When loyalty to workers hurts more than it helps

Easy enough to slam business owners or paint them as heartless capitalists working to milk their companies by dis-investing in their equipment or people. But so far this year, I've heard from two business owners who, out of loyalty to their employees, delayed layoffs beyond the point of fiscal wisdom.

These two owners ran smallish manufacturing businesses, and over time, developed deep loyalties to their employees. They knew their families, attended weddings, threw holiday parties. And when times got tough, all they could see was the suffering they'd cause through layoffs. So they did all they could to avoid the layoffs, often cutting their own salaries, or cutting back on other aspects of the business.

In one case, the company is still in business, but barely. Luckily, the economy is heating up enough to fan the embers of what would have been a dying concern, allowing this company, perhaps to survive.

The other business, run by a man I met yesterday, Lee Cohn, is long dead. These days, Cohn, 72, is a consultant, working primarily for the company that hired him after his business folded. 

His business made top-grade sheet metal vents and other equipment that supplied restaurants. His stuff, he said, was the Cadillac of restaurant equipment. But when the economy turned in the recession in the early 1990s, his customers downscaled and downgraded. Soon orders had slowed.

He turned to the union, asking for cuts in wages or hours. No dice. He even showed the union accountant the company's books. No one believed him. That hurt him personally, he said, because he thought that his ties were so strong to the men that they would know that he wasn't trying to take advantage of them, that they wouldn't think he was just singing the rich-guy's blues.

The other alternative would have been to lay off half of his workforce, but he didn't have the stomach for it. "That was my mistake," he said. If he had done that, he said, he'd still be in business and able, probably, to have hired most of them back.

As it turned out, he filed for bankruptcy. After he filed, as the business was closing, the rank-and-file workers called him at home, volunteering to take cuts, lamenting that they didn't believe him. Too late, he said.

It's a painful story and I'm not quite sure what the moral is, or should be. Credibility is an important commodity. What happens when workers are tricked, or cast aside? It's only reasonable to be cautious and cynical. Professionals, like the accountant, who represent workers can't be blamed for their cynicism. It's a byproduct of their work. Did they give their clients, the workers, bad advice? 

But the cynicism has its costs. These workers paid it in full.

But what about the owner's failure to take the necessary steps at the right time? In trying not to hurt anyone, he hurt everyone, including himself.