Waiting, Wondering, Worrying

What if 10% unemployment is the new normal?

“These are really small-bore initiatives,” Baker says. “I don’t understand the thinking. None of these things will have a big impact.”

Not everyone is so pessimistic.

“The latest tax proposals could help,” says Heritage– Crystal Clean’s Ray. “The immediate expensing of capital investment would lead to companies accelerating their capital-spending plans, which would in turn increase employment. That increase could be the spark that restores consumer confidence and leads to increased consumer spending. A temporary surge may be just what we need to improve our economy.”

On the small-business front, the President recently signed into law a $30 billion lending bill designed to make credit more readily available to small companies. But an August survey by the National Federation of Independent Business showed that 91% of small-business owners claim their credit needs are already being met. That suggests the lending program may not help as much as its backers would like.

“It goes back to the issue of demand,” says Craig Keenan, CFO of von Drehle Corp., a privately held paper-products manufacturer in Hickory, North Carolina. “No one is willing to kick-start employment by hiring people who are not needed.”

“It would be nice if we could get a coordinated effort going and we all decided to hire one more person,” Cunningham says. “But in the real world that doesn’t happen. We are all operating independently and there is a certain kind of gamesmanship that goes on: I would like everybody else to have to hire somebody and me not to have to hire until demand comes up.”

“Businesses are doing what they should do,” Baker concedes. “They are trying to keep expenses under control, build cash, and prepare for the future.”

Glimmers of Hope

And many are struggling to balance short-term self-interest with a longer-term outlook — plus some acknowledgement of the greater good.

Goodmans, for example, has cut back its workforce, but not in direct proportion to its revenue losses. “Our ownership made a conscious decision to maintain its core employee base at some financial cost,” says Klein. “If we were primarily focused on maintaining profitability, we might have decreased employment even further, but the family that owns the company, which is now in its third generation, has a very long view. They’re quite willing to accept personal short-term financial sacrifices to maintain what they view as the long-term strength of the company, which is our knowledge of our products and of our customers. And that is embodied in our people.”

Rudolphe/Libbe also has tried to hold on to as many of its workers as it can, putting some on shortened schedules during the worst of the downturn rather than laying them off. In addition, it has pursued new business opportunities in the green market through its BHP Energy subsidiary, which markets and installs energy-efficient microturbine power-generation systems for commercial customers.

Examples such as these hardly negate the specter of a jobless recovery, but they do suggest that the “green shoots” that companies have long been looking for will spring up only if companies think more about how to grow and less about how to cut.

Randy Myers is a contributing editor of CFO.

Do Layoffs Work?

Companies have a duty to shareholders to manage their businesses, including their workforces, for maximum profitability. But it is fair to ask whether they sometimes lose sight of what’s good for the long-term in pursuit of short-term benefits.

“I think that with some of the larger publicly traded companies, especially at the beginning of the recession, layoffs were a way to keep Wall Street analysts happy,” says Anthony Valente, CFO of Eliassen Group, a $100 million–plus IT staffing agency based in Wakefield, Massachusetts. “If you’re just laying people off to get your short-term numbers up, or to keep analysts happy, you’re setting yourself up.”

How so? “Overworked employees are less productive in the long term,” says Kathleen Wolf, CFO of The Gibraltar Group, a $1 billion–plus real estate development firm headquartered in Clearwater, Florida.

Academic research seems support both criticisms. Many studies have shown that downsizing announcements actually hurt stock prices, both over the short and long terms. And others have found that productivity improvements were as common at companies that increased their workforces as those that decreased them.

Maybe Corporate America’s payoff from the latest round of layoffs is reaching its end point. The federal government recently reported that nonfarm-business-sector labor productivity fell at a 1.8% annual rate in the second quarter. That was the first such decline in nearly two years. — R.M.

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