Just when we thought that the corporate downsizing and restructuring movement had faded away, each day seems to bring news of massive layoffs and shutdowns by some of our most well-known businesses.
As we all know, layoffs and shutdowns have serious consequences for both the local and national economies.
But, on a more personal level, these actions often mean shattered hopes and dreams for many employees who devoted themselves to these companies during long years of service. Sure, many downsized workers bounce back, but many do not, and their lives are forever altered by their adverse employment experiences.
Investors and creditors also suffer. Investors suffer because plant closings and reductions in force can have financial consequences. Creditors, of course, lose out big time when a firm like Montgomery Ward, for example, goes bankrupt.
Top-level executives of downsized and restructured firms may be the one group that may not suffer much.
Typically they are insulated by severance packages known as “golden parachutes.” And frequently these folks end up heading other organizations not long after they just finished running their original firms into the ground.
Don’t you wonder how all this can happen? Never before in American history has the stock of human or intellectual capital available to business organizations been higher. In the last 30 years, the growth in the number of individuals with formal training in business, management and economics (measured by academic degrees granted) has been astronomical. Yet it would seem that today’s executives and managers sorely lack a grasp of the fundamentals: estimation of market potential, analysis of competition, capacity planning, risk assessment, understanding consumer behavior and the like. There is some irony here when those who are most responsible for corporate difficulties–these well-educated executives–ought to know better on the one hand and are insulated from the adverse consequences of their actions on the other.
How is it that so many things can go wrong, especially in some of the oldest and most respected of U.S. firms? I’ve thought about this quite a bit. Sure, I know that there are many variables that influence business success, and I know that business ventures always have and always will entail risk.
My conclusion is these business mistakes (what else would you want to call them?) come about because a certain kind of hubris sets in among the corporate decision-making elite. Because of past successes, these folks must come to think that they are “bullet proof” and/or that their gut instincts are better guides than facts.
What to do about it? Well, more business and management education doesn’t seem to be the answer. There should be more effective oversight by corporate boards of directors, and more public and shareholder disavowal of the practice of giving a free ride (remember the golden parachutes?) to those with the potential to mismanage the firm and to severely disrupt the lives and futures of its other employees.
