ORGINALLY POSTED ON AOL DAILY FINANCE

The script for a layoff announcement in America these days is numbingly predictable, whether delivered by email or live at a beleaguered head office: The CEO reviews the tough economic landscape facing the firm, promises that “our employees will remain our most valued asset,” then announces that 10% or 15% or more of the workers will be let go while claiming that “I had no other option.”

Given the financial and emotional carnage that layoffs have inflicted during the Great Recession — on workers, their families, communities, the whole country — it would be reassuring to know two things: first, that those CEOs could justify exactly how a layoff was going to forestall impending economic disaster; and, second, that they really had explored all their options.

Sadly, there is little evidence that either of those things take place in most boardrooms across America.

The Alleged Efficiency of Layoffs

There are legitimate alternatives to layoffs. Consider Cleveland-based Lincoln Electric (LECO) — a company that has not given a single employee a permanent pink slip for economic reasons since 1948. Lincoln found other ways to go lean, like reducing hours, instituting hiring freezes, and offering early retirement incentives to volunteers.

Lincoln’s no-layoff policy is the outlier in corporate America. It shouldn’t be.

Evidence is mounting that layoffs represent an extraordinarily risky and costly business strategy. Far too few executives are aware of what they unleash on their own firm when they downsize or rationalize (or whatever other antiseptic euphemism they have for destroying people’s lives).

Peter Cappelli — from the University of Pennsylvania’s Wharton School, and a leading expert on layoffs — is depressingly blunt about the layoff thought process used by the majority of CEOs in America: He says most have absolutely no idea if cutting employees is a good strategy.

“They don’t have a systematic way to assess what is the net present value of the decision whether or not to lay people off,” he says. Yet these same executives can make detailed calculations for virtually every other decision that comes across their desks.

The Real Cost of Pulling the Layoff Lever

Given the apparent ease with which those running U.S. businesses have been pulling the layoff lever, we should demand that they think more rigorously — and much further ahead — about these issues than they do now.

CEOs should start by examining the actual costs of reducing headcount in tough times. Calculating the impact of a layoff on the morale of those who survive is hard, but not impossible.

Increasingly, research demonstrates that the stress on those left to pick up the slack leads to higher costs in the long run. The survivors wonder, “Am I next?”; instead of waiting for the answer, they head for the exits. It’s not uncommon that, for every worker formally laid off, up to five more voluntarily decide to leave within a year.

And what happens when business starts to pick up again? Employers find themselves understaffed — and scrambling to survive. The costly race to recruit and hire replacements can easily wipe out the expected savings used to justify the initial layoff.

Employee morale isn’t all that suffers when workers are let go. When remaining workers live in fear for their jobs, does anyone rationally expect the quality of production not to deteriorate?

It happened to Caterpillar (CAT) in the 1990s, when the company endured near-continuous labor strife. Caterpillar’s customers (and who counts more?) consistently rated the quality of the firm’s tractors and heavy equipment produced in those years as significantly lower than normal.

The cost of that loss of confidence is estimated to have been nearly half a billion dollars — and that’s not the kind of money shareholders can just let slide.

Who Really Makes Money When Heads Roll?

“A layoff will protect our stock valuation” is one of the perverse justifications CEOs use when trotting out their plans to shareholders and analysts. Yet, increasingly, research shows that it’s simply untrue.

A study by Bain and Company found that while very small layoffs may have little effect on share value, a public company that slashes 10% or more of its workforce — and that’s not rare! — will see its stock drop nearly 40% in value, and that it may take years to recover. (Take note, Research In Motion (RIMM) shareholders — the BlackBerry maker cut 10.5% of its workforce this summer.)

Another global review of the effect of layoffs on stock valuations is equally grim: “[L]ayoff announcements have an overall negative effect on stock prices … whatever the country, the time period or the type of firm considered.”

So, we know layoffs are horrible for those who lose their jobs. And we also know that cutting workers doesn’t reward shareholders. So who wins when heads roll? You probably won’t be shocked at the answer to that question.

Cut Headcount, Boost Paycheck

Researchers at the University of Arkansas tracked the earnings of executives at major U.S. corporations who ordered 229 layoffs during the 1990s. A year after the layoff, average total CEO compensation was up 23%!

Granted, the ’90s was a decade of growth. Now, however, the growing chasm between bloated CEO earnings and poor corporate performance (which clearly includes ordering a layoff) is fueling widespread public suspicion that far too many compensation systems are badly skewed in favor of those at the top. (Check out William Lazonick’s work on this issue.)

Lacking convincing evidence that layoffs represent an effective long-term business strategy — even in emergencies — it’s time to get much tougher on corporate leaders who claim that they have no other option.

ORIGINALLY POSTED ON THE HUFFINGTON POST

Last weekend’s shenanigans in Washington should have you convinced that the inmates have now taken control of the asylum. This surrender to the Tea Party means more cuts to the very social services so badly needed by the more than 14 million Americans who are unemployed and by their families. And that’s just the first step on the downward slope to follow.

But if you need any more convincing that something is going terribly wrong in the economy, here’s a very quick look at three other signposts which appeared this week.

1. The New York Times‘ Steven Davidoff wrote a fascinating article about what has happened to the corporate directors of Enron in the years since that company collapsed in 2001. Far too few reporters do this kind of reporting — going back to a story that once dominated the headlines but has since faded from the limelight. (I’ve been a journalist for nearly thirty years myself.)

His conclusion is blunt and depressing: “Do the former directors of the institutions that collapsed during the [recent] financial crisis have anything to worry about? If the experience of Enron is any example, the answer is a resounding no.”

Davidoff looks at where the folks who were responsible for the oversight of Enron have ended up and the public record shows that they’ve “recovered nicely from the scandal.”

In the light of what’s happened over the past three years on Wall Street, Davidoff’s analysis of corporate responsibility — and culpability — leads him to conclude that we’re deluding ourselves to expect improvement in behavior from the financial markets.

“The trend also underscores the decline in the importance of reputation on Wall Street — even since the time of Enron. Prior bad conduct simply is often not viewed as a problem.”

2. On Monday, the National Bureau of Economic Research published a new paper by two academics who examined the connections between companies that find themselves in public trouble and their subsequent investments to burnish their public image.

“Corporate Social Responsibility for Irresponsibility” (PDF) is based on the analysis of a 15-year record of behavior by roughly 3,000 publicly traded American companies of all kinds.

Their conclusion: “When companies do more harm, they also do more good.”

I suppose you could twist yourself into an elaborate knot to argue that there is a silver lining in that statement, but in the light of how little responsibility those at the top take for their corporate misadventures (see 1. above), the authors added a kicker.

It turns out that when companies find themselves in hot water because of growing public concerns regarding some aspect of their corporate governance, their response is to invest, consistently, in “corporate social responsibility [programs] in other dimensions, rather than reform governance itself.”

In other words, they avoid dealing with the fundamental problems at the top. Surprised?

3. Finally, I was involved in a very interesting blog discussion this week about recent writing I’ve done about very successful American companies that promise their employees that as long as they work hard, they will never be laid off.

It’s not an easy management style to embrace in any economic climate, all the more so in these slash-and-burn times. There are many challenges — and some dangers — in bucking conventional economic wisdom. Yet firms such as Lincoln Electric, Hypertherm and Southeastern Freight Lines have honored these promises for many decades while remaining exceedingly profitable and innovative.

You’d think that with so much financial and personal devastation in the news, there might be a sense of enthusiasm for at least exploring how and why these firms operate year-after-year.

I was struck by exactly the opposite conclusion of many of the comments, including senior academics from the MBA world.

To wit: “I don’t think a recession is the right time to be encouraging firms to retain workers. What the economy needs most is deleveraging and restructuring across sectors… in a dynamic, growing, innovative economy, we want entrepreneurs to be able to direct resources (including labor) to their highest-valued uses, in response to changes in consumer demands, technology, etc.”

So there you have it.

A lack of responsibility from those in power… spending money to put lipstick on a pig… and once again, downplaying the terrible jobs crisis.

Doesn’t encourage much hope, does it?

ORIGINALLY POSTED HERE ON THE HUFFINGTON POST

Let’s put together some recent data and academic research on inequality in America.

First, according to this week’s census report, the gap between rich and poor is steadily growing wider. You can cut it any number of ways, and there has been lots of number crunching in recent days, but here’s the official verdict from the Census Department: the gap between the top 20 per cent of Americans and the bottom 20 per cent has nearly doubled since 1968.

That top fifth of Americans now earns half of all the income generated in the country, while the bottom fifth earns only three per cent of that amount. The top five per cent of Americans alone earns one-out-of-every-five dollars paid out as income.

(Does it really make this issue of unequal distribution less worrisome to remind us that the situation was worse in 1929 – just before the Great Depression – as some conservative voices are doing?)

Second, Americans are woefully unaware of how unequal the country actually is in terms of income earned. Dan Ariely (author of Predictably Irrational) and Michael Norton have just published a survey demonstrating that Americans of all persuasions – Republicans, Democrats, men, women, well-off, poor – significantly underestimate how amazingly rich the richest Americans actually are.

Even more intriguing is that those same Americans are adamant that they want to live in a country where wealth and incomes are much more equally distributed, because it seems to them to be strong evidence of a much fairer society at play. In fact, in a blind choice between living in a more egalitarian society based on income (Sweden) and the US, they picked Sweden over the US by an overwhelming majority.

Third , this week, along comes a new study by another group of prominent economists (that includes Emmanuel Saez, widely-acknowledged as a leading expert on income and wealth distribution in the US) demonstrating the extent to which, as humans, we simply don’t like income inequality.

The researchers surveyed the reactions of more than 6,000 employees of the sprawling state-wide University of California system upon learning exactly what each and every one of their colleagues is earning. (Starting in 2008, the pay of every state employee in California is posted on an open website.)

In a nutshell – and why would you or I feel different? – it turns out that knowing that we are making less money than our co-workers makes us unhappy about our jobs, more likely to look for work elsewhere, more worried about the inherent fairness of our workplace and of our society in general and ultimately, that affects how we vote.

In other words, understanding how unequal the country has become can be really important in electoral politics.

The problem right now, of course, is that neither political party is much interested in talking about inequality.

For Republicans, talking about inequality raises the danger that, almost regardless of how it’s spun, voters will realize that the rich are steadily getting richer. Or more precisely, that a relatively fewer rich Americans are getting a great deal richer than the vast majority. Why should Republicans initiate a discussion about something that just makes voters demand, because it’s the only option, increasing taxes for those at the top? Republicans don’t do that!

For Democrats, talking about inequality requires talking about … wait for it! … raising taxes and cutting spending, because in the dire economic situation the US now finds itself in, once again, there really isn’t a way to avoid this hard prescription. And it’s become party dogma that Democrats don’t do that!

As a result, both political parties have a short-term interest in simply avoiding making too much of the fact that America is becoming a more and more unequal society, where more and more Americans are struggling to live decent lives.

Does that sound like good leadership to you?

Columbia University economics professor Till von Wachter – who was an invaluable resource for me during the writing of SPARK – testified before the  Joint Economic Committee  of the U.S. Congress last week about the impact of the recession on American workers.

Till gave the Committee an in-depth analysis of the substantial and long-lasting effects of layoffs on workers and their families, arguing that while there are “cost-effective policies” to get the unemployed back into the labor market, finding ways to reduce their significant earnings losses over the long-term represents a much bigger challenge – and as a result, the greatest priority (for policymakers as well as employers) is to develop “preventative measures to avoid large-scale layoffs in future recessions.”

One of those preventative measures – admittedly not possible in every situation – is for more employers to finally stop repeating their all-too-often-ignored platitudes that “our employees are our most important asset” – until a recession hits and reaching for the layoff-lever just seems so easy.  Companies such as Lincoln Electric actually find that in those unavoidable tough times, keeping people at work generates a powerful competitive advantage.

On May 18, in Ottawa,  please join me for an entertaining  discussion on the future of work at Ottawa’s new Celebridee (also called the Festival of Ideas), part of the  Canadian Tulip Festival.  The festival is one of the biggest annual tourist attractions in Canada.

WORKPLACE STABILITY IN AN UNSTABLE WORLD will be a 90-minute exploration on the employment challenges facing the Canadian economy between myself, Katherine Giroux-Bougard, (head of the Canadian Federation of Students),  Mel Svendsen (President of Standen’s  Manufacturing  in Calgary) and Buzz Hargrove  (former head of the Canadian Auto Workers).  Mary Lou Finlay,  one of Canada’s most prominent journalists , will  be the moderator.   The event takes place inside the Mirror Tent, a truly amazing example of portable architecture  from Belgium, set up in Major’s Hill Park behind the Chateau Laurier Hotel in downtown Ottawa.  Tickets now available.

The Conference Board, which brings together CEOs from many of the largest corporations in the United States and around the world, has invited me to speak about Lincoln Electric’s focus on long-term success and the competitive advantage of its guaranteed employment policy.

Joining me will be John Stropki, the CEO and Chairman of Lincoln Electric, and the CEOs of several other American corporations.  It’s open to TCB members and others: Details here.

A Job Can’t Be “Good” If It Doesn’t Last Long

“For the vast majority of working Americans, especially in these hard times, a steady job is incredibly important because it determines what kind of future they and their families will enjoy. Good would be nice, no question, but long-lasting is what makes the real difference to most Americans. Lose a “good job” to a layoff and the odds are that you will never again in your working life earn as much as you once did. Yet we consistently downplay the importance of job stability to employees in most discussions of the modern workplace.”

Read more at The Huffington Post

SPARK has just made the Top 50 Online list at Chapters – Indigo, Canada’s largest online book retailer. It’s sitting at #16.

I just finished an in-depth 25-minute interview about SPARK with Michael Enright, my old friend at CBC Radio, on The Sunday Edition.

Check the show’s site later today (Sunday April 11th) to listen or download a pod-cast.

I’m now blogging on HuffingtonPost.com.  Have a look at:

The Good, the Bad and The Opportunity: Workers Need – and Want – a New Deal and

Lost Jobs, Lost Futures – But There Are Alternatives