Where Layoffs Are a Last Resort

Treating them as unthinkable can have big benefits

Nothing would devastate Southwest Airlines Co.'s arm-around-the-shoulder chairman, Herb Kelleher, more than a layoff. Through jet fuel spikes, recessions, even the Gulf War, Southwest (LUV ) has never in its 30 years downsized a single employee.

Even now. In the days after the attacks, as competitors announced job cuts of 20%, Southwest execs were packed into an emergency command center at their bare-bones Dallas headquarters, guzzling coffee and scheming to cut costs. Growth strategies were scotched. New plane deliveries were delayed. The renovations at headquarters were scrapped. But with $1 billion in cash and no debt, layoffs never had to be considered. Says CEO James F. Parker: "We are willing to suffer some damage, even to our stock price, to protect the jobs of our people."

Such words would likely make famous job-slashers like Jack Welch and Al Dunlap cringe. But Southwest is a member of the tiny fraternity of contrarian companies that refuse, at least for now, to lay off. What most of the non-downsizers have in common is pristine balance sheets and businesses that aren't battered by the vagaries of technology. Even before the disaster, in the face of the dot-com bust and a declining economy, their policies seemed anachronistic. Now, in the aftermath of a national tragedy that economists say makes a recession and thousands of additional job cuts inevitable, their stances seem almost noble, an old-fashioned antidote to the make-the-numbers-or-else ethos pervading Corporate America.

SNAP BACK. It's not altruism at work. Rather, executives at no-layoff companies argue that maintaining their ranks even in terrible times breeds fierce loyalty, higher productivity, and the innovation needed to enable them to snap back once the economy recovers. Some private companies, such as S.C. Johnson and Pella, have long traditions that date back to the Depression, when workers washed windows over and over just to stay busy. Others--public companies such as FedEx (FDX ), Lincoln Electric (LECO ), AFLAC, Erie Insurance (ERIE ), and Nucor (NUE )--are relying on creative cost-cutting, particularly in the wake of Sept. 11. At steelmaker Nucor Corp., based in Charlotte, N.C., some plants are on a four-day schedule, shaving 20% off the average worker's $50,000 annual pay. Bonuses of senior executives, which make up 66% of their salaries, have been wiped out, too.

Some newcomers to the policy say they were won over after battling in the brutal war for talent in the late 1990s. The tony San Francisco law firm Brobeck, Phleger & Harrison, whose fortunes swelled with the dot-com boom, is struggling through the worst business climate in its 76-year history. Still, the firm is sticking to its no-layoff rule, announced before the disaster, by axing Town Cars, expense accounts, travel, and partner retreats. "In a time of national crisis, unless your very viability is at issue, like the airlines, layoffs are even less appropriate," says Brobeck Chairman Tower Snow. Still, pressure is mounting from some of the firm's 200 partners to pull the policy, though Snow says he would resign first.

The tension at Brobeck and other companies underscores how difficult it will be for some to keep their word. In the 1980s, IBM (IBM ) had to renege on no layoffs after it was blindsided by the revolution in desktops, causing deep resentment among employees. The danger is that those asked to sacrifice in the first place end up losing their jobs anyway. Even so, say some economists, Corporate America has used layoffs too capriciously. That's why many executives at no-layoff companies are encouraging costcutters to make layoffs the last place they look--instead of the first.

By Michelle Conlin in New York

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