Economics really puts the "dismal" in "the dismal science" these days. With the U.S. economy on shaky ground, companies that recognize the interconnectedness of our economic system, and account for stakeholders other than their shareholders, have become more vital than ever.
Where'd the customers go?
In a Wall Street Journal post called "Job Cutters May Reap What They Sow," author Kathleen Madigan posed a legitimate concern:
For an individual company, keeping down labor costs is a smart move. But the U.S. economy as a whole suffers when weak labor markets hold back consumer spending. The same companies that are laying off workers today will soon wonder why they have no customers later on.
The most recent companies to mercilessly slash their workforces include Cisco (Nasdaq: CSCO) -- with plans to cut a staggering 10,000 jobs -- and Campbell Soup (NYSE: CPB).
Why, then, do so many market watchers act shocked when national job numbers disappoint? We're still losing plenty of jobs; unemployment recently inched back up again. At this point, investors shouldn't cheer for job cuts that supposedly help companies profit in the short term. I have a feeling that although many companies must cut their costs, some had a bit more leeway to pursue more difficult but worthwhile ways to boost their profitability and operational success.
Ugly ripple effects
Even if they do boost short-term profits, job-slashing companies also mess with employee morale, making their workforce less effective going forward. According to the American Management Association, 88% of businesses executing layoffs report declining employee morale.
Last fall, I discussed the Institute for Policy Studies' report on CEO Pay and the Great Recession, which noted that some of the best-paid "layoff leaders" also seemed to slash the most workers. That report called out companies like Johnson & Johnson (NYSE: JNJ) and Hewlett-Packard (NYSE: HPQ) for their pink-slip-heavy attitudes, and for outrageously paying executives who presided over corporate disasters.
Well-respected management consultant Peter Drucker once said that CEO/worker pay ratios in excess of 20-to-1 endanger morale and productivity. Add in the layoffs of rank-and-file workers just to juice short-term results, and you've got a recipe for future malaise.
Let's get happy
It's not impossible for companies to operate on the principle that looking out for all stakeholders, including workers, is better for all of us. Check out my colleague Brian Richards' inspiring article about Lincoln Electric, which has preserved a remarkable "no layoffs" policy since at least 1948.
Fortunately, some modern companies do make it a point to treat employees well. Both Costco (Nasdaq: COST) and Starbucks (Nasdaq: SBUX) have fought Wall Street's pressures to slash health-care and other benefits in the past.
Whole Foods Market (Nasdaq: WFM) CEO John Mackey also runs a very employee-friendly organization. Mackey's a major evangelist for conscious capitalism, which takes a holistic view of the marketplace.
Happy employees and happy suppliers make happy customers, who lead to happy shareholders. It shouldn't be difficult to understand that such admirable purposes build great businesses and overall prosperity. Alas, too many U.S. businesses still haven't gotten that point.
If we investors desire a less dismal economy, we should seek out companies that understand how their actions affect the larger world.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
