Bank of America's CEO announced in September that the bank was planning to lay off 30,000 employees over a period of two years as part of its cost-cutting. The bank reported a loss in the second quarter but did well in the third.

When I read its first Corporate Social Responsibility report for 2010 that was released this July, I found that one of its declared ‘Operating Principles' was ‘We will be the best place for people to work.' Something must have happened in the bank between July and September.

I called a friend who works at the bank to ask if the company had announced a schedule internally of how and where the lay-offs would take place, and how employees could find more information about it. She said she didn't know much more about it than what was reported in the papers, and employees were calling one another to find out if anyone knows more.

In such situations, rumours begin to spread quickly. Time is wasted thinking about who is likely to be laid off or which department will be most hit. Morale suffers and anxiety rises.

The ones who are mobile and/or who have a more attractive resume start seeking other opportunities rather than wait to be told they are sacked. So, valuable employees leave. The productivity of the organisation is affected at a time when it can least afford it.

Of course, all this need not happen, or at least it can be managed better to cause minimum harm. Organisations need to have the freedom and flexibility to decide when they will lay off their employees. If they see a downturn in their fortunes or if there is business restructuring, then activities become redundant and so employees manning those positions become surplus.

Right and wrong ways

Since the organisation's objective is to earn a surplus (or at least cover costs if it is a non-profit activity), it would have to make the management decisions that meet the objective. When personnel costs are a major part of the business, it is so much easier to reduce the numbers employed and show quick results, rather than find and execute new growth opportunities.

However, there are right and wrong ways of executing a lay-off and the academic literature is full of studies that have explored different implications. When an announcement to lay off is made, it will immediately hurt morale, however scientifically or carefully the implementation is undertaken.

Human nature likes less uncertainty. Every employee begins to wonder if he or she is going to be on the chopping block, and productivity falls. However, morale usually returns to normalcy within a short while, provided the organisation keeps considerations of procedural and distributive justice in mind. Procedural justice deals with perceived fairness of the process, and distributive justice deals with perceived fairness of the outcome.

The organisation needs to be very clear in announcing how the decision to lay off a person will be made. If the criteria includes poor performance of the activity/department, that information must be shared; if it includes poor performance of an individual within an activity, again, the criteria must be laid out and the individual given the opportunity to appeal the decision. The details of who, when and how need to be worked out before an announcement is made because the questions arise immediately.

Hotline for employees

Well-run organisations manage the rumour mill by providing a hotline for employees to call if they wish to know more about the announcement. There is usually a date given, within which the lay-off process will be completed, so employees can look forward to a time when they would know if they have survived or not.

Even though a person who is laid off may take longer to accept the decision as being justified, or at least beyond his or her control, those who remain in the organisation — the survivors — return to normalcy faster when they are convinced that the procedures were fair.

One academic institution, with cost-cutting in mind, recently laid off senior employees with many years of service who, I'm told, were asked to clear their offices within the hour of being told, with a security guard waiting outside to escort them out.

This is a practice one hears of in the corporate world, and I'm told this is as per advice given by the attorneys. It is a sad day when lawyers take charge of managing human resources.

It is, of course, even worse if the organisation announces the lay-off and does not execute it. A short-sighted view would be to make an announcement to convince the markets that they are doing something about their costs, but if they do not actually make the numbers, they will suffer a double-whammy — where the market begins to question the credibility of the top management, and its productivity suffers internally.

Not a ‘human resource'

Bank of America is proud of its accomplishments as a good citizen. In its Corporate Social Responsibility report for 2010, it says: “In 2010, we continued to offer a world-class suite of benefits and training opportunities to our US employees.”

These include health and retirement benefits, even reimbursing employees for money spent when they adopt children, child-care expenses, and so on. It makes one want to immediately apply for a job in such an enlightened organisation.

It also says: ‘Through the Employee Assistance Programme, Bank of America has provided voluntary, confidential services to approximately 6,500 employees and their family members each quarter in 2010 to help them manage family problems, job-related issues, stress and other situations.'

Their lay-off practices must certainly be causing a lot of stress and we must await their next report to see if the amount they are spending on this has gone up.

One protestor in the Occupy Boston movement held a sign that read: “I'm not a human resource. I'm a human being.” I guess that said it all.

(The author is professor of international business and strategic management, Suffolk University, Boston, US. blfeedback@thehindu.co.in )

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