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The Ethics of Downsizing

When shareholders increase their wealth through downsizing, does this come, to some degree, at the expense of loyal employees---those who have worked diligently to serve the firm in terms of accomplishing its vision and mission? If so, what actions could be taken to be fair to both shareholders and employees when downsizing or "smartsizing" a firm's employment ranks? What ethical base would you employ to make decisions regarding downsizing?

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According to Weinstein, "Downsizing refers to a company's decision to reduce its workforce for reasons other than poor performance, criminal conduct, or unethical behavior on the part of those being let go." Although downsizing is a softer way to call layoff, there are reasons why companies decide on downsizing. While there are a few reasons, the most commonly used reason is to become more competitive and to cut company costs, hence, the term is 'downsize'.
According to Orlando, there are arguments for the validity of downsizing. It is based on the Utilitarian ethical theory (Utilitarianism) which means that downsizing is an action that proves to maximize the welfare of the majority of people and this includes taking into account the ethical decision procedure of downsizing which are as follows: identifying all options, groups and individuals who will be affected, evaluating the benefits and consequences that the decision will have on all of these, and choosing the best possible action with the greatest benefit. However, it has not been proven yet that downsizing automatically improves the economic health of the organization but definitely negative effects have happened making it unknown if they balance with the economic benefits of downsizing. Another argument is that downsizing protects the property rights of the shareholders in the company. Although Utilitarianism implies that there is justification of great harm to a few if there are small benefits to many, the Kantian theory limits Utilitarianism since using someone is never right no matter how high it can benefit to others.
Another argument is that employees of organizations base their important and relevant life choices based on their jobs and these are legitimate expectations and they have to be considered in calculating costs, which is shareholders' expectations and employees' expectations. The argument of fairness cannot be neglected. It is unfair for the organization to penalize loyal employees as a result of the incompetence of management as corporate problems are usually the result of management's inability to strategically align its workforce and resources with the company's ...

Solution Summary

The solution discusses the ethical base of downsizing. References are included.

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