The Terminator as boss: why mass sackings don't work

5 June 2015

Managers seeking to turn organisations around would do better to try candid and open dialogue. They might not like where this leads, but at least they will secure honesty and commitment from the organisation's employees, owners and stakeholders.

Nigel Martin, Australian National University and John Rice, University of New England

Malaysia Airlines recently appointed a new CEO, Christoph Mueller, to turn around its failing fortunes. After the dual tragedies of 2014, and even before, the organisation has been struggling. Its traumatised employees have had much to deal with, but even they were probably surprised to be fired en masse last week.

Living up to his nickname “The Terminator” (earned as CEO of European airlines) – Mueller terminated all 20,000 Malaysia Airlines staff before offering a lucky 14,000 new contracts to rejoin the downsized firm. His intentions are certainly clear - his way of turning around the organisation is to remake it from the ground up, according to his own predilections. There is no sense of collaborative decision making or plurality. Nobody can have any misunderstanding of who is the boss.

The aviation industry is more prone to this type of “shock therapy” than most. Legacy carriers like Malaysia are confronted at home and abroad by new airlines with radically different internal economies. Malaysia Airlines has the misfortune of being co-located with Air Asia, one of the world’s fastest growing low cost airlines.

The airline’s owner and board hope that Mueller will turn things around - but experience and much evidence suggests his dramatic actions are likely to fail.

Willingness to fire

In the 2009 romantic comedy cum drama, “Up in the Air”, George Clooney’s character Ryan Bingham flies around the US firing people – a task that those peoples' bosses find unsettling. Happily able to distance himself entirely from the human consequences of his job, Bingham’s life obsession is reaching ten million frequent flyer miles and securing an uber rare frequent flyer card from American Airlines.

It is fiction, of course, in most elements of detail. For example, generally American managers have no problem firing people, and have been doing so with gusto for decades. As an example, in 2001 Cisco fired 8,500 staff in a downsizing exercise that saw morale in the company plummet. Since then Cisco has adopted a stronger “talent management” approach to handling layoffs and economic downturns, however long term damage was clearly done. As in all things, Australia and indeed much of the rest of the world follow closely and invariably US trends. Downsizing is a central element of corporate cultures in most western nations.

Chainsaw Al

The most celebrated corporate “toe cutter” in modern times is quite probably Al “Chainsaw” Dunlap. Dunlap made his name cutting a swathe through various US corporations. He went on to live in opulence in a Florida mansion reportedly replete with “sharks and lions and panthers and eagles and hawks, and a lot of gold”. Clearly not in the business of challenging stereotypes, Al knew his place as King of the Jungle.

In a way, Dunlap’s unbridled behaviour was the entailment of American capitalist triumphalism central to Reagan’s America. Business is war - and while enemies are out there competing against us, they also work just down the hall. Those fired deserved no more than what’s legally necessary, while he deserved no less than the millions he was paid to transform his realms.

Dunlap, however, is a cautionary tale for those shareholders who made the mistake of trusting him - including Australia’s own Packers. He was later permanently barred from serving as a director of a public company due to fraud and was cited as an exemplar of the modern corporate psychopath. This goes a long way to explaining his cavalier approach to those he employed - it’s likely the impact his decisions had on their wellbeing quite simply did not enter his mind.

Herein lies an interesting paradox – businesses are first and foremost groups of people. To survive in business, the first priority is the management of relationships. Treating your employees like cannon fodder might create some short term gain, but at what medium and long-term cost?

The evidence

The phenomena of downsizing has been well researched, and it is found to almost inevitably fail in any of its stated aims.

Meta-analyses of downsizing’s effects indicate that massive layoffs are bad for shareholders, customers and of course employees. A major omnibus analysis of recent empirical research concludes there are equivocal findings in relation to downsizing’s consequences - with negative impacts dominating. Survivors often feel guilt, especially if the processes involved in the downsizing have been arbitrary and unfair.

In essence, downsizing resets the relationships that are at the heart of every organisation in a negative manner - cynicism replaces trust, secrecy replaces candour and faithlessness replaces loyalty. What else could you possibly expect?

A better way?

A key problem with American business literature is that it is predicated on conflict. Porter’s Five Forces, for example, sees great gains to be had by weakening the relative position of your buyers and suppliers through any legal means. Workers are seen as an entity with innately conflicting priorities to shareholders.

Surely the way to build sustainable organisations is to treat all stakeholders with decency and respect. Rebuilding trust after downsizing is nigh impossible and so logically, downsizing is the antithesis of the organisational renewal it purports to be.

Managers seeking to turn organisations around would do better to try candid and open dialogue. They might not like where this leads, but at least they will secure honesty and commitment from the organisation’s employees, owners and stakeholders.

John Rice is Professor of Management at University of New England.
Nigel Martin is Lecturer, College of Business and Economics at Australian National University.

This article was originally published on The Conversation. Read the original article.