Business Week Online:Where Layoffs Are a Last Resort 


OCTOBER 8, 2001 

A NEW WORLD -- THE ECONOMY & THE MARKETS 

      Where Layoffs Are a Last Resort 
      Treating them as unthinkable can have big benefits 


Nothing would devastate Southwest Airlines Co.'s arm-around-the-shoulder 
chairman, Herb Kelleher, more than a layoff. Through jet fuel spikes, 
recessions, even the Gulf War, Southwest (LUV ) has never in its 30 years 
downsized a single employee.

Even now. In the days after the attacks, as competitors announced job cuts of 
20%, Southwest execs were packed into an emergency command center at their 
bare-bones Dallas headquarters, guzzling coffee and scheming to cut costs. 
Growth strategies were scotched. New plane deliveries were delayed. The 
renovations at headquarters were scrapped. But with $1 billion in cash and no 
debt, layoffs never had to be considered. Says CEO James F. Parker: "We are 
willing to suffer some damage, even to our stock price, to protect the jobs of 
our people."

Such words would likely make famous job-slashers like Jack Welch and Al Dunlap 
cringe. But Southwest is a member of the tiny fraternity of contrarian companies 
that refuse, at least for now, to lay off. What most of the non-downsizers have 
in common is pristine balance sheets and businesses that aren't battered by the 
vagaries of technology. Even before the disaster, in the face of the dot-com 
bust and a declining economy, their policies seemed anachronistic. Now, in the 
aftermath of a national tragedy that economists say makes a recession and 
thousands of additional job cuts inevitable, their stances seem almost noble, an 
old-fashioned antidote to the make-the-numbers-or-else ethos pervading Corporate 
America.

SNAP BACK. It's not altruism at work. Rather, executives at no-layoff companies 
argue that maintaining their ranks even in terrible times breeds fierce loyalty, 
higher productivity, and the innovation needed to enable them to snap back once 
the economy recovers. Some private companies, such as S.C. Johnson and Pella, 
have long traditions that date back to the Depression, when workers washed 
windows over and over just to stay busy. Others--public companies such as FedEx 
(FDX ), Lincoln Electric (LECO ), AFLAC, Erie Insurance (ERIE ), and Nucor (NUE 
)--are relying on creative cost-cutting, particularly in the wake of Sept. 11. 
At steelmaker Nucor Corp., based in Charlotte, N.C., some plants are on a 
four-day schedule, shaving 20% off the average worker's $50,000 annual pay. 
Bonuses of senior executives, which make up 66% of their salaries, have been 
wiped out, too.

Some newcomers to the policy say they were won over after battling in the brutal 
war for talent in the late 1990s. The tony San Francisco law firm Brobeck, 
Phleger & Harrison, whose fortunes swelled with the dot-com boom, is struggling 
through the worst business climate in its 76-year history. Still, the firm is 
sticking to its no-layoff rule, announced before the disaster, by axing Town 
Cars, expense accounts, travel, and partner retreats. "In a time of national 
crisis, unless your very viability is at issue, like the airlines, layoffs are 
even less appropriate," says Brobeck Chairman Tower Snow. Still, pressure is 
mounting from some of the firm's 200 partners to pull the policy, though Snow 
says he would resign first.

The tension at Brobeck and other companies underscores how difficult it will be 
for some to keep their word. In the 1980s, IBM (IBM ) had to renege on no 
layoffs after it was blindsided by the revolution in desktops, causing deep 
resentment among employees. The danger is that those asked to sacrifice in the 
first place end up losing their jobs anyway. Even so, say some economists, 
Corporate America has used layoffs too capriciously. That's why many executives 
at no-layoff companies are encouraging costcutters to make layoffs the last 
place they look--instead of the first. 

By Michelle Conlin in New York