Firing people has gotten to be trendy in corporate America, in the same way that building new plants and being considered a good corporate citizen gave you bragging rights 25 years ago. Now you fire workers-especially white-collar workers-to make your corporate bones. Many white collars figured out a few layoffs ago that they can no longer count on staying with the likes of IBM forever. But nothing has taken the place of the benevolent Big Daddy employer, and that scares the pants off us. You can practically smell the fear and anger in white-collar America, because no one in CEO-land seems to care. Where will I find another job if I get downsized? Stop whining, unemployment statistics have barely budged despite huge white-collar firings. Will my boss ruin my life to make another cent of profit on her stock options? Cheer up, you’re serving the greater good by being blown away by what economist Joseph Schumpeter christened “the gale of creative destruction. " Except for oddballs like the chief economist at Morgan Stanley (who has warned for years that there would be a backlash) and the president of United Technologies (who recently unveiled a nifty program to help UT workers re-educate themselves for their next jobs), Wall Street and Big Business have been in perfect harmony about how in-your-face capitalism is making America great.
WELL, NOW IT MAYBE BACKLASH TIME. SUDDENLY, white-collar woes are a hot issue in the 1996 presidential campaign. Al Dunlap of Scott Paper, the loudest spokesman for corporate hardball (page 48), dukes it out with Labor Secretary Robert Reich on “Nightline.” Bob Dole is making anti-business noises. And Big Media from The New York Times to The Wall Street journal attribute Pat Buchanan’s strong showing in the Iowa caucuses to his attacks on business.
We’re not going to argue about whether today’s mass firings make economic sense. Companies like IBM and Sears and GM had to downsize or die. Other cuts-like some of those at Scott Paper-are debatable, though Dunlap doesn’t agree. Nor is it easy to get a handle on how many firings there actually are. Layoff numbers from the Chicago outplacement firm of Challenger, Gray & Christmas, an oft-cited source, are fill of holes, as the firm readily admits. They include only publicly announced cuts. I’m not sure what federal jobcut numbers actually measure, and you can argue endlessly about how to interpret figures about workers’ salaries and output. What really matters is that although unemployment is relatively low and the economy is still cranking out new jobs, millions of Americans believe they’re being screwed by corporate America and Wall Street.
It’s unfair to blame every job cut in America on Big Business and Wall Street. The world is changing, and no matter how big and rich a company is, it has to adapt or die. (Even NEWSWEEK hasn’t been immune to job-cutting.) But Wall Street and Big Business have made a bad problem worse by being greedheads. Instead of keeping payrolls lean and helping employees to prepare for their next careers, lots of CEOs have messed up big time. They let their payrolls get bloated. Then to recoup, they offer up employees as human sacrifices to Mammon, god of Wall Street, hoping to get their stock price up. When the price rises, it’s like Wall Street spitting on the victims’ bodies. And the CEO gets a raise. How many CEOs of big, downsizing companies sacrificed some of their pay and perks to encourage a sense of community? Did they apologize publicly to the people they fired? Did they take any personal responsibility for mistakes that helped cause the problems they’re solving with layoffs? No way, that’s not macho.
Of course, no matter how sensitive or smart a CEO may be, there are tides that you just can’t swim against. Take banking. Thanks to money-market mutual funds, national banking, teller machines and spiffy computers, many banks, bank branches and thousands of bank jobs will vanish in the next few years. Electric utilities used to be great lifetime employers, too. They were regulated monopolies allowed to pass costs on to their customers. But regulators have started to let companies invade each other’s turf. The result: utilities have started to combine, and will soon be zapping workers to get costs down. Ditto for local phone companies, thanks to the recent Telecommunications Act.
LOOK. YOU CAN’T STOP ADVANCES IN COMPUTERS AND communications and transportation. They’re making national markets into global markets. Foreign companies whose names you can’t even pronounce can take away your customers and kill you. Mistakes show up quickly. Product cycles are shorter than ever. Look at how IBM and Digital Equipment, once the world’s two biggest computer makers, seemed to add the word troubled to their names almost overnight. (They both seem to be recovering.) A marvelous company like Motorola can have its stock smashed to smithereens, its profits come in a hair or two below expectations. Indeed, one reason that chief executives are meaner and greedier than they used to be is the 1980s: no company was safe from raiders if its stock price was depressed. If you didn’t unload your losers and fire “surplus” workers, a takeover troll would buy your company and fire everybody.
Yet while layoffs have traditionally been part of blue-collar life, the ’90s is the first time white-collar workers have been slaughtered en masse. That helps account for the uproar. After all, agenda setters like politicians and we media-elite types live in a white-collar universe. Anyway, you could see why GM was firing 74,000 workers in 1991 or Sears was firing 50,000 two years later. Both companies were in desperate trouble, and their survival was at stake. And the chairmen of GM and Sears were forced to walk the plank.
Today’s layoffs are different. The symbol: AT&T. When AT&T, formerly the kindly Ma Bell, announced in January that it would fire 40,000 people as part of its breakup into three companies, the stock market went nuts. AT&T shares roared upward. Bob Allen, who I think wants to do the right thing, symbolized the clueless CEO when he talked to NEWSWEEK last month. He said he felt bad about firing people but saw no point in giving up some of his pay or perks as a shared sacrifice with the workers. And, he said, he saw no reason to apologize: “I wouldn’t see any value of going on TV and crying.” Allen, who had been ridiculed on Wall Street for AT&T’s disastrous $7.5 billion hostile takeover of computer maker NCR in 1991, made more than $5 million when the value of his stock and options soared after the layoffs were announced. (He declined to talk last week.)
For another classic example of how CEOs seem to have forgotten how to deal with, consider the recent combination of two giant New York City banks, Chase Manhattan and Chemical. Chase was pressured by Michael Price of the Mutual Series funds (whose stockholders include me) to get its stock price up and sold out to Chemical. The attraction to Chemical: the Chase name, which it’s keeping, and its ability to cut 12,000 jobs from the combined banks. Those jobs would have probably vanished even without a takeover, but in a slower, more controlled way. Thousands of little people were fired to save money, while the new Chase kept all 36 outside directors, who get fat fees and dandy retirement packages.
And here’s another company with no clue as to how things look to the outside world: troubled Apple Computer. Apple recently installed Gilbert Amelio as CEO. A company firing workers and eliminating its dividend to conserve cash is paying Amelio $2.5 million a year of salary and bonus. At a minimum. Hello? For heaven’s sake, Amelio was already on Apple’s board; that makes him at least partly responsible for Apple’s problems. How can you lay megabucks on him while paring workers to conserve cash? Only if you don’t care about what anybody thinks. Consider Amelio’s answer last week when NEWSWEEK asked him to justify his pay package: “It’s a market-determined figure.” Contrast that to Lee Iacocas talking the helm of Chrysler for a dollar a year in 1978. Iacocca, who got fat stock options in addition to his dollar, has been no prize in recent years, as greed and ego overwhelmed his good sense. But he Was an inspiration when Chrysler was croaking, and it really mattered.
IACOCCA’S GREAT GESTURE WAS LONG AGO AND FAR AWAY. Now let’s look at the behavior that convinced Stephen Roach, the chief economist at Morgan Stanley, that business is carving itself a disproportionate piece of a pie that’s supposed to be shared with workers. Roach is hardly antibusiness-he loved downsizing in the early 1990s. Yet a few years ago he realized something was wrong: workers’ output was rising but their incomes weren’t keeping pace. “This isn’t the way economics is supposed to work,” he says. “It contradicted everything I was taught to believe.” When he warned companies to do something before a political backlash struck, they giggled on Wall Street. I don’t think they’re giggling now.
There are no surefire solutions to these problems. But some companies are enlightened enough to know that helping their workers also helps them. Take United Technologies, a hard-boiled conglomerate that has cut 33,000 jobs since 1990. Last December, UT unveiled a new, expensive plan to help workers get re-educated. President George David says the United States can’t stop production jobs from migrating overseas, so companies should help people upgrade their education before it’s too late. “We load education into our first 21 years of life, and then think that we can leave the classroom essentially forever,” he said. UT now gives employees time off to attend classes, pays for tuition and books, and will give employees who complete their studies 50 shares of UT stock, currently worth about $5,200. You can go to nursing school or get a degree in creative writing, none of which has anything to do with UT’s businesses. David hopes that 20 percent of his employees will use the plan. That would gradually increase the company’s outlay to about $50 million a year from the current $11 million. “We’re not softhearted,” said David, whose face turned red when I suggested he sympathized with downsized workers. “It’s in our interest to have an educated work force.”
Then there is John Grundhofer, chairman of First Bank System of Minneapolis, which recently collected a $200 million fee for abandoning its proposed takeover of First Interstate Bank. With no fanfare, Grundhofer-who fired 2,000 employees when he joined the bank six years ago -recently gave each employee a $750 bonus, about $11 million in all. He wanted to show his appreciation to employees for having created a bank strong enough to bid for a company bigger than itself.
For decency, it’s hard to top Malden Mills, which became famous last year when it kept 1,400 workers on the payroll after its plant in Lawrence, Mass., burned down. “What right do I have to destroy a major city just to get a few more dollars in the bank that I won’t spend before I die?” said mill owner Aaron Feuerstein. “The money would only go to my children and spoil them.”
Or take a company almost no one’s ever heard of: Scherer Brothers Lumber Co., a building-supply company in suburban Minneapolis. President Mike Scherer said that officers don’t draw bonuses until the company has given a 15 percent profit-sharing contribution to every eligible employee. And rather than firing workers to save a few bucks, the company eliminated fresh flowers for receptionists’ desks, cut the top officers’ pay temporarily by 25 percent and stopped buying professional sports tickets. “When you buy professional tickets, you’re subsidizing people making tons more than I am, and they’re still not happy,” he says. “I’m not going to lay off our employees to subsidize them.”
There is no magic bullet that will make the problem go away. Even eliminating short-term thinking isn’t the answer. Proof-. German and Japanese companies specialize in long-term thinking, and they’re more messed up than we are. The federal government can’t save us. Can you see the Feds drawing up rules to define a good-jobs company in order to give it tax breaks? And we can’t go back to the days of the 1950s and ’60s, when big companies offered lifetime employment. Any company that tries that these days will be like an elephant in a piranha pond.
You solve this problem one company at a time, with innovative programs like United Technologies’, decent behavior like Feuerstein’s and Scherer’s, intelligent and relatively cheap gestures like Grundhofer’s. Let business act as if it cares about employees. Who knows? Business may even rediscover what many executives once knew but seem to have forgotten: that doing the right thing for your people is often the best thing you can do for your business.
Robert Allen, CEO, AT&T Salary: $3,362,000 January 1996: 40,000 layoffs Walter Shipley, CEO, Chemical/Chase Manhattan Salary: $2,496,154 August 1995: 12,000 layoffs Charles Lee, CEO, GTE Corp. Salary: $2,004,115 January 1994: 17,000 layoffs Louis Gerstner, CEO, IBM Salary: $2,625,000 July 1993: 60,000 layoffs Ronald Allen, CEO, Delta Air Lines Salary: $475,000 April 1994: 15,000 layoffs John McDonnell, Chairman, Former CEO, McDonnell Douglas Salary: $577,791 July 1990: 17,000 layoffs Robert Stempel, Former CEO, General Motors Salary: $1,000,000 December 1991: 74,000 layoffs Robert Palmer, CEO, Digital Equipment Salary: $9,000,016 May 1994: 20,000 layoffs Edward Brennan, Former CEO, Sears, Roebuck & Co. Salary: $3,075,000 January 1993: 50,000 layoffs Michael Miles, Former CEO, Philip Morris Salary: $1,000,000 November 1993: 14,000 layoffs Frank Shrontz, CEO, Boeing Salary: $1,420,935 February 1993: 28,000 layoffs William Ferguson, Former CEO, Nynex Salary: $800,000 January 1994: 16,800 layoffs
