Global trend of staff layoffs; Why organizations should not be firing their employees during Crisis

Thu, Jun 4, 2020 12:04 PM on Exclusive, Latest,

The Great Depression of 1930 taught a lesson to the entire world that is still relevant even after nine decades. At the onset (because, it started in 1930) of the crisis, many organizations resorted to the option of firing employees citing the reason of cost cutting. But International Business Machine Corporation popularly called IBM, one of the giant technology company, adhered to the principle of retaining employees during more than 5-year long crisis, that began to subside after the US Government Fiscal Stimulus Plan. IBM is still of the top technological giant in the world. (Reference: Some contents have been added from Business Insider.)

This incident let the world know that organizations that stick around with the employees during the difficult times reap innumerable benefits later on.  

The recent development resulting from Covid-19 is triggering the organizations around the world to resorting to similar actions. Renault, which claims to be making cars since 1898 in its home page and is present in more than 134 countries around the world, recently announced axing 15,000 employees working around the world in a bid to save €2bn. Similarly, Uber, multinational ride-hailing company decided to lay off 3,700 employees, almost 14% of its workforce leaving its employees stranded during the crisis. The unemployed workforce due to crisis in the unorganized sectors in the world is terrible and will be repaired in no time soon.

These are the same organizations that time and again advocated their workforce as most important assets. What they don’t realize is that their successes have been built around their workforce. If the organizations expect their employees to be around when the business is picking up and then their employees might expect the same when they face a severe crisis.

The most important issue that everyone is concerned after the Covid-19 is when the economy will get to the normalcy. The economy of the world falters/stagnates not more because of many organizations in the world not making profit or failing but more because of unemployed workforce remaining idle for an extended period of time simply because if there is no employment, there is be no pay and no consumption. Therefore, the economy picking up to normalcy is directly linked to increasing consumption i.e. how fast the consumption picks up.

Future benefits of employees’ retention to the organizations:

Going forward, in spite of unbearable difficulties and question of survival that the organizations have to go through, I would like to point out the possible benefits of sticking to the current workforce if not more:

  • The growth prospective after the crisis might me explosive as the example of IBM during the Great Depression of 1930 is still a valid reference.
  • Organizations which are equipped with sufficient workforce leave number of organizations behind when the business picks up.
  • The worker-management pay dispute might possibly vanish for a decade as organizations’ retention of employees during the severe period will develop sense of belongingness in their employees.
  • It might take a long time to the incoming workforce after the crisis to familiarize with the procedures and system in the organizations and the organizations might have to spend heck of a money to the newcomers possibly leading to be deprived from reaping the unprecedented benefits the economy is about to offer.

Way Forward:

Having said that workforce should be retained at the organizations even during the crisis, we might possibly see a moment when an organization has to bear an irreparable loss. All that has been mentioned above would be an ill-advised solution to that particular organization. It would rather be better if an organization could go for let’s say two more years than next six months with assertion of various measures. But I again reiterate that firing is the ultimate solution not the first resort, which has gone opposite even in the current crisis.

I would like to add some directions available to the organizations at their disposal that if incorporated, could work positively to all the beneficiaries:

  • Seeking to move employees to shorter work days or have them work from home and revise their accordingly without leaving them into problem in their daily life.
  • Resorting to pay cuts for a temporary period of time. It would work better if top management takes a bigger cut than the rest of the company.
  • Cutting the bonuses, raises, unnecessary travel and overtime, non-vital equipment upgrades and find cheaper alternatives.
  • Turning to employees for ideas for cut cutting and productivity.
  • Considering for virtual office essentially saving rent and other costs.

Finally...Possibility of Recovery:

It is too early to decide how long the Pandemic is there to stay as the numerous developments in the coming. Furthermore, the conflicts among the countries around the world have been aggravated to a new level and are not assumed to be settling soon as the issue more relates to who rules the world economy after the crisis.

Let me draw some comparisons between current crisis and earlier crisis to further know the possibility of recovery. The base of economy has experienced a radical shift from that of Great Depression. Stock market crash of October 29, 1929, in which stock price fell by whopping 23% in a single day, is still assumed to be the dominant reason of Great Depression and subprime mortgage lending by the US BFIs from early 2000s led to the downfall of economy in 2007. US and European Countries were the hardest hit in terms of impact of the crisis. Lower damage could be observed in the other countries in the world. Now, the magnitude of the crisis in terms of the countries affected is far more severe than that of Great Depression of 1930 and Financial Crisis of 2007. The Snowball effect could worsen the economy even further in the current crisis. Thus, we might expect a snail-paced recovery in the world economy as the crisis has impacted the whole world at a single time.

Antim Bhusal,  a banker with A  class commercial bank (Nepal SBI Bank Limited)