DOWNSIZING THE ETHICAL PERSPECTIVE A CASE STUDY OF INTERCONTINENTAL BANK PLC

ABSTRACT

This Study was carried out to find out the degree to which ethical consideration is considered when downsizing using Intercontinental Bank as my case study.

The need for this ethical consideration cannot be overemphasized, considering the   fact   that   the   concept   of   downsizing   has   undoubtedly   gained   an unprecedented global focus and attention because of its broad and highly diverse nature that borders on several social, political and economic issues. The recent economic recession that affected corporations across the globe and led to the adoption of mass retrenchment as a cost cutting strategy. This singular act has increased the global unemployment rate, poverty and the attendant civil unrest been witnessed in many forms across the world from the north in Nigeria, to the Middle East, Greece and most recently rioting in the street of London.

This  paper  adopts  a  theoretical and  an  empirical approach to  provide a  better understanding of corporate ethical responsibility, while a broad based exploratory case study approach is used to investigate the activities of Intercontinental Bank in

their last retrenchment exercise. The major findings of this study revealed that intercontinental banks performance with  regards  to  ethical consideration and their downsizing effort has been positively and negatively witnessed.

The findings of this research work proves the need for a greater effort by organisation, labour unions and government to continually look for ways to protect labour against the practices of making them victims when corporate organisations adapt cost saving strategies. This will help improve the practicing firm’s corporate social Responsibility performance and apparently reduce bad feeling in the society.

The presentation on intercontinental bank plc was done in the form of case study. Pie chart and percentage analysis (spearman rank correlation) was used to test the stated hypothesis.

Based on the findings, some recommendations were made. These recommendations among others are; checkmating the  excessiveness of Banks Chief Executive. This can be achieved through a demonstration of intent and awareness by the regulatory agencies i.e. the Central Bank, through proper banking supervision and monetary policies implementation; Security and Exchange Commission by guiding against insider trading of banks stocks and the board of directors carefully selecting a competent incorruptible Chief Executive who will guide the bank towards profit maintaining prudence in the conduct of the banks business.

CHAPTER ONE INTRODUCTION

1.1     BACKGROUND OF STUDY

“I think many people assume, wrongly, that a company exists simply to make money. While this is an important reason of a company existence, we have to go deeper and find the real reasons for their being. As we investigate this, we inevitably come to the conclusion that a group of people get together  and  exist as an institution  that we call a company so that they are able to accomplish something  collectively that they could not accomplish separately – they  make  a  contribution.” to society, a phrase which sounds trite but is fundamental Dave Packard, 1960.

In fact most of the scholars agree that companies exist to make money, they are expected  to  be  beneficial  and  fulfill  the  profit  necessity  of  the  shareholders. However, now  more than ever  and  as  stated  many  years  ago  by  Dave  Packard the co-founder of Hewlett-Packard Company, firms are also required to contribute to the development of society and the improvement of its well-being by taking into consideration ethical and social issues. This discussion is still very relevant today and several specialists argue that companies actions are  not  driven by a  true concern for society, it is for them just an opportunity to increase their profit and attract more customers (Crane, McWilliams, & Matten, 2008). As Hopkins, (2007) rightly observed that Corporate Social Responsibility do not only concern the investments of companies in the social issues and problems of a community, it is more about the integrity and sincerity of the corporation, the way the company embodies its values, achieves its objectives and accomplishes its mission.

Companies are becoming very conscious of the reputational advantage that their ethical conduct may offer them, therefore the management of employees during crisis and especially in time of restructuring is a very sensitive subject that creates an immense discussion and attracts the interest of the different stakeholders. Ethics in the  practice  of  business  determines  how  companies  incorporate  their  principal values  such  as  fairness,  respect,  equality  and  sincerity  into  their  strategies and decisions. It also defines how firms adhere to the general standards and internal regulations (Mitchel, 2003).

Business ethics emphasizes on moral standards as it relates to the policies, strategies and behaviours of an organisation towards its stakeholders. It is a sort of practical ethics that includes the examination of the moral values and norms and aspires to apply the result of this examination to institutions, technological innovations and all

the business operations and activities (Velasquez, 2006). Business ethics are structured around values such as fairness and honesty, they emphasis on issues that concerns the different stakeholders such as quality standards, clients satisfaction, workers salaries and conditions, environmental issues and every aspect which is likely to influence and benefit the community. Ethically speaking firms are jammed in a position where they have to fulfill the economic responsibilities of their shareholders while  acting  honourably with  the  employees. Business  ethics  as  a growing  phenomenon  has  witnessed  several  changes  and  appreciation.  In  fact several examples and studies prove that the consideration of ethics and the acquirement   of   a   fair   repute   among   the   stakeholders   generate   numerous advantages. One of the benefits of being ethical is the employee commitment. It is obvious that when a company takes care of its workers, they are more disposed to be concerned about the company itself and are ready to make individual sacrifices for it. A study of the National Business and Economics Society (NBES) in 2008 shows that 79% of employees believe that ethics is an essential instrument encouraging them to keep working for their employer (Ferrell, Fraedrich & Ferrell, 2008).

One of the most supervised events by stakeholders is downsizing, this strategic activity is  characterized by  a  diminution of  the  workforce to  optimize company operations especially when pursuing a cost reduction strategy. The layoff of employees that follows such strategy implementation creates an immense debate and influences the company performance, structure and reputation. Staff in these situations usually faces numerous abuses, such employees find themselves in critical situations; unfortunately numerous firms fail in the management of this operation and undergo negative consequences because of their ethical conduct.

Downsizing does not just occur to an organisation, it is not something that happens it is  a  change that  the  management of an  organisation makes by  purpose. Hence downsizing is an ensemble of intentional activities. This first characteristic differentiates it from a loss of incomes, market shares and stiff competition that are more related to the concept of organisational decline (Cameron 1994). He further defined Downsizing to mean an ensemble of actions carried out by the management of an organisation in order to ameliorate its productivity, efficiency and competitiveness. This strategic activity affects the size of the companies’ workforce, their costs and their different processes (Cameron, 1994).

Nevertheless it is important to mention   that downsizing does not always include reduction in  the  workforce,  in some  cases  new  products  arise, novel sources of income appear and extra work and efforts are acquired without any augmentation in the personnel therefore smaller number of employees is used than before (Huber

& Glick, 1993).

Downsizing emphasizes on the improvement of the organisation’s efficiency with the aim of containing costs, improving revenues or strengthening competitiveness. Therefore downsizing could be employed to improve the performance of a company or as a protective reaction to a decline. In both cases the main objective is the realization  of  an  improvement  within  the  organisation  (Cameron,  1994).  Cascio (1993) also believes that at the financial level downsizing allows the diminution of the hierarchical levels, inferior cost ratios, superior profits, share prices and return on investments. Whereas from an organisational angle, better communication, more initiatives  and  improved  productivity  are   expected.  The   inferior  labour  cost generated  by  downsizing  allows  for  control  of  prices,  it  is  expected  to  make

companies stay competitive in their market segment (Appelbaum, Everard &Hung,

1999).

1.2        STATEMENT OF THE PROBLEM

From the preceding discussion, is clear that Downsizing has grown dramatically and has in the course of this growth gained an unprecedented global focus and attention. As a strategic tool, Downsizing has the potential to bring on board an enhanced or improved financial performance. This may particularly be true if corporation give more consideration to ethical issues. Our research problem therefore is to explain and find out the importance of ethical consideration in downsizing?

1.3       PURPOSE OF THE STUDY

The objectives of this research work include:

1. To get an in-depth understanding of Downsizing.

2. To find out the degree of ethical consideration in downsizing with focus on our case study (Intercontinental Bank PLC).

3.  To find out the importance of social and ethical issues in business strategies by studying the case of corporate downsizing.

4.  To find out the extent to which ethical perspective of downsizing can be used as a valid  theoretical  basis  from  which  to  judge  the  actions  of  Corporations level  of compliance with Corporate Social Responsibility.

5. To present the leadership practices and the managerial procedures allowing the achievement of an effective and ethical downsizing.

6. To review the conditions generating the emergence of Downsizing, its causes and the results that company expect as well as its positive outcomes if any.

1.4       RESEARCH QUESTIONS

On the basis of the above statement of the problem and purpose the following research questions can be framed

•Which activities or programs of a corporation fall under the “ethical consideration to downsizing theme”?

•To what extent is ethical consideration a valid theoretical basis from which to judge the actions of companies Downsizing strategies?

•To  what extent  does  Intercontinental Bank  live  up  to  their social responsibility expectations towards Downsizing?

•To what extent does downsizing affect the lives of retrenched staff and their families?

• Has Downsizing improved the relation between the practicing organisation and its stakeholders?

• To what extent does Downsizing affect an organisation performance?

1.5       RESEARCH HYPOTHESES Hypothesis 1:

Ho  –  Intercontinental  Bank’s  failure  to  comply  with  Ethical  Responsibility  when

Downsizing can be attributed to the upsurge in criminal activities in the country?

Hi  –  Intercontinental  Bank’s  failure  to  comply  with  Ethical  Responsibility  when

Downsizing cannot be attributed to the upsurge in criminal activities in the country?

Hypothesis 2:

Ho – Downsizing strategy adapted by Intercontinental Bank can be attributed to improved performance?

Hi – Downsizing strategy adapted by Intercontinental Bank cannot be attributed to improved performance?

1.6        LIMITATIONS OF STUDY

This  research  work  views  downsizing  principally  from  an  ethical  perspective. However some financial and managerial aspects are taken into consideration by top management when pursuing downsizing strategy. The research work will rely on interviews, questionnaires conducted through oral  and  distributed questionnaire

respectively;  the  interview  will  principally  be  the  accounts  given  by  dismissed workers detailing their experiences after being retrenched. Furthermore and to have more than one view concerning each situation, interviews conducted with the CEOs and/or managers of companies that implemented downsizing will also be used. Thus, enabling for a comparison of executive justification and the interpretation of these actions by the public and other stakeholders.

This  work  will  mainly  exploit  internet  based  secondary data, a thorough  review of previous studies undertaken in this field and related fields in the shape of literature review will also be mentioned. The motivation for this move is to provide a profound comprehension of the concepts and theories that will be investigated in the course of this work as well as answer some of the research questions earlier raised. The methodology will then furnish an explanation on the approach which will be used to answer the research questions. Our internet based findings will then be presented and the study will ultimately round up with some important conclusions and recommendations for further research.

1.7        SIGNIFICANCE OF THE STUDY

This research work deals with the salient concept namely Ethical consideration to Downsizing, a concept that has undoubtedly gained an unprecedented global focus and attention because of its broad and highly diverse nature that touches on several issues which are frequently under the international spotlight arising from the recent economic recession that affected corporations across the globe and left them pursuing retrenchment strategies targeted at reducing the cost of doing business within and after a recession. This work provides an unrivalled understanding and sufficient support for the consideration of ethical issues when pursuing a Downsizing

strategy. Furthermore, this work reveals the extent to which corporations comply with the growing social responsibility expectations in our contemporary context. These important findings will ultimately serve as an ethical check on their activities. This may stir less compliant corporations towards becoming more socially responsible while those regarded as compliant stand to enjoy a great deal of

consumer loyalty thereby increasing corporate profitability, shareholders wealth and societal welfare.

1.8       DEFINITION OF (UNFAMILIAR) TERMS/ CONCEPTS

Ameliorate: to make or become better, more bearable, or more satisfactory; improve;

meliorate.

Auditing: is an evaluation of a person, organisation, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and for energy conservation.

Business: a person, partnership, or corporation engaged in commerce, manufacturing, or a service; profit-seeking enterprise or concern.

Contemporary: existing, occurring, or living at the same time; belonging to the same time age or date.

Corporations: A legal entity that is separate and distinct from its owners. Corporations  enjoy  most  of  the  rights  and  responsibilities  that  an  individual possesses that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

Corporate Social Responsibility: Corporate social actions whose purpose is to satisfy social needs.

Downsizing:  Organisational downsizing refers to an ensemble of actions carried out by the management of  an  organisation  in  order  to  ameliorate  its  productivity, efficiency  and  competitiveness. This  strategic  activity  affects  the  size  of  the companies  workforce, their costs and their different processes.

Ethics: Ethics is the code of conduct directing a person or a group; it is the study of the individual or collective principles and moral standards.

Finance: is  the  science of funds  management. The  general  areas  of  finance are business  finance,  personal  finance,  and  public  finance.  Finance  includes  saving money  and  often  includes  lending  money.  The  field  of  finance  deals  with  the concepts of time, money, and risk and how they are interrelated. It also deals with how money is spent and budgeted.

Leadership: The process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task.

Management: in  all  business  areas  and  organisational activities  are  the  acts  of getting people together to accomplish desired goals and objectives. Management comprises  planning,  organising,  staffing,  leading  or  directing,  and  controlling an organisation (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.

Marketing: the process by which companies create customer interest in products or services. It generates the strategy that underlies sales techniques, business communication, and  business  development. It  is  an  integrated  process  through

which companies build  strong customer  relationships and  create  value  for  their customers and for themselves.

Performance: the manner in which or the efficiency with which something reacts or fulfills its intended purpose.

Profitability: is a term of economic efficiency. Mathematically it is a relative index – a fraction with profit as numerator and generating profit flows or assets as denominator.

Recession: A significant decline in activity spread across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income, and wholesale-retail trade.  The  technical  indicator  of  a  recession  is  two  consecutive quarters of negative economic growth as measured by a country’s GDP.

Retrenchment: the act of retrenching; a cutting down or off, as by the reduction of expenses.

Social welfare: social services provided by a government for its citizens.

Strategy: a word of military origin refers to a plan of action designed to achieve a particular goal.

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