AT&T's layoffs make sense,
but its top execs should also share the pain
Allan Sloan
Newsweek 1/15/96
It's time for us to have a grown-up discussion aobut AT&T's shocking decision to fire 30,000 people and cut its payroll by 40,000 jobs. No, let's not rant about the obscenity of the stock market's greeting the news of the slaughter by adding $6 billion to AT&T's stockmarket value on Tuesday and Wednesday. And let's not go to the other extreme by saying that whatever the financial markets do is good for us, that AT&T chairman Robert Allen is doing a wonderful thing for American competitiveness and should be declared a national hero.
Instead let's talk about the real problem, the one that really bothers even those of us who believe strongly in capitalism and who aren't getting throwned out onto the street: unfairness. The fact that at AT&T, as at many of the companies that eviscerated their payrolls in the 1980s and '90s the people whose mistakes helped cause the problem often end up with fatter paychecks and bigger stock-option profits by firing people from the lower ranks. And they don't even seem to feel bad about what they're doing. It's probably right, as Bob Allen asserted in a 45-minute interview with NEWSWEEK on Thursday, that preserving all of AT&T's current 300,000 jobs would mean having to cut more jobs later, when competition will have gotten stiffer and AT&T will have grown weaker. "The way I get myself mentally over the tough bridge of what happens to 40,000 people is my responsibility for 300,000 people," he said.. "I can protect the 40,000 people for another two years, the downsizing could very well be greater." maybe 60,000 jobs. You can probably also make the case that Allen is right to split AT&T into separate long-distance, equipment and computer companies, and that he job cuts are the natural outgrowth of that decision.
But there's no question that the 60-year-old Allen, charman since 1988, is at least partly responsible for some of AT&T's problems. His $7,5 billion purchase of the NCR mainframe-computer company five years ago has been a miltibillion-dollar blunder. There have been other, smaller miscues. To be fair, no one foresaw AT&T's most pressing current problem: having to mount a costly move into local phone service while simultaneously having to defend its long-distance business against invading local phone companies. But folks like Allen get paid big bucks to foresee things other people don't. And, presumably, to take the fall if something goes wrong. Allen readily conceded that AT&T has taken a huge bath on NCR because "we didn't make it work." Give him points for honesty. He also admits to other mistakes, though he declined to say what they were. But in a display of capitalism's ugly face, Allen (and other AT&T holders) has made tons of money because of Tuesday's announcement and because of the plan unvailed in September to split AT&T into three pieces and fire 8,5000 people at the old NCR. Those announcemnts boosted AT&T's stock price about $7 a share, or $11 billion. It increased the paper profits on Allen's stockholdings and options by more than $5 million. It will probably also sharply increase his paycheck, which is based largely on the price of AT&T stock. He made $5.3 million in 19994; 1995 numbers haven't been released yet.
How does Allen feel about the fact that firing his co-workers makes him richer? Not very good. "Did I make the decision (in order) to increase my personal wealth? Hell, no," he said. "Increasing shareowner value is the right incentive for me to have at AT&T. Is it the right incentive for me to affect 40,000 people? Hell, I don't know. . . .is it fair? Hell, I don't know if it's fair. I don't make the rules." Rather than invoking Joseph Schumpeter's "gale of creative destruction" and other bromides that some people use to justify putting employees on the street, Allen said that he hates firing people. "I'm not remote from this, it's the worst part of my job," he said. "I have the personal experience of saying to people, "There's no place for you here'," he said. "It's not fun. I don't like it.
"Obviously, Allen agreed to see me to get a message across. He wanted to show that he's a human bieng with emotions, not a cold, calculating creature who goes around using the blood of slaughtered employuees to drink toasts to the god of sharehoolder value. Allen strikes me as a decent and moral man. In fact, even America's most notorious employee kliller. Al Dunlap, the former Scott Paper chairman who boasts of being "Chainsaw Al," has a human side. I met with Dunlap, a longtime acquaintance, in December, and kept pressing him about how it felt to make $100 million while ruining the lives of thousands of the employees he fired. Dunlap finally said that his father, a shipyard worker, was frequently laid off. Dunlap said he's never forgotten that fear, and doesn't like firing people.
Their sympathy notwithstanding, people like Allen and Dunlap don't seem to understand how their actions have spread fear thoughout America by making it seem that no company is safe from layoffs. And how fear, which apparently hurt Christmas sales badly this season, can have ripple effects. They also don't seem to realize that while each company can justify each layoff, the sum total of them will ultimately undermine the public's faith in business and financial markets unless top executives and members of the board of directors start to accept some pain.
I asked Allen whether he's thought of apologizing for having to fire all those people, as Japanese executives frequently do. "I feel bad about it," Allen answered, "but I don't know what to do. In wouldn't see any value of going on TV and crying and showing my sorrow for the world to see."
But symbolism is terribly important, and so is a sense of shared sacrifice. If Allen had announced that AT&T's top execs and members of its board of directors were donating some of their salaries and fees to a fund for the fired emplyees, it wouldn't make much financial difference. But it would make a huge symbolic difference.
If Big Business continues to inflict pain without top cats' taking their share, it may come to regret it later. Corporate America's previous excesses prompted Congress to pass laws to regulate plant closing and restrain executive pay. True, the plant-closing law seems to be little more than a nuisance. And the pay law, designed to limit $1 million a year to top executives of public companies, has sprung more holes than Swiss cheese. But if mass firings continue while the folks doing the firing continue to grow visibly richer, Corporate America may find itself facing real laws with real teeth. Message to America's Bob Allens: step up and take a little medicine now, before someone tries to pour a whole bottle of it down your throat.