Corporate ethics and downsizing

A good part of the motivation for writing “Managing Leadership” is the circumstances created by CEOs which force on them the decision to downsize, such as is the case currently among American automobile manufacturers (See here, and here for two interesting takes on the topic).

In my view, the ethics of this situation cannot be discussed only within the framework of the present pressure to cut costs and to do so through downsizing. Taken solely as an issue facing us today, the downsizing decision simply pits the welfare of the employees against the welfare of the company (and the publicly-held company usually wins). Such an approach ignores the circumstances that led to the dilemma, and in so doing, it de facto absolves the same management team that must make the decision for its previous poor judgment and decisions which led to this one becoming necessary.

Ethics cannot survive the retention in the management team of anyone who is responsible for the downsizing dilemma. They must resign, or, at a minimum, the CEO must resign. Furthermore, any member of the board of directors complicit in the development of the crisis forcing this decision must resign also. Indeed, in the absence of a board that creates and enforces such an environment of ethical acknowledgement and acceptance of responsibility for executive and managerial decisions, there is not only no corporate ethics in the conventional sense - there is also a fundamental lack of executive fiduciary responsibility; a lack that will ineluctably continue to damage its shareholders, and as a result of that, also 1) the company; 2) its employees, customers, and vendors; and 3) its community.

The unethical environment arises in the absence of a board that establishes and supervises this fiduciary responsibility.

In such an unethical environment, the real specific ethical violations occur well before the dilemma - such as the need to downsize - that attracts all the attention. This is in seemingly better times, when the CEO, executive teams, and consultants inflate the role and capabilities of the company’s senior management, leading to what can only be described as juvenile ill-discipline and playing to the crowd. This is when they make the ill-advised decisions evaluated more for the force of the impact they create about the pseudo-gravitas and paradigm-shifting vision of these great personages, than for their contribution to the advancement of corporate aims and the growth of shareholder value - both of which should be delineated to management by the board. These are the decisions that create the inflated work force.

In the current environment of non-accountability, where half of a board consists of company management, and the other half of managers of other companies familiar with the game, it is only the work force that is downsized, and, possibly junior levels of management who have not yet attained the corporate version of tenure in this collusion. In such circumstances, the only possible outcome is downsizing, and this is not unethical in and of itself, taken as a distinct business decision. Taken as a whole, however, as I’ve attempted to portray it, it is an extension of an unethical situation and of a chain of unethical decisions.

Crocodile tears will be shed by a management team professing to be compelled to oh-so-reluctantly make tough business decisions and effect practical remedies that cannot be avoided and which must be taken to discharge their executive duties and serve the company and its shareholders - considerations which neither concerned nor motivated them sufficiently, if at all, when they created the circumstances leading to the crisis.