Don't overlook downturn's hidden costs
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Don't overlook downturn's hidden costs

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Fort Worth Business Press, 11/17/2008, Vol. 20 Issue 45, p27-27, 1/2p ...

Fort Worth Business Press, 11/17/2008, Vol. 20 Issue 45, p27-27, 1/2p

The article deals with the impact of economic downturn on the management of jobs and workforces in the U.S. A reduction-in-force (RIF) will lead to loss of investment in training and a loss of talent. The author says few companies appreciate hidden costs that arise from protracted economic downturns. Studies showed that anxiety, depression and negative emotional states increase as unemployment rates rise. Retained employees may be happy to have a job but fear the specter of looming unemployment.

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Don't overlook downturn's hidden costs Document Transcript

  • 1. November 17-23,2008 • Fort Worth Business Press 27^FACING THE CURRENT ECONOMYMain Street versus Wall Street: A return to basics Headlines on the current fmancial cri- them in. Equally important. Main Streetsis remind me more and more of the Today, we find the financial services industry itself in banks focus on providing deposit prod-movie A Perfect Storm and how the cap- ucts that, while not as fiashy or complextain of the Andrea Gail the middle of a "perfect storm." Companies once as other investment choices, today pro-felt when he found him-self trapped with no way thought to be the stalwarts of the U.S. financial sys- vide a much safer haven for ones life sav- ings.out. tem are now feverishly seeking shelter. While many Main Street banks have In a meteorological capabilities similar to Wall Street firms insense a "perfea storm" areas like wealth management, corporaterefers to a storm that banking and consumer financing ofcould not have been On top of the subprime mortgage cri- is a part of the community, knows your home and auto loans, a stronger personalworse. Today, we fmd the sis, we are now seeing new problems sur- name, knows your business and is there and community focus allows us to morefinancial services indus- Brian Happel face, for example, issues surrounding to help provide solutions to meet your aedit default swaps have sent stocks tum- financial needs - have been mistakenly dearly understand the strength of thetry itself in the middle of a "perfectstorm." Companies once thought to be bling even further. painted with the same broad brush as local economy, providing a clearer picturethe stalwarts of the U.S. financial system Even some money market funds, once Wall Street financiers. of how we can help our neighbors meetare now feverishly seeking shelter. thought to be the safest of investments, Now we hear, loud and clear, a call for their financial challenges throughoutLehman Brothers, which survived the rail- briefiy "broke the buck" and sank below a return to basics. But the good news is every life stage.road bankruptcies of the 1800s, the Great the time-honored standard of $1 per that Main Street banks realized long ago The renewal of interest in back-to-Depression and the Long Term Capital share. that providing practical, easily under- basics banking is something that weManagement collapse in 1998, has filed However, one important point contin- stood banking products and services was encourage and support. We believe that afor bankruptcy protection after record ues to be lost in the headline surrounding what customers wanted to help solve their focus on principles-based business andlosses in the mortgage market. Other this storm: the difference between Main financial needs. It also appears, in this putting the customer first are the comer-well-known names like investment bank- Street banks and Wall Street banks. As you time of uncertainty, to be a good, sound stones that have positioned Main Streeting bull Merrill Lynch and insurance giant read through the names of the companies business model. banks to help our customers through thisAIG have found themselves in such dire that have tumbled, you will notice that Many Main Street banks have taken the financial storm. At a time when cus-straits that they either ended up selling they are mainly the Wall Street banks - steps necessary to maintain strong reserve tomers are looking for a strong, well man-the company or have been rescued by the those that deal in highly-complex deriva- levels for potential problem loans and aged force to emerge from this storm, itsfederal government. It required a massive tives and stmaured products that have a possible loan losses. Many of these banks nice to know they only need to lookfederal bail-out to even begin to help high degree of inherent risk - that gamer also enjoy strong capital positions. So around the comer to find us ready, willingthese institutions rid themselves of the the headlines. despite what you read, customers seeking and able to help. •toxic cargo they hold on their balance Meanwhile, those of us involved in to secure credit will find a Main Streetsheets. "good old" banldng - where your banker banker ready and waiting to welcome Brian Happel is a city president with Compass Bank.Dont overlook downturns hidden costs The economic downtum will course ed workers tend to have elevated rates offor an unknown time over an uncertain When companies experience economic problems, absenteeism and medical claims.path. Companies are facing financial there is a natural tendency to conserve expenses. Companies need to minimize the hid-changes in income, —^-^—- den costs. Do not succumb to the knee-profits and losses, Henry H. Robinson Yet a company that makes critical decisions without jerk reaction of taking employees forcosts, tight credit, and Marc Patton granted based on the belief that theydebt repayment and expert advice does so at its peril. should be happy just to have a job. Thatcollections. reaction may foster increased tumover, These changes in tum challenge the absenteeism and tardiness, qualitativemanagement of jobs and workforces. reductions, a decline in output, andCoping options range across a wide spec- ployed are not the only persons affected. Several concrete reasons give the answer. increased medical costs. Even during antrum. Redesign jobs? Reorganize? Retain The employed are afferted in their own First, retained employees may be happy to economic downtum, it is still incumbentall employees or implement a reduction- way. Studies have shown that anxiety, have a job but also fear the specter of upon companies to effectively managein-force (RIF)? Reduce hours? Reduce depression, strain, hopelessness and looming unemployment, and that fear employee satisfartion and morale. No lit-compensation and benefits? Implement a other negative emotional states increase can produce negative consequences. mus test distinguishes between peoplewage or hiring freeze? significantly as unemployment rates rise. Second, retained employees are impacted more and less susceptible to the negative Companies must analyze each options When employed workers experience such by what goes on at home, and that may efferts of underemployment and unem-respective requirements and advantages symptoms, absenteeism and tardiness include unemployed family members ploymentand disadvantages. A RIF leads to loss of may increase, and quality and output may who make home life so miserable that theinvestment in training and a loss of talent. When companies experience economic be afferted. retained employees bring misery to work. problems, there is a natural tendency toFor covered employers, any RIF must Third, when the economy recovers and The toll of unemployment on the conserve expenses. Yet a company thatcomply with the Worker Adjustment and unemployed has been widely studied. The companies increase hiring, new-hires may makes critical decisions without expertRetraining Notification Act (WARN). Any need for psychiatric care climbs and hos- suffer from the consequences of past peri- advice does so at its peril. Economic diffi-decision to RIF some but not all employ- pital admissions for psychiatric problems ods of unemployment. Studies have culty is seldom a defense to violations ofees must be made without running afoul increase significantly. One study showed shown that people who have suffered law. During economic downturnsof anti-discrimination laws, as must deci- that unemployed men and women had from unemployment continue to suffer employees have an incentive to fight-liti-sions reducing hours. Any severance pro- more than twice the odds of having a from many adverse psychological and gate-for jobs, thus creating additionalgram must comply with the Older WorkerBenefit Protection Art. Reducing compen- chronic illness than employed men and physical problems for up to two years legal costs, which are the opposite of whatsation and benefits may reduce morale, women. Studies have associated an even after re-employment commences. a struggling company needs during anelevate the risk of union organizing and increase in unemployment with increases Underemployed workers experience economic downturn. Indeed, litigationengender legal issues. Expensive training in mortality rates, higher rates of smoking many of the same symptoms. may create a double whammy where amay have to accompany job redesign, and and alcohol use, less exercise, and more Underemployment is associated with losing company pays its attomeys fees asselections for the redesigned positions junk food. Separation and divorce rates higher rates of psychiatric and physical well as the plaintiffs damages and attor-must not violate the anti-discrimination increase, reports of child and spousal problems, marital strife, risky personal neys fees. The secret is to avoid mistakeslaws. abuse rise, and unwanted pregnancies behavior, and a loss of social support. when implementing options to cope with In contrast, few companies fully appre- increase, as do rates of prenatal and infant Although some will be content just to the economic downturn. •ciate substantial hidden costs that arise mortality. have a job, many underemployed workersfrom protracted economic downtums. As How can a company be financially tend to show a lack of loyalty and engage Henry H. Robinson and Marc Patton are attorneys in the Fortunemployment rates rise, the unem- afferted by the toll on the unemployed? in selfish work-behaviors. Underemploy- Worth office of Kelly Hart & Hallman.