In today's volatile economy, corporate "downsizing" is an unpleasant fact of life. For organizations in the process of developing a "feeder pool" of high-potential women and people of color for advancement, layoffs can be especially difficult. But while downsizing is painful, it does not have to mean the end of your company's diversity commitment.
So why does downsizing occur? Senior managers who have been involved in corporate downsizing agree that most of the time "rightsizing" or "re-engineering" is a reaction to revenue and cash flow issues. With Wall Street on their backs, companies scramble to show results in a very short timeframe (usually three months—when their quarterly figures become public).
During such hard times, companies do not want to cut employees. They want to avoid placing families in hardship and they do not want adverse publicity. Before making cuts, managers typically look for savings in other areas first, such as travel or training. People are often the last to be cut. However, by the time the decision to downsize has been reached, executives are feeling desperate and guilty.
How are Layoff Decisions Made?
Once the decision to downsize has been reached, how are decisions made in terms of who will be laid off? The major decisions come down from the top of the organization, with cost savings goals set at a dollar amount, then, with that in place, they determine where the cuts will be made.
Sometimes a decision is made to implement an "across-the-board" cut. For example, vice presidents will be told to cut their payroll expenses by 20 percent. In this situation, there is pressure to look for more senior employees with relatively high salaries. While at first glance this might suggest that older employees are the most vulnerable, this can sometimes work to the employees' advantage. In some cases, a compromise can be reached whereby more senior individuals are encouraged to opt for early retirement with a severance package. Additionally, it is not uncommon for some employees to be hired back on a consultant/contract basis because of the knowledge and experience they possess.
Steps to Ensure Fairness
Executives involved in the downsizing process can take specific steps to ensure that layoffs do not disproportionately affect minorities and women. The planning process should start with the following questions:
- What will be the short- and long-term effects of layoffs on the organization's diversity profile?
- How will the layoffs affect diversity initiatives?
- How can we safeguard the diversity advances that have been made?
- How will we decide who will be laid off?
The answers to these questions should include common mistakes to be avoided, as well as "best practices" that may further the goal of building a diverse and inclusive organization.
If there could be an "ideal scenario" in downsizing, it would include leadership's commitment to diversity and inclusion, as well as a strong business case that has been widely communicated and accepted. Diversity consultant Tom McKinnon oversaw two major corporate downsizings as an HR executive. He and other diversity directors offer these "best practices" to help executives preserve their diversity gains during the layoff process:
- Use objective criteria to decide who will be affected. This objectivity can counter managers' tendency to use subjective criteria to protect their people.
- Communicate the objective criteria to everyone affected by the layoffs. A thorough communications plan can protect the company from accusations of unfair labor practices.
- Involve employees in deciding what roles need to continue, rather than which people need to be retained.
- Develop an objective process to match capabilities with these roles or functions. This method can include an open posting process, so that qualified employees can apply for those remaining positions. This open process can again counter any accusations of favoritism, as well as help the remaining employees deal with any "survivor guilt" that they may be feeling.
- Keep careful track of the numbers submitted by individual managers and "push back" if disparities become apparent. While some companies use this process to safeguard the company against litigation, executives committed to diversity may make adjustments to preserve diversity gains — for example, transferring rather than laying off a promising employee of color. While this shuffling can be justified in terms of the diversity business case and costs of sourcing/recruiting "high-end" employees of color, managers who use this strategy must walk a fine line to avoid being accused of reverse discrimination.
Putting these best practices into play during a layoff can help a company preserve its hard-won diversity gains.
Conversely, there are some commonly accepted "worst practices," often adhered to during a downsizing, which routinely disproportionately impact women and minorities. Executives committed to diversity should avoid these scenarios:
- Cutting staff positions first, while preserving employees in revenue-generating areas such as sales. This approach can inadvertently result in a disproportionate percentage of women and people of color being laid off, since they tend to be more represented in staff rather than line positions.
- "Last in, first out." Laying off the newest hires can wipe out an organization's recent successes as a result of diversity initiatives. Furthermore, these practices may have a "snowball effect," as remaining women and employees of color see the exodus, and, if the opportunity arises, move to a more diverse and inclusive company. Employees who cannot change jobs may become resentful if they believe that the cuts came at the expense of a diversified workforce.
While training and other initiatives may be put on hold for the short term, these infrastructures should be carefully monitored so that they remain intact and such initiatives can resume once the crisis is over.
Finally, when the downsizing process is over, opportunity arises. With the mantra "do more with less," leaders and senior managers can meld diversity with inclusion by positioning all employees to learn, grow, and contribute to the business. This strategy can form the foundation for renewed enthusiasm and motivation while, at the same time, maximize the company's business success so that future cutbacks will not be necessary.
Maureen Giovannini, Ph.D., is a senior consultant at J. Howard & Associates, which is part of Provant, Inc. She was the primary research consultant to MCCA® in publishing Creating Pathways to Diversity®: A Set of Recommended Practices for Law Firms.
From the July/August 2003 issue of Diversity & The Bar®