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Posted on Fri, Mar. 25, 2005

Switch to `hard' management is bad for society


Workers at Wachovia and elsewhere lose jobs in name of efficiency



Special to the Observer

In an Observer exclusive, Rich Rothacker reported that Wachovia is looking at outsourcing human resources functions as part of an initiative to reduce expenses, just as Charlotte's Bank of America has already done.

Predictions of a "harder" corporate management philosophy are sadly becoming true, and now dominate America's corporate culture.

Sometime in the early 1980s, I attended a meeting of the Association of Management Consultants in Atlanta. In one session, we described the kinds of consulting we were doing and the kinds of requests that corporations were making. Our conclusion: "soft" consulting was out, and "hard" consulting was in.

Soft consulting is basically the human resources development approach that recognizes an organization as an association of human beings, all of whom contribute to the production of a quality product or service at the lowest cost. For best results, it is necessary to pay all levels of employees a decent wage, with periodic increases in return for loyal and conscientious service, and to treat all levels with respect -- seeking, listening to, and reacting to their suggestions, questions and concerns.

This isn't easy. It takes actual management skill to effectively deal with large numbers of people. It also takes a genuine commitment to the ethical treatment of everyone in the organization. Otherwise, you simply won't get the kind of teamwork that is necessary for a truly competitive organization.

Hard consulting is different, with drastically different effects on the corporation and on society itself. It's based purely on cost reduction -- not true efficiency -- and it fits perfectly with Milton Friedman's frequently quoted justification for management and investor greed: "So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer is, no they do not."

Lower level employees are not seen as human beings with families to support, or even as legitimate members of the organization. They are merely costs to be minimized, no matter how much they have previously contributed to the corporation's success. Ethical issues of fairness and justice to lower-level employees have no role in top management's decisions -- all that counts is the return for shareholders and increased bonuses for the top executives.

This hard management style is changing the nature of our society. We're becoming a nation of highly paid investment bankers -- and workers who must compete with each other in the race to the bottom in wages and working conditions.

Prior to the outsourcing rage, corporations correctly thought that the best way to improve the bottom line was to build a loyal, educated, motivated workforce.

That's simply no longer true. The easiest, most reliable way to realize quick and significant profit improvement is to transfer corporate activities to other American firms with lower moral standards for the treatment of employees, or to countries with terrible labor records and much lower wages.

For example, Ford Motor Co. has already outsourced many of its manufacturing, technical development and clerical functions. But, more importantly, hard consultants are now arguing that it shouldn't even be in the business of assembling its cars. This is called the "asset-light" strategy, made famous by Enron. Top corporate executives transfer the headaches of dealing with people -- and the risks of actually manufacturing a product -- to others who compete with each other to deliver products as cheaply as possible.

To the extent that executives outsource their organization's functions, they become, in effect, investment bankers instead of managers. And when their ex-employees suffer lower wages and worse working conditions in their new jobs, the executives can still claim the ethical high ground. They are not responsible for the actions of employers who have lower standards for the treatment of employees.

Of course, the outsourcing of human resources functions is doubly bad. The outsourced employees will have trouble finding jobs of equal desirability, especially those with longer tenure. But, just as important, other employees will lose their representatives in management -- the ones whose jobs include maintaining the quality of work life for all levels of the organization. This function will be turned over to outside people who don't have active contact with day-to-day operations.

There are undoubtedly many reasons for the exploding gap in wealth and income between America's rich and poor, and even between the rich and our dwindling middle-class -- but outsourcing, and the switch from soft to hard management, has to be a major one. It's the natural outgrowth of a philosophy that top management's only concern is profit and the financial return to their shareholders.


Chuck Kelly is a retired management consultant living in Tega Cay, S.C., and author of "The Destructive Achiever: Power and Ethics in the American Corporation" and "Class War in America." Write him at kellycm@kellysite.net.

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