When I first read that many Japanese companies guaranteed their workers lifetime employment, I couldn’t decide whether to admire them for their courage or deride them for their foolhardiness. How could a company possibly expect to weather a recession and not lay off a portion of its people, even in an economy that was not as cyclical as ours. However, in recent years as Japan has had to endure a depression, Japanese management has had to change its tune.
During three recessions, laying off our people was standard operating procedure. One cannot lay off a machine or a building or a bank loan. Still, layoffs were always the most painful decision that we managers had to make. Our company was small enough—reduced to fifty employees by then—and our turnover infrequent enough that everybody knew everybody else by their first name. Most of us were familiar with the details of one another’s personal lives: how many children a worker supported, whose children were in college, who was saving for a down payment on a new house, which families were beset with illness.
Additionally painful was having to lay off trained, proven, highly motivated people. Most felt helpless and outraged at being punished for having done nothing wrong. But were we—workers and management alike—really helpless? Were we not submitting to circumstances rather than trying to control them? Was there an alternative to a recession-driven layoff. Was the alternative the Japanese commitment to lifetime employment?
After each of three recessions (roughly one every four years) and the usual layoffs, several excellent workers failed to return when business improved. Replacing them was inconvenient and costly. But worse, it delayed the restoration of our efficiency just when we needed it most.
If layoffs make economic sense in bad times, they have an adverse effect as good times return. Though laid-off employees were glad to be back, we often observed a residual bitterness in their attitude, especially after they saw that certain others had remained on the job through the tough time. These employees seemed less secure and committed than before the layoff. Perhaps they were wondering how long it would be before the next layoff. To protect themselves against the dreaded layoff notice necessitated by the next recession, they employed the only tactical means at their disposal: a slowdown.
In prior crises we often broke from the bounds of conventional thinking by seeking the solution in a condition precisely opposite the one troubling us. We called this the Lesson of the Opposite, similar in effectiveness to the Five Whys of lean production. We used it here to protect ourselves against their slowdown. If laying off was the problem, perhaps working overtime would be the answer.
Instead of hiring more hands until we were sure that the gathering sales momentum would last, we asked people to work overtime. At the beginning they were eager to cooperate. But after a period of substantial weekly paychecks, many refused, and we failed to meet delivery commitments. If a layoff was hard on the employee, an employee’s rejection of overtime was hard on management. It meant missed opportunities for the company and unhappy customers. Consequently we hired additional people, some of whom, when the cycle reversed, inevitably had to be laid off. (Having no union, we laid off less according to seniority and more according to performance.) Round and round it went.
Sales were nearing a peak. We held a plantwide meeting before hiring more people and offered the workers a proposal gleaned from our Lesson of the Opposite: would the employees work any necessary overtime and perform any reasonable job request in exchange for the company’s promise to eliminate all future layoffs? The employees went for it.
We had a few aces to play in case we were caught short-handed. We could call in retirees; hire college students in summer, our busiest season; and call on agencies that specialized in temporary help.
To ready ourselves for the next time that sales would lag, we made plans to busy our people by expanding our inventory of standard items and doing maintenance projects such as cleaning and painting inside and out or rebuilding worn equipment.
Most important was the willingness of everyone, for the sake of security, to pitch in and do whatever job was needed. This led to retraining everyone to do one or more jobs. Their willingness also stemmed from our liberal vacation plan. After a year, an employee received one week’s vacation; after five years, two weeks; after ten years, three weeks; and after fifteen years, four weeks. During slowdowns, idle employees were urged to use part of their paid vacations.
Employee morale attained a new height, and turnover—which was already low—became negligible. Pride in being part of a caring organization was clearly evident. With transients no longer in our midst, we had become a stable, cohesive “family.” Though we endured two more recessions, one serious, before the company was sold, we never had another layoff in the eight years that followed.
There were other unanticipated pluses. By eliminating layoffs and reducing the number of permanent employees, we reduced our benefit costs. Perhaps our major triumph was the drastic reduction of our financial contribution to the state’s unemployment pool. Reducing our involuntary contribution to government seemed, at least to this CEO, the most satisfying fallout of all.
Hugh Aaron received a Liberal Arts degree in the Humanities at The University of Chicago. Several of his short stories have been published in national magazines and 18 of his essays on business management have appeared in The Wall Street Journal. Many of his plays on business themes have had staged readings. He has written two business books (BUSINESS NOT AS USUAL Volumes 1 & 2), and a business novel (DRIVEN). He has a business blog (www.BusinessWisdom.blogspot.com) and reviews of his books may be found at www.StonesPointBooks.com. His most recent endeavor is a comic strip of social satire www.Zoofky.com. For article feedback please contact Hugh at firstname.lastname@example.org.