In early February, readers of the Philadelphia Inquirer and New York Times saw an unconventional ad in the papers’ business sections.
“Dear CEOs: I have listened to the executives of many companies say that they are eliminating thousands of jobs to ‘improve the bottom line,’” the ad copy began.
“I own stock in many of these companies and would prefer that the company make a smaller profit and the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.
“Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs.
“Please keep your employees working.”
The ad was signed by Steven H. Korman, chairman and CEO of Korman Communities, a fourth-generation housing-development company based in Plymouth Meeting, Pa. Korman, 69, spent $16,000 on the ads. He also sent letters to CEOs of corporations where he owns stock, including Apple, ExxonMobil and Google. Korman says he took action after learning that Pfizer planned to increase profits from $16 billion to $20 billion by shedding 8,000 jobs.
“I own stock in about 17 of the large companies, and one is Pfizer,” says Korman. “That [news] bothered me because it’s not jobs; it’s people and families.”
The Kormans have built 40,000 single-family homes, 12,000 apartments and townhouses, and 6 million square feet of industrial and commercial space. The company, which has just over 500 employees, operates nine suburban garden and mid-rise communities in Pennsylvania, New Jersey and North Carolina. Some Korman employees have been with the company for 40 years, the CEO says.
“Even from a business standpoint, [layoffs are] not a good thing to do,” says Korman. “You don’t get loyalty that way.”
Korman says he received thousands of favorable comments on his campaign.
“Everyone needs a job and has to work. They feel good when they’re working,” says Korman. He stresses that he understands companies’ need to replace workers and to eliminate salary increases or reduce workdays or pay to stay afloat.
But Korman criticizes companies that focus narrowly on quarterly profits. As a stockholder, he says, “I’d rather they made $38 billion instead of $40 billion and have longevity with their people who really care about staying there.”
In February, Korman says, his company’s occupancy rates were down 4%; by March, he says, the figure was closer to 6%. “But every time there’s an up and down, are you going to drop people?” he asks.
Korman recalls that his grandfather Hyman, the company founder, allowed a third of his tenants to remain when they could not pay rent during the Depression.
Korman says his father, Sam, taught him “to treat people the way you would like to be treated. He was very good that way; he was a kind man, and I think treating people that way is very important. I’m very lucky; my sons are that way.” Larry, 45, supervises general operations. Brad, 44, handles the company’s portfolio acquisitions. Mark, 41, oversees commercial investments and developments.
“My dad told me one thing that always stuck in my head. ‘[Anyone] can kick in a barn door; it takes a carpenter to build one,’” Steven Korman says. “It’s easy to knock something, but it’s hard to create something.”
His message, Korman explains, is “just letting people know that we’re all in this thing together. And we need to help each other. It’s that simple.”
Andrea K. Hammer, founder and director of Artsphoria: Arts and Business Vitality (www.artsphoria.com), is a writer, editor and desktop-publishing specialist in Wyncote, Pa.
Businesses should focus on providing jobs
In a recent column in Directors & Boards, Family Business Publishing Co. President Robert H. Rock lamented that the unemployment rate had reached 7% (as of April 2009, it was 8.9%) and that the unofficial rate (those working less than they want to and those who have stopped looking for work) was near 15%.
Rock cited a letter he received from his father, Family Business Chairman Milton L. Rock, in the 1970s. Milton Rock, who for 35 years was managing partner of The Hay Group, a global consulting company specializing in human resources management, wrote, “Business is all about producing jobs as well as products and products…. There will come a time even in the United States when a company will be judged by the number of jobs it produces.”
“Rather than continuing to cut workers,” Robert Rock wrote in Directors & Boards, “CEOs must begin to think more about building businesses that secure and enhance employment. Boards of directors in general and their compensation committees specifically may want to underscore this notion by rewarding top management for retaining jobs and creating new ones. In these dire times, an incentive system that reinforces this objective could help get our country moving again.”
Cutbacks without layoffs
Two recent articles offered tips for business owners seeking ways to cut costs without resorting to layoffs.
Peter Cappelli of the Center for Human Resources at the University of Pennsylvania’s Wharton School told Business Week (March 9, 2009) that a 5% salary cut costs less than a 5% layoff because no severance payment is involved.
Mel Fugate, an assistant professor of management and organizations at Southern Methodist University’s Cox School of Business, noted in the Wall Street Journal (March 5, 2009), “How these concessions are identified and executed can make a significant difference in how well a company emerges when economic conditions improve.” Fugate told the Journal that management should be among the first to sacrifice and, when the economy improves, should reward employees who made concessions. “Doing so will preserve employee commitment and performance not only in the new good times but also in future downturns,” Fugate said.
Here are some cost-cutting suggestions culled from the Business Week and Wall Street Journal reports:
• Train existing staff to do more, such as tackling tasks in a department different from their own or performing maintenance.
• Lend employees to a neighboring company to help it handle a staffing crunch. Invoice the other company for the cost of your workers’ time.
• Prohibit overtime or require employees to take unpaid leave.
• Cut wage increases and perks such as cell phone usage allowances.
• Prohibit employees from taking company vehicles home (to save on gasoline and maintenance costs).
• Disconnect extra phone lines.
• Ask employees to contribute cost-cutting suggestions.
Study: Layoffs beget high turnover
In a 2008 study, researchers at the University of Wisconsin-Madison Business School found that after a layoff—even a small one—turnover among the surviving employees is higher than in companies that have not had staff reductions. In the study (Academy of Management Journal, 51[2]:259-76, April/May 2008), authors Charlie O. Trevor and Anthony J. Nyberg found that the more layoffs companies impose, the higher the turnover rate: A 0.5% downsizing predicts a 13% turnover rate, a 2% layoff predicts 14.1% turnover, a 5% staff reduction predicts 14.9% turnover, and a 10% reduction predicts 15.5%. This compares with an average 10.4% turnover in companies without layoffs.
“The downsizing-turnover relationship suggests a sad irony in that employees are laid off by companies that may subsequently find themselves understaffed,” wrote Trevor and Nyberg, who studied 200 firms.
David Noer, a professor of leadership and business administration at Elon University in Elon, N.C., and author of Healing the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized Organizations, told HR Magazine (November 2008) that layoff survivors experience a range of negative emotions, including fear, frustration, resentment, betrayal and distrust. This can adversely affect performance as the company tries to carry on with a smaller staff, the magazine noted.