Newell’s Decision to Downsize: An Ethical Dilemma

A particular issue in business ethics is: “What exactly does the term ethics mean?” Various writers have described ethics as rules that govern behavior, desired societal values such as respect for justice, or accepted principles of right or wrong. One author noted, “While laws concern what we must do, ethics concerns what we should do.”

In the practice of HR, managers and supervisors are continually faced with ethical dilemmas regarding the fair and equitable treatment of employees. Ethical choices abound in areas such as recruitment and selection, employee privacy, whistle-blowing, sexual harassment, and diversity or affirmative action. An important ethical dilemma faced by managers today is the fair and correct way to downsize organizations. The decisions involved in downsizing a workforce are complex and, as one manager stated, “gut-wrenching.”

The Need to Downsize

Newell Corporation is a medium-sized manufacturer of navigational systems for commuter and larger airplanes. The company operates two plants—one in Atlanta, Georgia, and the other in Norwood, California. In 2014, the Norwood plant employed 273 employees, most of them engaged in the manufacture and technical support of company products.

Newell is regarded as an excellent place to work by its employees and within the surrounding communities. Employee morale and loyalty have always been high, and job satisfaction studies conducted by the company consistently rate the organization as a fair and equitable place to work. The company’s HR policies can be described as proactive and progressive. With its positive reputation, Newell has been able to select new employees from a large pool of job applicants.

One cornerstone of HR policy has been to use the principle of seniority when training, assigning, transferring, and promoting employees. Additionally, with Newell’s emphasis on employee retention, employees have experienced and come to expect long and steady employment. Prior to 2014, Newell has never downsized its workforce. Employment growth at the Norwood facility had been moderate and steady.

The racial composition of the company has been predominately Caucasian, for two reasons. First, the racial composition of the company’s local labor market has historically been Caucasian. Second, the skill levels needed for the company’s technical jobs have come primarily from a trained Caucasian labor force. A review of the company’s federally required EEO-1 report showed that Newell had few employees in each of the minority categories listed. This is true for both hourly and managerial positions. However, since then, the demographic characteristics of the local labor market have changed dramatically to include more Hispanics, African Americans, and Asian Americans.

In 2010, Newell experienced a large increase in the demand for its products. To meet customer orders, the Norwood plant hired 27 new manufacturing assemblers and 14 new technical support technicians. With the increased diversity of the external labor force, plus the desire to increase the minority composition of its internal workforce, 34 of the 41 new hires were minorities. It is noteworthy that Newell welcomed the opportunity to rapidly increase the diversity of its workforce for both business and ethical reasons. The following is an excerpt from Newell’s statement of vision and values published in July 2011:

“Newell Corporation believes that a work environment that reflects a diverse workforce, values diversity, and honors the worth of its employees benefits the company, its customers, and its employees. Employment decisions will be made on these principles while also considering the efficient and effective operation of the organization.”

Because many of the minority employees needed to be trained to do the company’s manufacturing and technical jobs, the firm spent approximately $1.7 million on entry-level skills training. The integration of minorities into the Norwood facility was seamless and without racial tension.

In 2011, sales for Newell’s products once again followed historical patterns. Unfortunately, sales then unexpectedly took a sharp downturn: a 12 percent decline in 2012 and a 23 percent decline in 2013. The causes for the decline in sales were attributed to two new low-wage foreign competitors that had entered the market, a decline in the market demand for the products made by Newell and its competitors, and higher-than-average production costs due to Newell’s older, less efficient manufacturing equipment. Future demand for company products was projected to be moderate for 2015, 2016, and 2017.

In February 2014, Tom Malcom, Norwood’s director of HR; Steven L. Davis, corporate vice president for manufacturing; and Mary Umali, Norwood’s plant manager, decided to downsize the workforce at the Norwood facility. Specifically, they decided to lay off 37 manufacturing employees and 11 technical support personnel. The difficult question faced by senior management was how to lay off employees in a manner that would be fair and equitable to individuals and legally defensible while maintaining the integrity of Newell’s HR policies and the productivity of the Norwood plant.

What is the ethical dilemma faced by management in this case? Explain

What specific problems might Newell face in its downsizing decision?

What options might Newell employ in its downsizing decision? Explain.

How would you downsize the Norwood facility? Explain.