Sunday, April 8, 2012

Downsizing and Ethics: Do They Go Together?

Once upon a time, a loyal and faithful employee might have expected both a career and a gold watch from an employer in whose service they toiled, good years and bad, for 40 years or more. No more. Over the last 20 years, corporate downsizing, in the form of massive layoffs of employees, has become a business-as-usual response as well as a socially legitimate activity for western organisations.

Carl Rhodes, Alison Pullen and Stewart Clegg (2010) mention that “in an era of ‘new capitalism’ characterized by ‘stiff international competition, state deregulation of industry, institutional ownership of firms and rapid technological change’, organizations have used downsizing in a bid to achieve structural simplicity and flexibility as well as to respond to heightened financial demands,” (p.535).

Rhodes et al, state that “given that those who exercise power frequently claim ethical justification for their actions in terms of authoritative rhetoric through narratives, not least in the everyday unfolding of organizational action (and organizational change and downsizing), ethics can be regarded as the domain through which power asserts legitimacy,” (p.536). This is such a strong statement and one that leaders need to reflect upon.

As an example, in the era of the late 1990s, V-Tech (not their real name) had experienced unprecedented success as a financially prosperous industry leader envied by its competitors. The end of the boom and associated economic and technological changes, however, did not favour this company. Faced with a declining market and rapidly changing technology, V-Tech failed to maintain its market position. The organisation was changing in ways that no one could have envisaged in the heady boom time. The reversal in V-Tech’s fortunes was catastrophic. In the mid-1990s, the organisation had been riding on a wave of financial success and was generally regarded as the most innovative firm in its market. As the 1990s came to a close, however, the computer industry was changing. With developments in personal computing, the types of products and services that could once only be delivered by specialist companies with expensive technical infrastructure were becoming increasingly cheap and available. V-Tech did try to invest in different technologies to mitigate the erosion of their core markets, but these decisions proved unsuccessful and, in some cases, disastrous. The financial implications of this were significant: the company’s market capitalisation in the mid-2000s being less than 2% of what it was in the 1990s. The passage between these two points was one of continual unprofitability and a spiralling program of cost cutting and downsizing. By 2005, the staff base had been decimated and in 2006, V-Tech had been de-listed from the stock exchange and had filed for bankruptcy – only to emerge soon after bolstered by a new swag of capital investment in 2007, (Rhodes, Pullen and Clegg, 2010, p.536; 540).

Like many organisations that have suffered from the recent global financial crisis, V-Tech’s past, characterised by informality, was directly linked to its financial performance. Executives talked of a carefree organisation whose pursuit of ‘customer intimacy and technical differentiation’ meant that the focus was less on operational efficiency and financial prudence and more on excessiveness. This should resonate with many who have read the stories of other organisations, especially in the western world, consumed by their own success, and living the excessive ‘life-style’ – supposedly telling the world; “hey, look at us.”

Rhodes, Pullen and Clegg highlight how “the presence of strong collective narratives in organizations can limit the scope of ethical deliberation and action, organizations seeking to engage in organizational change ethically should encourage debate, critique and contestation over the meaning of those events. In order to do so, they would engage in an ‘ethical vitality’ whereby the presence of multiple and competing interpretations of organizational change would highlight the need for individuals to take a more active role in both making sense of their organizations and taking action within them. Practically, this would suggest that dominant narratives, such as those in V-Tech, needs to be actively contested and disrupted to create an organizational environment conducive to active ethical deliberation,” (p.547).

In a brilliant summary, Rhodes, Pullen and Clegg state that, “we can surmise the relationship between storytelling, change, power and ethics in organizations – when narratives of organizational change become dominated by an organizationally legitimated plot, the narrative serves to close down the openness required by ethics,” (p.546).

So maybe it’s time to relook at the rhetoric and re-establish transparent channels of communication within our organisations, so that we can encourage open and ethical dialogue, in the best interests of the organisation as a whole, which includes the employees.


Rhodes, C., Pullen, A. and Clegg, S. (2010). ‘If I Should Fall From Grace...’: Stories of Change and Organizational Ethics. Journal of Business Ethics, Vol. 91 Issue 4, p.535-551.

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