BIG PAYOFFS FROM LAYOFFS
How the largest downsizers fared
As America's sixth year of expansion draws to an end, it's clear that corporate restructuring and downsizing are still in high gear. According to outplacement firm Challenger, Gray & Christmas Inc.'s tally of big companies' planned layoffs, some 43,595 cuts were announced in January. While that's 55% less than the total a year earlier--when AT&T unveiled plans to shed some 40,000 workers--it's up 12% from January, 1995, and is the second-largest figure in 12 months.
Meanwhile, downsizing remains a hot-button issue. American Management Assn. surveys, for example, indicate that many downsizers show scant improvement in profits and productivity (BW--Nov. 25). Yet as economist W. Michael Cox of the Federal Reserve Bank of Dallas notes in a recent study, although companies shed some 17.4 million workers from 1990 to 1995, the economy has managed to replace those jobs--and add 11 million more. "Employers must have been doing something right," he says.
As proof, Cox and Richard Alin of the Dallas Fed point to the track records of the 10 largest downsizers in the 1990-1995 period (table). Altogether, the group jettisoned almost 850,000 workers over that period, they report. And the group's collective output--measured by inflation-adjusted sales--declined by nearly 10%.
But the key point is that as the 10 companies shed some 29% of their workers, productivity or output (real sales) per worker surged by nearly 28%, or 5.6% a year. That compares with an annual per-worker productivity gain of only 1.5% for the economy as a whole.
The bottom line is that most downsizers--including Sears, Roebuck & Co. and Boeing Co., the two whose productivity lagged--posted hefty profit and stock-price hikes. "Although dismissed workers underwent hardships," says Cox, "most of the companies emerged from downsizing more competitive than before and thus able to provide greater security to their remaining workers."By GENE KORETZReturn to top
Shrinking Payrolls and Rising Productivity
TOP 10 CORPORATE JOB CUTTERS
PERCENT CHANGE 1990 TO 1995
IN EMPLOYEES IN PRODUCTIVITY*
DIGITAL EQUIPMENT -50.2% +82.0%
McDONNELL DOUGLAS -47.5 +43.2
GENERAL ELECTRIC -25.5 +38.0
KMART -32.4 +37.1
GTE -31.2 +35.3
IBM -32.5 +32.5
GENERAL MOTORS -6.9 +23.4
GENERAL DYNAMICS -71.7 +5.7
BOEING -35.1 -6.6
SEARS -40.2 -9.8
10-COMPANY TOTAL -29.1 +27.9
*Real (inflation-adjusted) sales per employee
DATA; FEDERAL RESERVE BANK OF DALLAS
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DOING WELL BY DOING GOOD
Apartheid boycotts boosted stocks
A common view is that companies or fund managers that let moral or social criteria influence their investment decisions are abrogating their responsibility to shareholders. That's because such actions will tend to lessen rates of return and hurt stock market performance.
It's important to note, however, that sometimes social pressures can enhance investment decisions. In a study in Contemporary Economic Policy, economist Judith F. Posnikoff of California State University at Fullerton analyzes stock market reactions to corporate announcements of disinvestment in South Africa from 1980 to 1991--a period when U.S. companies were under intense pressure from pension funds and municipalities to stop doing business with that nation.
Focusing on 40 companies whose planned pullouts from South Africa were reported in the national press, Posnikoff found to her surprise that their share prices tended to appreciate in the two or three days surrounding the announcements. That is, relative to both the broad stock market and their own performance over the previous year, the stocks produced "abnormally positive" returns.
Why did the presumably efficient stock market applaud such moves? Posnikoff notes that, at the same time that U.S. companies operating in South Africa were under pressure to get out, South Africa itself was torn by rising violence and economic malaise. "It was a case," she theorizes, "where social pressures heightened both companies' and the stock market's awareness of an increasingly ominous economic outlook."By GENE KORETZReturn to top