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Downsizing's Impact on Diversity

A new study suggests downsizing by position or tenure can hurt managerial diversity, while performance-guided layoffs don't.

Thursday, February 27, 2014
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How you downsize may have more impact on your managerial diversity than you think. When you go about your reduction determinations, deciding between employees' tenure and individual performance could mean the difference between reducing that diversity and not.

Such is the finding of a new study out of Tel Aviv University titled How You Downsize is Who You Downsize: Biased Formalization, Accountability and Managerial Diversity.

According to the study, led by Alexandra Kalev, an associate professor of sociology and anthropology at the university, when layoff decisions consider workers' positions or tenure, the corporate-downsizing process reduces managerial diversity, whereas laying off based on performance evaluations keeps such diversity intact—at least when it comes to white women and blacks.

"It seems that the more individualized process of evaluating each worker on his or her merits—rather than using blanket criteria such as position or tenure—creates awareness and accountability among executives and motivates them to think deeply and creatively about who they should keep during [the downsizing process]," says Kalev. "This outcome of performance-based downsizing is not only good for managerial diversity, but also for the future of the company because the best performers are kept."

The research focuses on white and black employees and considers data on 327 private U.S.-based companies that downsized between 1980 and 2002.

Although that time span does represent a 12-year gap between then and now, the results are pertinent and illustrate what can happen in any period in which corporations are outsourcing or simply closing lines of business, both of which were occurring then, says Kalev.

"The more these things happen – that is, outsourcing and constant shifting of lines of production or service – the more we see position-based layoffs," she says. "Flexibility in production or service can occur either through retraining and working with highly skilled and highly motivated human resource [leaders], or through hiring and firing workers according to new needs.

"At least by the prevalence of position-based layoffs," she adds, "it seems that the latter option is more popular."

But think carefully before you follow the preferred procedure, she warns.

"In an average downsizing organization, in which layoff decisions considered workers' positions, the shares of white women and blacks in management declined by almost 25 percent and 20 percent, respectively," says Kalev. Think about it: "Downsizing by tenure reduced the share of white women in management by more than 20 percent. [Even more] notably, two-thirds of companies in my sample used position or tenure as criteria for layoff decisions."

Making matters worse for white female and black managers, she says, is that position-based downsizing became increasingly prevalent over the course of the study. In the early 1980s, downsizing companies made position-based layoffs less than 30 percent of the time. By 2002, however, downsizing companies made such layoffs more than 50 percent of the time.

"This study is a wake-up call," says Kalev. "Downsizing is increasingly done in ways that hit managerial diversity the hardest, while downsizing practices that help protect diversity have become less and less common. If these trends continue, women and minorities will become increasingly rare in management jobs."

So what, specifically, does Kalev recommend employers do when they're looking to adjust headcount?

"If you have to cut certain positions or job categories," she says, "go over the lists of [soon-to-be] laid-off employees [and] make sure your decisions do not disproportionately hurt women, minorities or any other groups of workers who just happen to be concentrated in those jobs.

"Are you losing most of your women just because they are concentrated in marketing jobs?" she asks. "In most organizations, this is the case, and this means that some very good performers are lost. Think of every case individually. Do a performance review. Retrain good performers so you can keep them on board in other positions or jobs."

More importantly, she adds, "try to avoid downsizing."

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Audra Jenkins, director of the Compliance and Diversity Center of Expertise for Alpharetta, Ga.-based consultancy Randstad Sourceright, agrees that "there can be a negative impact on diversity overall when an organization decides to downsize based on position versus performance," but she adds that the dilemma employers face when cuts are necessary is a complicated one.

"The diversity conundrum many employers face is whether or not the financial gain due to the layoff outweighs future gains when operating with a workforce that brings diversity of thought, innovation and cultural awareness in an increasingly global consumer marketplace," says Jenkins.

"Historically disenfranchised groups in corporations, such as women and minorities, face a greater risk of downsizing than the majority. These diverse groups have been in an ongoing struggle to be valued for their contributions and often must continuously prove themselves worthy of the ranks of middle-, upper- and executive-leadership roles.

Jenkins offers these suggestions to avoid the negative impact layoffs may have on diversity:

• Implement lean Six Sigma or Kaizen principles to eliminate wasteful activities and redundant work to cut costs.

• Cross-train employees to hold more than one skill set so they can be easily interchangeable to different roles.

• Set specific, measurable performance goals and regularly meet with employees throughout the year to review.

• Address poor performers immediately. Don't wait until the annual performance-review process. Use a performance-improvement plan to document and, if necessary, terminate.

• If a layoff is unavoidable due to a major economic downturn, engage internal HR, diversity and legal practitioners to conduct the proper analysis to avoid adversely impacting a protected group under Title VII of the Civil Rights Act.

• Consider implementing furloughed days; some employees might prefer having a few unpaid days off throughout the year as opposed to losing their jobs completely.

• Consider a temporary hiring freeze to cut talent-acquisition costs.

 

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