Nice to see that profits bounced back in 2009 for the Fortune 500. According to Fortune, “for 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that’s the second largest in the list’s 56-year history”. Nice. These last few years have been a tough time for most companies so this financial turnaround is good news for investors and for these businesses. Good news for everyone, right?
Maybe not for everyone…
Fortune also said that “in 2009, the Fortune 500 shed 821,000 jobs, the biggest loss in its history”. Earnings up but jobs down. How’s that? Well, earnings might be up but actual revenue went down by 8.7%. What happened was that companies panicked when they saw the economy stuttering. Fearing the onset of a depression, companies raced to lower expenses even faster. “Producers practically panicked,” says Mark Zandi, chief economist at Moody’s Analytics. “They cut costs incredibly aggressively.” And by cost we mean that little line item accounting for two-thirds of their costs: labor…
So companies protected their profits by cutting labor. They cut costs not to keep the company afloat but to ensure profits remain high. One can understand that companies have to cut costs when the business is threatened. If they don’t then all jobs might be lost and the business pushed over the edge – shutting down or getting sold to the highest bidder. However, it is one thing to cut costs to make the company more competitive or to save a company but another thing to cut costs to ensure higher profits when everyone is struggling.
Is this really the way a responsible company should act?
So often we hear business leaders talk about their greatest asset being the people who work for them. They go on about how these people are the heart and soul of the company and that the company won’t be who it is today if it wasn’t for every single person working so hard. Loyalty by workers and the effort they put in to make the company succesful forms part of the bragging rights for business leaders – they take it to conferences, annual meeting, the media, their competitors etc. And they hunt hard to make the “Best Place To Work” list each year.
In addition, almost every CSR survey I look at shows how you treat your employees as the most important thing a responsible company can do. So, not only is it something that companies brag about but it is also something that the public view as the most important thing a company can do.
Can companies who ran up record profits therefore really be seen as responsible corporate citizens if they did this on the back of laying off workers during a tough time? Should the responsible company not stick with their workers during tough times and rather use the good times to gear themselves to be even more competitive? If business leaders truly believe that their employees are the most important asset of their business, should they not show greater loyalty to those workers during tough times?
What would a responsible company do during tough economic times? Would a responsible company push hard for higher profits no matter what or would a responsible company protect both their employees and the profitability of the company? Make not mistake, this is not an either or question. The Fortune 500 companies had more than solid earning – record increases. For many of these companies the choice was remaining profitable and protecting employees or drive profitability to new heights by laying off employees.
Many companies made the choice to drive earnings on the back of job losses. There is nothing wrong with that. It is a business model followed by many and one that holds the investor as the ultimate stakeholder. But, if this was the route you chose, please do not talk about your employees as your greatest asset again. Greatest assets are never left behind in tough times. Greatest assets are protected and respected at all times. It’s during the tough times that we can judge whether it was words or actions.
Or maybe you just shouldn’t panick the next time we have an economic downturn. Take a deep breath, keep calm and remain level-headed. This will pass and you should focus on how to turn a challenge into an opportunity instead of a panick picnic. Huddle together with your greatest assets and make them part of the solution. Heck, you might actually be able to find a few new assets as your competitors panick and drop their best assets as they run for cover.
It’s not about people or profits. You can have both and respect both. And be committed to both people and profits. Treat both as assets and be true to your word. That’s how you protect your people so they can help protect your profits – now and for the future.