• 12/13/2023 8:00:22 AM

Layoffs and Business Ethics: Modern Dilemmas

by Barış Onur Örs

Business ethics, while limited to the realms of business and economics, has a direct impact on our social lives. The concept of work ethic, which emphasized intense labor and discipline during the Industrial Revolution, evolved in the 20th century to include elements such as loyalty and efficiency, coinciding with the emergence of large corporations. Today, factors such as globalization, technological advancements, and layoffs have made discussions around business ethics more complex. The recent high-profile dismissal of OpenAI's CEO, Sam Altman, has brought the issue of layoffs to a new dimension, reigniting debates in business ethics. This incident suggests that job stability and security are not guaranteed, even in senior roles, reinforcing the view that variability in roles is a fundamental characteristic of modern organizations.

Transformation of Work Ethics

In Christian tradition, the Protestant work ethic emphasizes hard work, discipline, and frugality as means to achieve both economic success and spiritual salvation. This ethic aligned well with the developing capitalist economy, which required a heavy labor force, and played a significant role during the Industrial Revolution. In the 20th century, the focus shifted not just to hard work, but also to loyalty, efficiency, and the adoption of corporate values. This shift can be seen as a response to the challenges of managing large groups of employees and also reflects the social contract between employers and employees.

On the other hand, layoffs have been a contentious issue throughout modern work history. Initially, during the early industrial period, layoffs often occurred abruptly without any additional security for workers. This harsh reality began to change with the emergence of labor movements and employment laws aimed at protecting workers from arbitrary job losses.

More recently, the concept of layoffs has become more complex. Globalization and the rise of technology have forced many companies to restructure and downsize to stay competitive. This, in turn, has led to an increase in layoffs and, naturally, intensified ethical discussions. Thinkers like economist Joseph Schumpeter emphasized the creative destruction inherent in capitalism, arguing that layoffs, while painful, are necessary for economic innovation and growth. Others, like Richard Sennett, have highlighted the negative impact of layoffs on employees' identities and self-esteem.

The Complexity of Modern Layoffs

Recent studies have shown that layoffs affect not only those laid off but also those who continue working, indicating that layoffs are a societal issue. Research by Leadership IQ highlights the impact of layoffs on remaining employees. Contrary to the common belief that surviving employees would work harder out of gratitude, it's found that 74% of them reported decreased productivity, and there was a 69% drop in the quality of products or services. This phenomenon, known as Post-Layoff Stress or Survivor's Guilt, demonstrates the negative effects of layoffs on performance. Concerns about job security, increased workload, and loss of colleagues can escalate stress and anxiety in the workplace, leading to reduced overall performance and increased likelihood of errors. Additionally, 87% of remaining employees were less likely to recommend their companies, potentially harming the employer's brand and overall reputation.

In terms of business ethics, discussions often focus on how layoffs are conducted. Principles of fairness, transparency, and respect are crucial. The role of managers in this process is critical. Effective leadership and communication can mitigate the harmful effects of layoffs. Research shows that employees who perceive their managers as visible, approachable, and honest are 72% less likely to report decreased productivity. This underscores the importance of transparency, empathy, and supportive leadership in managing layoffs.

While layoffs are an inevitable reality in the modern business world, their management should be seen as a fundamental part of business ethics. Layoffs are not just financial and operational decisions but complex processes with deep ethical and human dimensions. Therefore, it's critical for companies to manage these processes ethically, considering the emotional and psychological needs of employees, not only as an ethical obligation but also for the long-term success of the company.

New Challenges in Business Ethics

The discussion around layoffs and business ethics continues to evolve, especially in the face of new challenges like automation and the gig economy. These developments represent significant changes in the traditional employment landscape, raising new ethical questions and challenges.

Driven by rapid advancements in artificial intelligence and robotic technology, automation is reshaping the nature of work. While it leads to increased productivity and the creation of new types of jobs, it also brings the potential for widespread job loss. Companies are responsible for managing this transition, including responsibilities like retraining employees, offering fair compensation packages, and redefining roles to integrate human skills with automated processes.

The gig economy, characterized by short-term contracts or freelance work as opposed to permanent jobs, facilitated by platforms like Uber, Airbnb, and Upwork, creates opportunities for flexible work arrangements. However, this shift raises debates about job security and the blurring of lines between work and life.

Moreover, the impacts of both automation and the gig economy are not evenly distributed across industries and demographic groups. For example, low-skilled workers are more vulnerable to layoffs due to automation, while the gig economy may offer more opportunities in certain locations or for those with specialized skills. In response to these challenges, thinkers and policymakers have suggested innovative solutions like a universal basic income to mitigate the effects of layoffs.

Performance and Beyond

The debates sparked by the firing and subsequent rehiring of OpenAI CEO Sam Altman have intensified questions about the relationship between performance evaluations and layoffs, especially in the technology sector. The efforts of companies like X, Salesforce, and Meta in recent years to rehire employees they had previously laid off reveal the ambiguity of success metrics, even in large corporations. According to many analyses, although performance is often cited as a reason for these layoffs, the real issue may be more about rapidly reducing costs. As recruitment expert Bonnie Dilber wrote on LinkedIn recently, if companies can mistakenly lay off high-profile employees due to incorrect evaluations, then they might not be accurately assessing performance during mass layoffs.

All these developments indicate the need to reevaluate the concept of business ethics. While layoffs are often conducted to adapt to competitive market conditions, increase efficiency, or reduce costs, it's crucial not to overlook the deep ethical and human dimensions beyond the financial and operational aspects. Layoffs should be executed objectively and fairly, considering factors such as the employees' performance, experience, and contribution to the company; maintaining transparency about the reasons for layoffs, compensation packages, and reemployment opportunities; and addressing the emotional and psychological needs of the laid-off employees. Managing these processes ethically is vital for protecting the interests of the employees, society, and the brand values of companies.