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The Fourth Wave: The Ethics of Corporate Downsizing

Published online by Cambridge University Press:  23 January 2015

John Orlando
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Abstract:

While the business ethics literature has devoted a tremendous amount of discussion in recent years to the question of whether the corporate manager has obligations to parties other than shareholders, it has failed to apply any of its insights to particular ethical concerns. This leaves the corporate manager with almost no guidance for resolving particular dilemmas he or she encounters. I bridge the gulf between theory and practice by focusing on the issue of corporate downsizing. I argue that corporate downsizing is, in many instances, morally contentious.

Type
Articles
Information
Business Ethics Quarterly , Volume 9 , Issue 2 , April 1999 , pp. 295 - 314
Copyright
Copyright © Society for Business Ethics 1999

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References

Notes

1 I would like to thank Kristin Novotny, Robert Pepperman Taylor, Alan Wertheimer, Don Loeb, David Christenson, and a reviewer at Business Ethics Quarterly for their helpful comments on earlier drafts of this work. For those scratching their heads over the title, note that agriculture has been called the first wave in industrial development, manufacturing the second wave, and information the third wave (of course, “wave” has two meanings in the title).

2 Richard L. Bunning, “The Dynamics of Downsizing,” Personnel Journal 69, i. 9, Sep. (1990), p. 69.

3 The very day these words were written, Xerox announced it would cut 10,000 jobs, despite enjoying a 20 percent jump in profits this year. Burlington Free Press, March 25, 1998, 5A, by Ben Dobbin of The Associated Press.

4 Bunning, op. cit., p. 70.

5 Interview with Secretary of Labor Robert Reich in Challenge, July/August 1996, p. 4. Reich notes that while the average wage is up, the median wage (the wage of the individual in the middle) is down. The discrepancy is due to the unprecedented rise in compensation for top executives during the 1980s and 1990s.

6 Downsizing by the auto industry in the 1970s and 1980s caused Flint, Michigan’s unemployment rate to climb to the highest in the United States, and its crime rate to rise accordingly. Facts About the Cities, ed. Allan Carpenter (New York: H. W. Wilson Co., 1992).

7 Harvey M. Brenner, Mental Illness and the Economy (Cambridge: Harvard University Press, 1973); Ralph Catalano and David Dooley, “Economic Predictors of Depressed Mood and Stressful Life Events in a Metropolitan Community,” Journal of Health and Social Behavior 18 (1977): 292–307; Jean Hartley, Dan Jacobson, Bert Klandermans, and Tinka van Vuuren, Job Insecurity: Coping With Jobs at Risk (Newbury Park: Sage, 1991); and John R. Reynolds, “The Effects of Industrial Employment Conditions on Job-Related Distress,” Journal of Health and Social Behavior, June 1997, pp. 105–118.

8 David Dooley, Ralph Catalano, and Karen S. Rook, “Personal and Aggregate Unemployment and Psychological Symptoms,” Journal of Social Issues 44 (1988): 107–23; David Dooley, Ralph Catalano, and Georjeanna Wilson, “Depression and Unemployment: Panel Findings from the Epidemiologic Catchment Area Study,” American Journal of Community Health 22 (1994): 745–65.

9 “What’s the Matter with Business Ethics?” Harvard Business Review 71, no. 3, pp. 38– 48. See also Joseph H. Monast’s discussion of the piece in “What is (and isn’t) the Matter With ‘What’s the Matter...’,” in Business Ethics Quarterly 4, no. 4 (Oct. 1994): 499–512.

10 This problem is by no means unique to business ethics literature. While the volume of paper devoted to explorations of liberalism’s foundations could insulate a room addition, the pieces that apply these theoretical principles to practical matters would barely serve as an adequate coaster. Even Ronald Dworkin, who has done as much as anyone to advance understanding of liberalism’s foundations, laments that political philosophy has had little impact on public debate of concrete issues because it has rarely been oriented toward those debates. See Dworkin, Life’s Dominion (New York: Knopf, 1993).

11 Perhaps the only congressional official to demonstrate any serious concern for the issue is Bernard Sanders, Vermont’s representative to the House of Representatives.

12 This paper in fact arose out of an interest in covering the issue of downsizing in an ethics course, but discovering no philosophical works on which to situate the discussion.

13 See Gillian Brock, “Meeting Needs and Business Obligations: An Argument for the Libertarian Skeptic,” Journal of Business Ethics 15, no. 6 (June 1996): 695–704; J. M. Elegido, “Intrinsic Limitations of Property Rights,” Journal of Business Ethics 14, no. 5 (May 1995): 411–19; and Jeff Nesteruk and David T. Risser, “Conceptions of the Corporation and Ethical Decision Making in Business,” Business and Professional Ethics Journal 12, no. 1, pp. 73–89.

14 See John R. Boatright, “Fiduciary Duties and the Shareholder-Management Relation: Or, What’s So Special About Shareholders?” Business Ethics Quarterly 4, no. 4 (October 1994): 393–407; Kenneth E. Goodpaster, “Business Ethics and Stakeholder Analysis,” Business Ethics Quarterly 1, no. 1, pp. 53–71; Kenneth E. Goodpaster and Thomas E. Holloran, “In Defense of a Paradox,” Business Ethics Quarterly 4, no. 4 (1994): 423–429; John Hasnas, “The Normative Theories of Business Ethics: A Guide for the Perplexed,” Business Ethics Quarterly 8, no. 1, pp. 19–42; David Rockefeller , “America After Downsizing,” Vital Speeches of the Day 63, no. 2, (November 1996): 40–43; Eugene Rostow, “To Whom and For What Ends are Corporate Managers Responsible?” in The Corporate Manager and Modern Society, ed. Edward S. Mason (New York: Atheneum, 1975).

15 Goodpaster, op. cit.

16 Goodpaster and Holloran, op. cit., p. 425.

17 Dodd, “For Whom Are Corporate Managers Trustees?” Harvard Business Review 45, no. 7 (May 8, 1932): 1145–63, and Berle, “Corporate Powers as Powers in Trust,” Harvard Legal Review 44 (1931): 1049.

18 Goodpaster and Holloran, op. cit., p. 434; emphasis added.

19 Ian Maitland, “The Morality of the Corporation: An Empirical or Normative Disagreement?” Business Ethics Quarterly 4, no. 4 (1994): 445–457.

20 Maitland, op. cit., p. 449.

21 Maitland, op. cit., p. 450.

22 Larry D. Sonderquist and Robert P. Vecchio, “Reconciling Shareholders’ Rights and Corporate Responsibility: New Guidelines for Management,” Duke Law Journal (1978): 840; reproduced in Boatright, p. 398.

23 Boatright, op. cit., p. 397.

24 Reich, op. cit.

25 Maitland, op. cit., p. 451.

26 Ibid.

27 Friedman, The Social Responsibility of Business is to Increase its Profits,” New York Times Magazine, September 1970, reprinted in Ethical Theory and Business, ed. Tom L. Beauchamp and Norman E. Bowie (Englewood Cliffs, N.J.: Prentice-Hall, 1979), pp. 136–38.

28 I owe this insight to Don Loeb.

29 Dodd, op. cit., p. 1148.

30 Friedman, op. cit., p. 137. Of course, the view that regulations designed to improve the general welfare of the population constitute “police state” tactics would only be held by someone not actually living in one.

31 Friedman, op. cit., p. 137.

32 Ronald B. Lieber, “Who Owns the 500?: You Do,” Fortune, April 29, 1996, pp. 264–66.

33 Wayne F. Cascio, interview on National Public Radio, November 14, 1997.

34 Reich, op. cit.

35 It was recently reported that Bill Gates made eighteen billion dollars in 1996, including 2.5 billion dollars in one day, bringing his personal fortune to an eye-popping thirty-five billion dollars. See Randall E. Stross’s aptly titled, “Bill Gates: The Richest Man Ever,” Fortune, August 4, 1997, pp. 38–40. Those interested in keeping abreast of Gates’s fortune can receive up-to-the-minute updates on a web site entitled “Bill Gates’ Personal Wealth Clock,” http://www.webho.com/WealthClock (which lists his wealth at 40.1 billion dollars on August 1, 1997).

36 Dodd, op. cit., p. 1152. It is perhaps telling that this argument was made in the nineteen-thirties, as there is one theory that the Great Depression was caused by a long-term drop in wages for the average worker, leading to an economy which could not purchase what it made.

37 I owe this example to Marcus Singer.

38 See Frances M. Kamm, Morality, Mortality: Death and Whom to Save From It (Oxford: Oxford University Press, 1993).

39 John Rawls, A Theory of Justice (Cambridge: Cambridge University Press, 1971).

40 For instance, Michael Ovitz, second in command at Disney, got a ninety million dollar check with his pink slip. See “Executive Pay,” CQ Researcher 7, no. 26, July 11, 1997, p. 603.

41 Rockefeller, op. cit.

42 Brett Chase, “Investors Suing Greentree Over CEO’s Compensation,” American Banker 162, no. 26, February 7, 1997, p. 5. The reason for this, as it turns out, is that companies can claim the compensation they pay to executives in the form of stock options as a tax deduction.

43 Chase, op. cit. Incidentally, Greentree is a corporation that specializes in making high-interest loans to mobile home owners who, due to their financial situation, are unable to get financing elsewhere. It was reported that Travelers Group chief Sanford I. Weill collected 220 million dollars in stock options in 1997 (Burlington Free Press, March 30, 1998).

44 Chase, op. cit.

45 “Executive Pay,” op. cit. One example that raises an eyebrow concerns Albert J. “Chainsaw Al” Dunlap, famous for cutting up companies and moving on, who made 70 million dollars in 1998 (Burlington Free Press, March 30, 1998).

46 The Labor Department has certified that NAFTA has resulted in at least 132,972 lost jobs. Burlington Free Press, July 10, 1997.