The Myths of Down-Sizing

It’s getting harder to justify these mass firings

The dirty little secret of the Great Recession of 2008-09 is that most broadcasters continued to produce double digit profits for their companies even as the world economy tanked.

They weren’t hitting their budgets, but they still weren’t losing money, in most cases.

And those that were losing money had gargantuan debt to service, or they probably would’ve been profitable too.

Radio, in particular, continues to be a great free cash flow business.

NEWSWEEK recently looked at the myths surrounding mass layoffs and exposed the lies that drive downsizing.

For instance, companies that announce layoffs do not enjoy higher stock prices than peer companies that don’t, either immediately or even over extended periods of time.

In fact, the larger and more permanent the layoffs — as has happened with Radio since consolidation — the greater the negative effect on the stock.

Here’s another example: Layoffs don’t increase individual company productivity either. A 10-year study of over 140,000 businesses in the United States found that companies that enjoyed the greatest increase in productivity were as likely to have added workers as to have cut them.

In other words, the growth in productivity measured during the 1980s was not due to becoming ‘lean and mean.’

The Wharton School of Business found that the labor costs per employee fell during downsizing, but so did sales per employee.

Another myth: Layoffs increase profits. To the contrary, a study of 122 companies found that downsizing reduced subsequent profitability.

Layoffs don’t even cut costs in every situation.

That’s because when companies start downsizing, they often lose their very best employees — which has certainly happened in Radio — to other industries that appear to have brighter futures. And, these companies end up re-hiring some of those that left as private contractors, often at higher costs.

Plus, managers tend to underestimate how much layoffs reduce morale and increase fear in the workplace. And, last time I checked, bad morale and fear don’t exactly lead to greater creativity.

We know that the layoffs in our industry have not made it stronger. PDs no longer have time to listen to their stations. Live and local is a memory.

When your actions scream how little you value your own employees, how likely are you to attract the best from other businesses and companies?

I guess the only question I have about the inexorable spread of downsizing in Radio is, does anyone who owns a radio company have the courage to try a different model, or will you continue to run with the pack of lemmings toward that cliff on the horizon?