David - Do NOT get me started on this topic!! Too late! As someone who has been downsized twice at two different companies, I could go on about this for hours (and I am mightily jealous that I am not there with you enjoying the ribs!).

However, since I don't want to be a bore, here's the short-ish answer (in my opinion): Usually the people who are making these decisions are either: a) current executives who are unlikely to be there for the long term; or b) people brought in specifically to implement the cost-cutting needed.

In both cases, it is in the best interest of those running the downsize show to make the cuts in the fastest (and usually brutal) way possible to show financial positives to the shareholders, owners whoever, asap, so they can collect either their consulting fees or their golden parachute and hit the road to the next company where they will decimate people's lives, and ultimately damage the value of the company (because overworked, underpaid miserable employees do not make for good products or happy customers).

Negotiating pay-cuts with employees involves actual consideration for the business and the people, takes time, and is hard work. Why would these carpet-baggers bother with all that, when they can slash and burn and move on to the next??

Not that I'm bitter, or anything.

P.S. Please tell Charles there are lots of us out there truly thrilled to hear that he is back at it, and especially that we will get to read his column in RR soon!

Over the years I've figured out the same answer Kristen did: that most execs who think they have a 5-year or 10-year plan really have no such thing when push comes to shove. When it comes to change, they tend to choose big+fast+brutal over small+slow+thoughtful. So you give 'em Hell, Charles Pizzo! Make 'em at least ADMIT that that's what they're going to do.

I actually googled Charles just the other day, hoping I might find him blogging somewhere. This is great news for Charles, and for everyone who appreciates his wisdom and loves his southern style. I look forward to following him as he starts this new chapter.

>>why do they almost never attempt to satisfy analysts with temporary across-the-board pay cuts that might actually bond the workforce together in common struggle against hard times?<<

Because analysts are almost never satisfied with this approach - nor are the investors, be they institutional or individual. Sorry to say but to quote Pogo's infamous line, "we have met the enemy and he is us!"

If you own any stock and are brutally honest with yourself, when the value of that stock started to fall didn't you want the company to do whatever it took to shore up your investment? Did you really think about, or agonize that their actions to shore up the stock price might come at the price of lost jobs?

Suppose a company CEO publicly came out and said something like, "we plan on addressing this crisis by across the board pay cuts...it will take a lot longer to recover than if we drastically cut our expenses through downsizine but we think it's the responsible way to proceed." Would you be willing to let your investment lie fallow for the foreseeable future or would you look for another company with a better return? Even if you would, how many thousands of other shareholders would bolt? What do you think would happen to fund managers who supported this strategy with their clients? Do you think they would get calls of support for backing this responsible approach or do you think they would be crucified for not maximizing investment value?

It's idealistic to advocate a company should be more thoughtful in a situation like this when in all reality if our own money was at stake we'd want the company to cut their losses as quickly as possible and would pull our support (money) if they didn't react fast enough, creating a downward sprial.

Like most American investors, I pay no attention at all to individual companies in my mutual funds. I don't go to annual meetings, I don't toe-tap, waiting for companies to cut costs and send me a dividend.

Who does? Mutual fund managers, and other big investors. I don't pretend to know how the pressure on organizations to turn in great results every quarter increased to the point where they now have to downsize as frequently as Oprah Winfrey diets.

But I do know that privately held companies downsize much less frequently, and not because they're bleeding-heart liberals who can't stand to cut anyone loose. No, it's because downsizing is a short-term gain to profits with a long-term cost to the organization's cultural cohesiveness, institutitional memory and social goodwill.

Corporations do not exist only to satisfy analysts and investors this quarter or this fiscal year. They exist to make their society rich—that's employees, customers, community members AND investors—over the long haul.

Shitcanning 10,000 people every two or three years is a bad way to do that, sez this cold-eyed realist.

I'm with David. And short-term, "I want it now!" thinking is for children. Some day we'll grow up and think long term, even if it takes something big to force us. And there are a lot of somethings big out there.

David,

I don't disagree with your sentiments. In fact I've long lamented that "going public" was a dance with the devil in that the corporation had to sell its soul in order to get the money it figured it needed/wanted.

All that aside, as a cold-eyed CEO realist, how would you convince the shareholders and investors (especially the institutional guys that hold large voting blocks of stock) that it was in the best interest of the company to take the long-view in direct opposition to the industry and competitors. Especially since there was a better than even chance that you would be sued for violating your fidiciary responsibilty as an officer of the company to maximize shareholder value?

Is it a chance or fight you really would be willing to risk your career on?

So CEOs shitcan 10,000 people because they're afraid of getting sued?

Give me one example of such a lawsuit.

Craig, I posed Charles' question because I didn't know the answer to it. You've HELPED me come to the answer, as have others here. But yours this isn't the whole picture and you know it.

I've watched privately held companies NOT downsize people during downturns and thrive in the long run because they maintained continuity of management and workforce. I'm not saying people should never be let go.

But I am saying routine bloodletting has been disproven as a medical practice, and among thinking people it's disproved as a management practice too.

Do a search on key words "shareholder lawsuits" and/or "fiduciary irresponsibility" and you'll see a number of instances where CEO's and their boards have been sued for not maximizing shareholder value. Do any of these suits list "not firing 10,000 employees" as a reason? Probably not specifically but then you'd have to read each of the lawsuits to see if there is a charge related to reducing costs as a factor.

But that's not the point I was making. You said you are like a lot of investors and don't really follow the specific companies in your mutual fund. Granted. But if one of your funds shows an up tick, how do you know it isn't because one or more of the companies in it didn't fire 10,000 employees and Wall Street is rewarding them with in increase in stock price.

And if that is potentially one of the reasons for your good fortune (hypothetically) given your argument shouldn't you move your investment to another company/fund that is more social responsible yet might not have as good returns?

If you truly believe it's better for companies to take a long view and that downsizing is not a proven management practice, then why aren't you putting your money where your mouth is and only investing in companies whose management practices mirror your beliefs? IMHO it's a bit hypocritical to advocate for something in the abstract but then not put it into daily practice.

BTW, I too am a hypocrite, as I also think it's better for companies not to make decisions based on the short-term, that it's actually more costly to continually be downsizing/hiring, and know first hand the personal impact and toll of layoffs. But I, like you and a majority of investors, don't care enough about the issue to make it an issue in my investment strategy by seeking out investment opportunities that reward like-minded companies. I confess that I'm more interested in the money...

Craig--

As a commentator, I can't criticize a business practice without first redoing my whole investment portfolio to back up my opinion?

My posts are going to be few and far between from now on, or my broker's sales commissions are going to skyrocket!

David

Craig said:

"Suppose a company CEO publicly came out and said something like, "we plan on addressing this crisis by across the board pay cuts...it will take a lot longer to recover than if we drastically cut our expenses through downsizine but we think it's the responsible way to proceed." Would you be willing to let your investment lie fallow for the foreseeable future or would you look for another company with a better return? Even if you would, how many thousands of other shareholders would bolt? What do you think would happen to fund managers who supported this strategy with their clients? Do you think they would get calls of support for backing this responsible approach or do you think they would be crucified for not maximizing investment value?"

I think this argument (legitimate though it is in the current business enviroment) is a version of the old standby "We've always done it this way."

In any situation where a big, painful change is required, somebody has to go first. As a communicator, I think that there might be more positive reaction than we think (from the media and at least some shareholders) to a company who came out with a statement something like (and this is just off the top of my head):

"Our organization needs to manage costs and improve our returns. At the same time we realize that our employees, our business partners and our shareholders will all be impacted by any choices we make to do so. We believe that it is in the ultimate interest of all of these groups to take a longer-term thoughtful approach to managing our business, because mass-job cuts alone frequently leads to over-worked unhappy remaining employees, delivering less than ideal service to customers, which does not translate to either business success or share-holder long term value. We believe that considering other options for cost reduction, such as temporary pay cuts across the company (starting with the executive team) will not only address our cost mangement requirements, but will keep American jobs in the US, allow for those working employees to continue to contribute to the American economy as a whole, and allow our business to continue its inter-connected involvement with other American businesses. We hope that our shareholders will support us in this attempt to do business as a partner and a member of a larger community."

I freely admit I'm not a CEO, and I don't disagree with the accuracy of anything Craig said today, but frankly the majority of "slash-and-burn" scenarios that I've seen have led to miserable employees, giving rotten service, lost customers, and dropping profits, so ultimately the shareholder will bail anyway. Where's the "success" in that approach?

I wish just one or two companies would try another approach and see what happens. Sometimes all it takes is one or two brave souls to open floodgates and show there is another way.

Am I holding my breath for that to happen? No so much.

Hello David. I am also a New Orleans native and Katrina evacuee who has been trying to get in touch with Charles Pizzo. Do you know of a buisiness address or email where I can contact him? Much appreciated.