Downsizing and restructuring responsibly in a recession

Owen Evans, Wales Director at Business in the Community, explores the innovative thinking businesses are applying as they seek to downsize and restructure to survive the recession. 

The sudden reversal in the age of mass debt-led consumerism and unsustainable returns on investment will surely have to lead to changes in the behaviours of shareholders, leaders, managers, staff and the wider community.

At a recent Institute of Directors lunch, Sir Stuart Rose, Chairman Business in the Community, observed that people who remember previous recessions are cutting back as they have already experienced how hard recessions can be.  What he also recognised was that there is now a generation that cannot remember the last recession and has little understanding of what’s going on.

The situation is probably similar for many in business, with many leaders and managers not having experienced a downturn in the economy and even less having experienced managing and leading business in recession. With business leaders’ struggling with a market that is yet to bottom out, it is hard to recognise or forecast what sort of economy we can look forward to longer term. Whilst few would deny that the economy will eventually bounce back, when and what it will look like becomes the $64,000 question.

The sudden reversal in the age of mass debt-led consumerism and unsustainable returns on investment will surely have to lead to changes in the behaviours of shareholders, leaders, managers, staff and the wider community.  Capitalism is not dead but it may be very different in the future. Businesses though have very much more immediate problems.

Responsible downsizing and restructuring

In the current economic climate, businesses find themselves being faced with tough and immediate decisions to make as they adapt to ensure their long term survival. Though redundancies are often an unavoidable outcome, research from Business in the Community and our partners shows that best practice on downsizing responsibly does exist, and that flexible solutions to retain skilled workforces can be implemented.

Successful businesses are typically those that react to changes swiftly and efficiently. In good times this means investment, expansion, new markets and products and new means of production.

In harder times, the decisions facing even many successful businesses are how they respond to financial pressures that demand slimming down their operations.

However, it has been encouraging to see the lengths to which companies across the UK are going to seek responsible and flexible solutions that will allow them to retain skilled workforces, and how closely there are working with their respective trade unions.

Retaining skilled staff at General Motors

At its plant in Ellesmere Port, General Motors approached its unions and explored whether staff would stay away from work for up to nine months between January and September 2009 on less than a third of their basic salaries. Such ‘sabbaticals’ were seen as providing a means of ensuring that skilled staff were retained long term but that a short term solution was found to immediate production challenges.

Other companies have discussed wage freezes or pay cuts with staff as a means to avoid redundancies.

Effective delivery, communication and resettlement

In 2006, Boots closed its Airdrie factory in North Lanarkshire after 50 years of operation, and their actions and their impact on those made redundant formed the focus of a comprehensive study by the Scottish Council Foundation.

The closure was phased over two years and offered an invaluable opportunity to explore the effects of an economic transition by a company with a strong commitment to corporate social responsibility.

Through professional management of the closure process, good communication and a commitment to the resettlement of its workers, Boots demonstrated a real commitment to acting responsibly in what was a very difficult situation.

Conflicting stakeholder needs

In a redundancy process, different stakeholders will always have conflicting needs.  Managers will be looking to manage continuing production and the process itself, unions will seek to extend employment or ensure optimal redundancy terms and politicians will seek to reverse the decisions made.

At the Airdrie factory breakdown in trust and confidence between the partners at this stage was difficult to avoid and so over-communicating was preferable to the alternative. 
What was learnt however was that communicating with staff at the same time as other stakeholders was one of the more positive aspects of the way the process was managed.

In the second phase, once redundancies were agreed, preparations began for resettlement activity. The defining feature here was the quality of the partnership between Boots and partner agencies, including the local development agency and local authority. Wages were guaranteed until the scheduled closure date end of the period which, accompanied by employment consultant support provided an incentive for workers to seek alternative employment.

Significant public sector support in the form of training and career guidance was also accessible. Regular partnership meetings ensured focus and employee views of support for resettlement were positive. Targets for resettlement, albeit in different economic times, were met and the study broke new ground in tracing former employees for up to two years.

Around half secured similar or better jobs although a point of some concern was the fact that women were over-represented amongst those whose wages declined post Boots.

The final and perhaps most noteworthy stage of the process was that Boots donated part of the proceeds of the sale of the factory to the resettlement partnership to ensure ongoing support in the area.

Long term value and reputation

Through 26 years of working with our member companies, time and time again Business in the Community has seen how responsible business practices in company workplaces make the business more successful and more sustainable. 

Companies such as General Motors and Boots are setting the pace for others to follow, even in tough times. As they have discovered, in today’s world, honesty, integrity and authentic leadership through difficult transitions is the best way to protect businesses’ long-term value and reputations.

What is clear is that many business decisions are unpalatable but necessary.  There is no harder decision for managers to face than releasing staff, staff that form the backbone of business and their local communities. These decisions are never taken lightly but they can be delivered responsibly and as Robert Peston recently commented, ‘People must be the priority’ as the business cycle enters harder times.

Full briefing notes:

Full briefing notes are available for download from this page.