Ideology Influences Corporate Downsizing

EXECUTIVES are downsizing their companies often because it is "ideologically correct."

Ten years ago, most big-company bosses would have been embarrassed if not ashamed to lay off masses of employees when their firms were prospering, as AT&T Corp. announced this week. But the ideology that is partially behind the Republican Contract With America also eases the conscience of executives when they decide to give pink slips to thousands of workers.

"It is a mood which has become part of the national psychology," says Mark Mone, a management professor at the University of Wisconsin-Milwaukee's business school. Companies, he adds, put themselves at risk for the longer term when they put an "ax man" at the helm and slash away staff. "We are really threatening the ability of companies to do what they do well."

Mr. Mone and colleagues Vincent Barker III (at Wisconsin) and William McKinley (at Southern Illinois University in Carbondale) have looked in a recent paper at the "ideological currents" legitimizing downsizing in the minds of executives. Two key ones:

Employee self-reliance. This ideology is being articulated in the business press and by some business consultants in books. It deemphasizes corporate loyalty. It expects employees to be responsible for their own employability, including obtaining the training needed to win new assignments within the corporation.

Top management backs away from the responsibility for job preservation, holding that the traditional guarantees of job security can no longer be maintained in a harshly competitive environment. One consultant describes the old bargain of employee loyalty in return for job security as "toxic" codependency. This converts layoffs from a social problem to a psychological cure, with potential benefits for the employee, helping him or her adjust to the new environment of self-reliance. This means top managers have little ethical compunction about downsizing whenever it seems desirable. The practice becomes taken for granted.

In Washington, the parallel is the drive to force welfare clients to self-improvement and into the work force, Mr. McKinley says.

Debureaucratization: Bureaucracies, government or corporate, were in the past regarded as something of a "necessary evil" to getting a job done. But some "postmodern" management gurus advocate the destruction of bureaucracy, or its transformation into alternative modes of organizing, such as teams. One such guru, Tom Peters, has recommended "fun" gatherings of employees to burn or bury in caskets memos and procedure manuals.

Gifford and Elizabeth Pinchot, in a 1994 book, "The End of Bureaucracy and the Rise of the Intelligent Organization" (Berret-Koehler), argue that work life in a bureaucratic organization "more closely resembles life in a totalitarian state than life in a free nation." They urge creation of a network of liberated teams engaged in the exchange of goods and services in an internal free market. They recommend reducing or eliminating hierarchies - generally bad news for middle managers.

In Washington, conservative Republicans have a similar favorable view of smallness and a distrust of bigness in government. Small business is seen as the engine of job creation and economic growth; bureaucracy is regarded as an enemy.

In their paper, the three professors say they do not want to imply that managers are ideological robots, blindly following consultants' or politicians' rhetoric to the exclusion of other factors. "Most managers make a good-faith effort to predict the consequences" of their choices for concrete performance targets, the three write. But managers' ability to predict outcomes with any degree of certainty is limited. "This is particularly true for downsizing, given its unpredictable record in reducing costs, increasing profits, and producing other tangible financial benefits."

Recent academic research has found that downsizing boosts a company's profits in the first year - and this is recognized by the stock markets when prices rise. But two or three years later, most companies are no better off financially or in terms of growth than other similar companies that did not downsize. Further, the downsized companies generally have a shell-shocked staff. Creativity and innovation are victims as well, a new study shows. And those laid off usually end up with pay that is 55 to 65 percent of their previous wages, Mone says. The responsible executives often get huge bonuses or stock benefits.