Cutting Jobs to Bolster Profits Is Bad for People and Companies

Steven Korman, fourth-generation head of privately held Korman Communities, which employs about 500 people at its long-term-stay hotel and apartment properties in the mid-Atlantic states, told The Philadelphia Inquirer today that he has heard enough about layoffs as a strategy for maintaining profits and share-values in hard times. According to The Inquirer, Korman spent about $16,000 to buy ads in that newspaper and in The New York Times urging corporations to “please keep your employees working.”Korman told The Inquirer that he placed the ads after watching Pfizer CEO Jeff Kindler say on CNBC that the pharmaceutical firm would eliminate 8,000 jobs before its proposed merger with Wyeth. In the ads, Korman wrote, “I have listened to the executives of many companies say that they are eliminating thousands of jobs to ‘improve the bottom line.’ I own stock in many of these companies and would prefer that the companies make a smaller profit and [that] the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.”

Today, the newspaper says, Korman will send similarly themed letters to Kindler and the chief executives of 16 other corporations whose stock he owns. He writes in the letter: “If your company is making money and you cut these jobs, you are telling the world that you have no plans for future growth.” That pitch may be a hard-sell on Wall Street, where horizons rarely exceed the next quarterly financial statement. But consider these comments in the current issue of Knowledge at Wharton from management professor Peter Cappelli, who heads the school’s Center for Human Resources: “At least in the U.S., companies don’t seem to be thinking about much [about layoffs] beside the immediate impact. To some extent, this could be because of the pressure to manage operations to conform to quarterly performance expectations. It could also result from the fact that the negative effects of layoffs — such as the long-term costs associated with hiring again in upturns; delays in getting performance back up; and morale [issues] — are hard to track.” Cappelli and others discussed alternatives to layoffs in another recent Knowledge at Wharton article.