Managing Downsizing During Covid-19: A Stakeholder Theory Approach

Learning Outcomes

a) Identify questions of ethics and sustainability and analyse how they impact on one’s day-to-day work experience.

b) Apply a range of ethical frameworks and develop a vocabulary for ethical issues.

c) Demonstrate the ability to apply the various frameworks that underpin how individuals and organisations make decisions on complex ethical issues.

d) Analyse the impact of economic, commercial, social and environmental trends on organisation’s ethical and sustainability behaviours.

e) Explore specific sustainability tools such as values based management and stakeholder perspectives.

f) Evaluate the role of the individual as an agent of ethical and sustainable behaviour in organisations.

PART 1: Structure of scenario

1. Short description of organisation
2. Description of the ethical issue
3. List of key stakeholders
4. Statement of the ethical issue, in one sentence, in the form of a question (i.e. what is the decision the organisation must take)

Context

This assessment allows students to develop writing skills in ethics and sustainability scenarios and to explore the ways in which stakeholder theory and values management can be used by organisations, as tools in addressing economic, commercial, social and environmental problems.

The scenario report will take the form of a business case, made to the senior management of the organisation, recommending how the issue should be dealt with. The report will employ either stakeholder theory or values management as an analytical tool.

Scenario choses: How can a business ethically manage downsizing during Covid 19? Organisation: West Hotel, Sydney

This a report based on the scenario developed on the organisation named West Hotel Sydney. The report has been developed as a business case made for the senior level of management. It describes the issues faced the company and the recommendations of effectively conducting downsizing within the organisation. The research has used the stakeholder theory as the analytical tool for analysing the current situation. West Hotel Sydney is one of the many hotels owned by Hilton and has been built on the western side of Sydney’s CBD near the Darling Harbour (tripadvisor.in, 2020).  The hotel has been known for their effortless service offered to the consumers

Covid 19 has hit the hospitality industry and it has been tough for the organisation to keep themselves operation amid this global crisis situation. West Hotel Sydney has been affected significantly due to the financial and operational impact due to the loss in occupancy rates and demand in the market. The company has been going through significant losses in the past month and downsizing of employees is the only option to keep the business sustainable. However, as soon as the process of downsizing started, it was embraced with negative feelings and discontent among the employees. The workforce are paid significantly higher in respect to the industry average and the company is unable to manage the payoffs of such a huge workforce. There have been significant claims from the terminated employees that there is a lack of transparency in the process and the contracts. Therefore, it has resulted in a negative image of the company in the market and the employees are highly demotivated with the current scenario.  The company needs to lay off 40% of their workforce and this process needs to be as smooth as possible. Downsizing itself has been considered as an unethical aspect of modern day organisation as employees are meant to pay for the action of the senior management or due to crisis situation in the market. Therefore, it is necessary to make the process of downsizing as ethical as possible for the employees to keep the remaining employees motivated and keep the operations running to its fullest capabilities.

 The stakeholder theory developed by Freeman suggests that the stakeholders of the company includes everyone affected the operations of the company. Jones, Wicks and Freeman, (2017) suggested that stakeholders of a company include all the groups without which the company ceases to exist. These groups include local communities, customers, suppliers, employees, government, financial institutions and environmental groups (Jones, Wicks & Freeman, 2017).  Therefore, the theory suggests that corporate ecosystem is an environment consisting of various related groups and it is essential for the company to keep each of the groups satisfied and considered to manage the long term sustainability and success. Miles, (2017) suggested that stakeholder is one of the positions in capitalism where the interconnected relationship between the business and all other related groups have been stressed on. As per the theory it is essential to direct all the stakeholder towards the same path for the company to achieve success. Therefore, the company needs to be mindful of not only those that have been investing in the company but also the employees working in stores and factories and the business partners. It helps in shaping the landscape within the industry (Andriof et al., 2017).  It addresses the moral and ethical values in the process of management among various business organisations.  In order to operate ethically within the society, it is essential for organisations to be responsible for all the groups related to them. These stakeholders can be divided into internal stakeholders and external stakeholders. The internal stakeholder of a company includes the shareholders, employees and the management. On the other hand, the external stakeholders include suppliers, customers, creditors, competitors, society and government.

Context

The companies have responsibility towards all their stakeholders. In case of the stakeholder, the company needs to make proper use of capital and manage business effectively. They need to provide timely and accurate information along with ensuring growth of the capital. The company has a responsibility of providing fair compensation and time payments to their employees (Miles, 2017). They also need to offer regular and timely payments along with proper working conditions.  The organisations also need to ensure security benefits, job security and honour employee rights.  In case of management, it is essential for the management to balance the needs of the organisation and the stakeholder as stakeholders always expect a higher return (Andriof et al., 2017). Similarly, in case of the consumers, it is essential for the organisation to offer consistent quality of products and services to the employees. Therefore, it can be said the organisation has a major roles and responsibilities towards each stakeholders which needs to be fulfilled for achieving sustainability and success.

The stakeholder theory has already stated that employees are one of the key internal stakeholders within the organisation and it is essential to take care of the employees for achieving higher level of success within the organisation. The problem at hand suggest that the company has been facing issues in managing their workforce due to the global crisis situation of COVID 19. It implies that company will have to let go of their employees and 40% of the employees is expected to lose their jobs (Andriof et al., 2017). Downsizing has always been linked with unethical issues where the management lacks clarity and makes false promises which they are unable to fulfil to the employees. Therefore, in respect to the stakeholder theory, the management is liable to the employees working within the organisation along with their welfare.  Therefore, it is essential for the organisation to be present the employees with a clear scenario as they deserve to know what is happening and the consequences along with it. Transparency is a key aspect in managing the ethical aspect where the management has to be communicative and listen to the concerns of the employees. An empathic side of the management is required to keep the employees motivated and help them cope with the situation (Miles, 2017). It implies that management has to talk to these employees directly and tell them about the various issues faced by the organisation and the reason for which they have to let the employees go. It is essential to have a constructive discussion with the employees and help them as much as possible to understand their perspective and make them understand the perspective of the organisation.

Scenario Chosen

The decision for downsizing is painful for the employees and the management needs to be fair in respect to the offers provided.  There has always been biasness linked with the concept of downsizing where management keeps their favourite employees and loyal instead of thinking about the way the different members fit into the team. Therefore, it is essential to evaluate and propose the termination criteria in detail to identify the employee that needs to be laid off during the current crisis situation (Miles, 2017).  Therefore, it is essential to understand the employees that provide the highest value to them and the employees have been terminate fairly by the employees.  Moreover, the contracts of each of the employees needs to be reviewed in detail to understand the underlying obligation the company have while letting them go. The organisation needs to evaluate the job description of the employees that is being terminated to ensure that all promises made by the company has been fulfilled.  The company can terminate the employee without paying additional bonuses to them but it is ethical to pay them extra for the work they done and their loyalty towards the organisation (Jones, Wicks & Freeman, 2017). It implies that the company needs to be considerate about the problems the employees is expected to face once terminated so added financial support is needed to improve the process of termination.  The company needs to offer additional pay for the quality of service they have been offering to the consumers and the amount of contribution of the employees toward customer retention.

Moreover, it is essential to discuss the information that can be shared with the employees regarding their termination as employees can used it against the company to file a law suit.  Therefore, it is necessary to draft the information that can be shared with the employees and witness needs to be present while discussing the final terms and agreements. On the contrary, there are employees not wanting a history of termination in their contracts which implies that the company will have to facilitate that option to the employees by providing options of resignation and allowing their benefits (Jones, Wicks & Freeman, 2017). Severance pay is another effective way of letting workers go where the employees are paid for outplacement which helps in updating their resumes. Moreover, confidentiality is a key aspect of the overall process so that the personal issues may not be discussed within the workforce as it leads to negative impact on the organisational operation. However, it is essential to understand the negative impact of downsizing and revaluating the option of keeping as much employees possible.

The analysis of the current situation has highlighted the gruesomeness of the current situation faced by the employees so it is essential to identify necessary alternatives which can be used to keep the business running and keeping a high morale among the employees within the organisation despite having to lay off. In light of this context, the analysis has provided with three major alternatives and they are as follows:

• The organisation needs to identify the minimum employees that can be terminated to keep the organisation running without losing much of their capital. Therefore, instead of laying off 40% of the employees, the company can reduce the pay and compensation package to reduce the termination rate to 20%.
• The organisation can close off wings within the hotel to reduce the cost of maintenance and can significantly reduce the need for termination of the employees. It implies that that hotel can close off half of the property as the occupancy rate is low to ensure that charges of operation and maintenance is reduced by half.
• Moreover, in case of termination of the employees it is necessary to provide them with severance and option to quit instead of terminating them. Moreover, it is essential to keep as much transparency as possible to keep the employees updated about the reason for termination.

Therefore, it is essential for the organisation to reduce the termination rate to as minimum as possible so closing off wings. Moreover, the employees should be aware of the reasons for laying off and fair evaluation of the employees that are being let go. Moreover, the organisation needs to pay severance package, offer option to quit and maintain the confidentiality of the employees. Moreover, the organisation needs to fulfil all the promises that they have made to the employees so that morale of the employees can be kept high as possible.

Conclusion

Thus, it can be concluded from the business case that downsizing has its ethical issues attached with it and it is considering as an unethical part of modern organisations. The major concern was that the employees were not given information regarding the reason for termination and transparency was a key issue. The stakeholder analysis shows that employees are a key part of the organisation and it is essential to keep the process as transparent as possible and reduce the number of layoffs to a minimum.

References

Andriof, J., Waddock, S., Husted, B., & Rahman, S. S. (2017). Unfolding stakeholder thinking: theory, responsibility and engagement. Routledge.

Jones, T. M., Wicks, A. C., & Freeman, R. E. (2017). Stakeholder theory: The state of the art. The Blackwell guide to business ethics, 17-37.

Miles, S., 2017. Stakeholder theory classification: A theoretical and empirical evaluation of definitions. Journal of Business Ethics, 142(3), pp.437-459.

tripadvisor.in. (2020). WEST HOTEL SYDNEY, CURIO COLLECTION BY HILTON - Hotel Reviews, Photos, Rate Comparison - Tripadvisor. Tripadvisor. Retrieved 3 May 2020, from https://www.tripadvisor.in/Hotel_Review-g255060-d12993911-Reviews-West_Hotel_Sydney_Curio_Collection_by_Hilton-Sydney_New_South_Wales.html.