‘Dumb-sizing’ – thoughtless cutting of costs and headcount without consideration of people-related risks, is a feature of the recession and was a contributory factor, according to governance expert Bob Garratt.
In an interview with the Human Capital Forum, he said that downsizing, sometimes rationalised as ‘rightsizing’, is often done without a lot of careful thought, and without looking at the wider stakeholder interest.
‘You do get crazy things happening, for example in the retail banks they were sacking everyone over 50, and in the investment banks everyone over 40,’ said Professor Garratt. ‘In the case of the retail banks it was because the pension costs were zooming up.’
Dumb-sizing occurs when ‘you start taking experience and corporate learning out of the organisation; bringing in bright, enthusiastic people who can’t make systems work properly. There were quite a lot of 18-24-year-olds in the bank; no bank manager, and they didn’t know the system, just go into the screens.’
It is the responsibility of the board to be stewards of the company over the longer term. The board members should ‘counter-act the executive drive to down-size’.
He added: ‘It’s the board’s role to consider the broader policy aspects and uncertainty. They need to be comfortable living with uncertainty, where the resource to do that is people.’
In an example of ‘dumb-sizing’ from another part of the economy, The Observer newspaper has sought to save costs by cutting the Simon Caulkin management column. The decision, however, has led to dozens of highly influential, long-term readers to cancel their subscriptions. Attracting new customers is always considerably more expensive than retaining existing ones. Ironically, Mr Caulkin is one of the most powerful critics of such managerial miscalculation.