Master thesis, MscBA, specialization Change Management University of Groningen, Faculty of Management and Organization
October 16, 2006
JAAP PIETER VAN DEN BERG Studentnumber: 1333488
Grote Leliestraat 52A 9712 SZ Groningen tel.: +31 (0)50-3121879 e-mail: s1333488@student.rug.nl
Supervisor university B.J.M. Emans Supervisor field of study
L. Feenstra
‘JUSTICE IN DOWNSIZING?’
‘An evaluative case study on antecedents of procedural justice in a downsizing context’
ABSTRACT
This thesis examines to what extent procedural justice can contribute to effective downsizing. Prior studies show that an experience of injustice can be hurtful to individuals and harmful to organizations. Because downsizing triggers feelings of injustice, the hypothesis was drafted that procedural just treatment is essential in downsizing. In addition, eleven propositions were formulated about antecedents that may affect organizational leeway to address procedural justice in a downsizing context. The case study research methodology was chosen to verify these hypotheses; primary means of data collection were interviews.
The findings supported the first hypothesis but rejected seven of the remaining hypotheses: procedural justice is indeed essential for effective downsizing, but the exact influence of most antecedents is unclear. Nevertheless, the findings underline several important antecedents of procedural justice. When conducting a downsizing, organizations must consider the impact of: management style and experience, trust, unionization, cause, size, the power of the workforce, the workers’ council’s role, and the length of the process.
INTRODUCTION
‘It is change, continuing change, inevitable change that is the dominant factor in society today’ (Isaac Asimov)
Change is never ending. Organizations of virtually every type and in every industry and sector face an environment of continuous and accelerating change (Hitt, Keats, Harbart, & Nixon, 1993). The increasingly dynamic and competitive workplace, the technological advances, and the trend towards cost cutting brought on by economic downturn and globalization have prompted organizations to ‘restructure’ their organization (Appelbaum, Everard, & Hung, 1999). That organizational change in itself is not limited to solely structural implications, is underlined by numerous firms announcing layoffs, pay cuts, and plant closings in the last decades (Ballester, Livnat, & Sinha, 1999). Layoffs, divestitures, and closings (from now on downsizing) have become a ubiquitous part of contemporary organizational life. As corporate restructuring efforts continue, the pace of permanent layoffs is expected to accelerate (Smart, 1994). Since nearly two third of all employee downsizing efforts fail, and they carry with them tremendous human and economic tolls (Cascio, 2005; Appelbaum, Lavigne-Schmidt, Peytchev, & Shapiro, 1999), the need for practical knowledge on how to lead and manage a downsizing is luminous (Beer & Nohria, 2000).
That profound empirical studies on strategy are scarce accentuates the need for case studies on downsizing strategy (Bies & Brockner, 1995; Konovsky, 2000). A recently conducted closure of a large chemical plant at an industrial concern in the north eastern region of the Netherlands extended an opportunity to initialize a profound study in a distinct change context.
The foundation of this investigation lies in a scientific theory termed procedural justice.1 Briefly worded, procedural justice is concerned with how individuals react to decision processes; it suggests that the fairness of the process of decision-making shapes employees’ judgments of decisions makers’ trustworthiness and has far-reaching effects on attitudes and behaviour (Korsgaard, Sapienza, & Schweiger, 2002; Tyler & Lind, 1992). Although it has been known for years that fairness of organizational policies and procedures affects employees in organizations (Adams, 1965; Leventhal, 1976; Gopinath & Becker, 2000), justice is a relatively new and underdeveloped concept in organizational change.
Employees’ concerns of justice are likely to be triggered under conditions of change that are ambiguous and uncertain regarding the exact nature of the outcomes (Coyle-Shapiro, Hoque, Kesser, & Richardson, 2002; Cobb, Wooten, & Folger, 2005). Downsizing may involve communicating an inevitable negative decision and leaving employees to interpret uncertain implications that are often directly relevant to employees’ future and well being (Cobb et al., 2005). Moreover, employees tend to
mistrust such organizational change and resist its implementation as it raises implicit expectations about severe personal losses (Rousseau & Tijoriwala, 1999; Strebel, 1996).
That the above reasoning pleads for procedurally just strategies seems as clear as plain daylight. That reality highly contrasts is underlined by the numerous examples of downsizing failure due to the poverty of lay off procedures and ignorance of employee concerns (Gilliland & Schepers, 2003). It is remarkable to note that organizations still seem to be inclined to give prevalence to financial considerations and tend to overlook or ignore the human costs of their own actions (Folger & Cropanzano, 1998).
The question that arises is: “Why do organizations still seem to hardly attend to the concept of justice in downsizing strategies?” This indicates the existence of a gap between what academics point out as the most desirable method for implementing layoffs and what is actually occurring in many layoff situations (Gilliland & Schepers, 2003). This notion raises an issue that is essentially different from prior research which examined procedural justice. Whereas previous studies surveyed what organizations should do in order to influence justice perceptions, the current study explores if an organization in practice actually can conduct a downsizing procedurally just. Consequently, the purpose of this investigation is to narrow the gap between theory and practice by shedding light on these antecedents in the change process that may restrain or increase an organizational leeway to treat employees in ways that are scientifically considered to be procedurally just. The corresponding central investigative question states:
‘To what extent can procedural justice contribute to conducting a downsizing effectively?’
While this academic exploration serves to extend empirical evidence on the overall understanding of how procedural justice can benefit organizations, it concentrates on the impact of procedural justice in downsizing. This distinct form of organizational change is likely to trigger employees’ perceptions of justice because employees’ future in downsizing is highly ambiguous and uncertain. The thesis takes a retrospective view; it is imperative to do so because neglecting to evaluate results and learn from mistakes is an often cited cause of downsizing failure (Cascio, 2005).
CHANGE CONTEXT
Firm X was a joint venture between three well-established organizations. This joint venture owned two chemical plants located at a large chemical site in the north-eastern region of the Netherlands, an industrial region that never lived up to the expectations. Firm X sold large quantities of (x) that were obtained through the conversion of gas. It must be noted that none of the three shareholding companies considered the production of (x) as their core business and were willing to sell of both chemical plants.
As gas prices in the Netherlands are linked to the oil prices, plant profits were dependent upon oil rates, obviously in combination with the sales rate of methanol. Despite of the highly fluctuating nature of the methanol market and varying oil prices, last decades business results have altogether been reasonably profitable. However, when in May 2005 oil rates (and therefore also gas prices) sky rocketed and concurrently, prices of (x) did not increase, it became the sad reality that the future was not as prosperously as expected.
Management of Firm X uttered their worries about the negative developments and circumstances to the shareholders. Simultaneously the workforce was informed. It would take until September 22nd until the decision was made to close down one of the two chemical plants. Again two meetings were held to inform the workforce about their fate. On November 11th shareholders formally decided to terminate all regular production activities. However, due to supply commitments, the second plant had to run at minimum capacity until July 2006. In an effort to create employment and limit financial losses, alternatives for the chemical plants were investigated profoundly.
Before communicating the decision externally, all employees received a letter at their home address that included the notion that all of the 98 jobs (including management jobs) would eventually be lost and that discussions about a social plan would start as soon as possible. As approximately, indirectly another hundred jobs would be lost due to this downsizing, about two hundred employees were left insecure about their future at the company. The formal employer of the workforce, (i.e. one of the shareholding organizations and the organization under investigation in this study) bore responsibility for these employees. Resistance did not arise significantly during the change process, and forced dismissals were almost entirely prevented by assisting employees in developing skills and offering alternative job opportunities. The conditions in the social plan turned out to be rather favorable for employees.
THEORETICAL BACKGROUND
‘People can cry much easier than they can change’ (James A. Baldwin)
Defining Concepts
It is first of all imperative to exemplify on downsizings in general because its meaning can easily be misunderstood due to the different perspectives that are apparent in current scientific literature. Also, since this thesis elaborates on the concept of procedural justice, a common understanding of justice in organizations is needed.
Downsizing; Hardy (1987), though not explicitly defining downsizing, sees downsizing as an all-embracing concept that encloses layoffs and plant closure. Mabert & Schmenner (1997) underline that no common definition is present, but they do provide four attributes that a downsizing usually contains: an intentional decision (1); reductions in personnel (2); efficiency and/or effectiveness objectives (3) and changes in work processes (4). The last two attributes explain why a range of concepts such as reengineering, rightsizing, layoffs, reductions in force, organization decline, and reorganizing are nowadays regularly used as substitutes for downsizing. In agreement with the above, Cascio (1997) defines downsizing as ‘the systematic reduction of a workforce through an intentionally instituted set of activities by which organizations aim to improve efficiency and performance’. This definition provides the insight that downsizing efforts are undertaken for the improvement of the organization. This implies that not only firms that are experiencing problems downsize. Quite to the contrary, firms that are growing are just as likely to downsize (Appelbaum, Everard, & Hung, 1999). Cascio (2005) distinguishes between employee- and asset downsizing. Asset downsizers, besides reducing a number of employees, also sell of a large share of their capital assets. As this study explores a plant closure, which includes selling capital assets and dismissing employees, it is legitimate to refer to this organizational change in the remaining of this thesis as “downsizing”. Additionally, it is important to note that despite of the many scientific articles about procedural justice, layoffs, and downsizing, I am not aware of any academic study that combined procedural justice and plant closure specifically.
Organizational Justice; Judgments about justice usually involve a social context and unwarranted actions by one party that harms or threatens other parties. Justice is about how rewards and punishments are distributed by and within social collectives, and it is about how people govern relations with one another (Folger & Cropanzano, 1998). Accentuated in the study of organizational justice are rules and social norms that govern how outcomes should be distributed, the procedures used for making such distribution decisions, and how people are treated interpersonally.
be held accountable for predicting most important organizational outcomes. As procedural justice focuses on the perceived fairness of the means used to determine the amount of punishment or reward, how outcomes are determined may be more important than the actual outcome (Folger & Cropanzano, 1998). Individuals tend to be highly sensitive to just procedures when outcomes are unknown or highly unfavourable, which is likely in a downsizing context. Consequently, our investigation addresses procedural justice and not distributive justice.
The reminder of the section expounds on procedural justice, by elucidating upon the composition, the importance, and antecedents of this concept. Several hypotheses that are founded in scientific literature are drafted, and provide the basic principles of this study.
What is Procedural Justice?
Procedural justice is an appraisal of the process by which an allocation decision is made. People care about how they are treated, and these procedural justice perceptions do so much shape their relationships with their employers (Folger & Cropenzano, 1998). When people make justice evaluations about procedures, they seem to be sensitive to two distinct focal determinants: structural and social (Coyle-Shapiro et al., 2002). The definition of a ‘procedure’ is the key to this disposition. In early traditional research, procedures are referred to as official rules on how things are done, how decisions are made, etc (Blader & Tyler, 2003). This can be regarded as the structural component of procedural justice.
A more recent view upon procedural justice includes interactional justice, which can be regarded as the communication criteria of fairness (Coyle-Shapiro et al., 2002). Bies & Moag (1986) define interactional justice as the quality of treatment that people receive during the enactment of organizational procedures. In line with prior research, (Moorman, 1991; Niehoff & Moorman, 1993; Tyler, 1994; Cropanzano & Greenberg, 1997) interactional justice is considered as a subset of procedural justice, referred to as the social or interactional component. Although some have called this scheme into question, it is a straightforward matter to conceptualize interactional justice as a component of procedural justice (Folger & Cropanzano, 1998). Consequently, a more inclusive understanding (e.g. an understanding that is used in this examination) of procedures can comprise all processes and interactions that occur within the context of organizational change.
Social Component Informational - Truthfulness - Justification Interpersonal - Propriety - Respect Structural Component - Consistency - Bias Suppression - Accuracy of Information - Correctability - Representativeness - Ethicality Procedural Justice
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Social component of PJ. Drawing on prior research, Colquitt (2001) proposed that the social component of procedural justice should be divided into two separate dimensions: interpersonal and informational justice (Roch & Shanock, 2006).
The interpersonal dimension is concerned with the well being of employees. People are supposed to enhance fairness perceptions if management treatment is polite and respectful (e.g. listening to a subordinate’s concern, demonstrating empathy, etc.). The study of Mikula, Petrik, and Tanzer (1990) confirms that a considerable proportion of perceived injustice refers to the manner in which people were treated interpersonally during interactions and encounters. In addition, Greenberg (1993) demonstrated that interpersonal sensitivity in times of change may positively affect employees’ reactions to the change.
The informational dimension includes justification, and truthfulness. Research has shown that it is imperative to be honest and treat employees in an open and forthright manner (Brockner & Wiesenfeld, 1996). Also, individuals are much more acceptable towards and better understand an unfavourable change when a thorough and adequate explanation is provided (Bies & Shapiro, 1988). Brockner, Konovsky, Cooper-Schneider, and Folger (1994) found that providing advance notice of an organizational change was positively associated with employees’ reactions to the change.
When taking both components of procedural justice into account, it is conceivable that even if formal procedures of organizational change are judged fair, employees may interpret procedural justice low because a crooked manager is charged with executing them. Figure 1 provides a schematic overview of the factors underlying both components of procedural justice.
FIGURE 1
Why is Procedural Justice valuable in Downsizing?
In this paragraph I elaborate and provide a rationale on why unjust treatment may prompt undesired consequences for a downsizing organization. The first paragraph explains why procedural justice can trigger emotions and affect employees’ reactions. The second paragraph emphasizes the importance of just treatment in a downsizing context by extending relevant empirical evidence.
Downsizing triggers negative emotions. Konovsky (2000) indicates fairness as a core value in organizational actions. Individuals are found to be more accepting of a variety of organizational changes when treated in a procedurally fair manner. For instance, Greenberg (1994) found that a smoking ban was better accepted when it was introduced following just procedures than following unjust procedures. Individuals use their evaluations on procedures and outcomes to generate a global impression about the fairness of an authority (Lind, Kulik, Ambrose, & Devera Park, 1993). Obedience will thus depend to a substantial extent on whether individuals feel that the authority dealt with them fairly. In general, people believe that they are more likely to obtain favourable outcomes when procedural justice is relatively high (Konovsky, 2000).
Although organizational change might be experienced positively (Kiefer, 2005; Rousseau & Tijoriwala, 1999), the majority of research suggests that employees’ emotions that are triggered by change are mainly negative, such as anger, resentment, anxiety and frustration (Huy, 2002; Piderit, 2000). Thus, as organizational decisions and managerial actions are perceived unfair, negative emotions are urged. (Folger & Skarlicki, 1999; Greenberg, 1990). According to Kiefer (2005), organizational change is associated with these negative emotions due to three reasons:
• Employees feel they cannot perform efficiently because of changed working conditions. • Employees experience a threat to their personal well being and future at work.
• Employees feel a lack of fairness, support and appreciation from the organization.
Because these three aspects seem highly relevant during downsizing, undesired negative emotions are likely to be triggered. Negative emotions on its part can cause severe resistance. Agreeing with Kiefer (2005), contemporary literature underlines that fear of the unknown lies at the heart of resistance. For example, Nathans (1996) states that resistance can arise when employees experience obscurity in information, goals, or consequences of the change. Also, employees might be unable to comprehend the need for change as they are only thinking about a loss of job content (Jha, 1977).
Empirical evidence on value of PJ. This paragraph elaborates on the importance of procedural justice in downsizing by underlining several negative consequences of procedural injustice. Empirical research on downsizing has significantly expanded our knowledge about attitudes that are supposed to be crucial for future organizational health in a layoff context. No evidence of a broad based rise in productivity, the very reason that many companies state as their ultimate goal in downsizing, has been discovered so far. For example, Clark and Koonce (1997) demonstrated that 68 percent of all downsizing efforts are not successful. Moreover, in a study that included 6,418 downsizing companies, Cascio (1993) did not find any evidence that downsizing led to improved financial performance. The relentless truth is that organizations who initiate downsizing efforts to become more profitable and efficient, realize none of the outcomes. It is assumed that the cause of these disappointing outcomes lies in hidden costs that unnoticeable suppress downsizing profits. Some authors refer to the often neglected costs of unfavourable publicity, litigation, union bargaining, inferior quality, and overtime payment. However, in general it is agreed on that unjust treatment is the major factor that causes organization to fail in achieving corporate downsizing objectives (Labib & Appelbaum, 1993).
In addition to the above, empirical evidence indicates the importance of employee morale and commitment in downsizing. Many managers complained of the morale sapping character of most downsizings and described how low morale created anxiety and paralysis within their companies. 74% of senior managers at recently downsized companies said that their workers had low morale (Clark & Koonce, 1997). As employee morale is a notion that has been assessed on its connection with procedural justice in some studies, organizations are playing with fire when employee morale is jeopardized in the pursuit of cost savings. Folger and Konovsky (1989) found that justice perceptions were also related to organizational commitment and trust in supervision. Greenberg and Cropanzano (2001) add that organizational commitment and trust in supervisors, and the perceived legitimacy of organizational hierarchy and policy are all attitudes that are likely to be affected by fairness judgements; employees reduce their commitment if they perceive that the company's change process is unfair (Brockner et al., 1994). Lastly, job satisfaction is dependent upon employees’ perceptions of just design and enactment of procedures (Moorman, 1991, Folger & Konovsky, 1989), Thus, managers need to realize that employees’ perceptions of unfairness may affect crucial attitudes for successful organizational change; employee morale, job satisfaction, and organizational commitment.
might have relatively little impact on employees’ productivity and morale (Brockner & Wiesenfeld, 1995). Thus, despite the fact that severance conditions are important, dignified and respectful employee treatment is indispensable. It is imperative to maintain good communications about the nature and the effect of organizational change, and to show compassion for those affected. All in all, because procedural justice seems essential in downsizing the following hypothesis is drafted:
Hypothesis 1. Procedural justice is essential for effectively implementing a plant closure.
Irrespective of underlining the importance of procedural justice, a perspective must be given on whether organizations in practice actually possess the capabilities to enact just. For this reason, the central focus in the next paragraph is to examine potential antecedents of procedural justice.
What are Potential Antecedents of Procedural Justice in Downsizing?
Gilliland & Schepers (2003) conducted a quantitative study that had to explain variation in lay off implementations and provided a conceptual model that entails several antecedents. These antecedents must be interpreted with care because data was collected through a survey that was filled in by a single company representative, and the research did not aim at plant closure specifically. Nevertheless their research provides a useful outset of antecedents that may affect procedural justice in downsizing. In addition, this study adds several ‘new’ antecedents that were not examined in scientific investigations before.
Because not all antecedents affect procedural justice alike, the distinction is made between three types of antecedents:
• Antecedents that may stimulate procedurally just enactment in downsizing
• Antecedents that may restrain organizational leeway to enact in a procedurally just way • Antecedents that may increase organizational leeway to enact in a procedurally just way
Stimulating antecedents. This class entails four antecedents on which as much hypotheses are drafted: workforce unionization, law (both mentioned by Gilliland & Schepers), company wealth, and tradition (both new assumptions). If these antecedents are apparent, an organization will supposedly be stimulated (i.e. more inclined) to enact procedural just.
When a large part of the workforce is unionized, an organization has to negotiate a contract that closely describes the downsizing process through the union. Because union representatives are not likely to accept such a contract if it is deemed highly unfair, a largely unionized workforce may stimulate organizations to enact procedural just.
positively influences the amount of communication, participation and honesty on behalf of the management.
When a company is wealthy, despite of the initiated downsizing, employees may have implicit expectations about receiving a share of this wealth. Consequently, employees may not go along with average lay off procedures and severance conditions. Such expectations are supposed to simulate an organization to act fair.
The last antecedent, tradition is somewhat confusing. The ‘persistent injustice effect’ proposes that it is a tendency for individuals who have experienced injustice to continually see it (Greenberg & Cropanzano, 2001). Because people’s expectations result partly from their experience in the past, employees’ perceptions of injustice towards downsizing are likely to be influenced by prior change. Employees may expect at least equal treatment or severance conditions as employees received in prior organization changes. Thus, when an organization has a tradition in acting fair during past organizational change, employees’ expectations may reinforce the necessity for organizations to act in a procedurally just way.
Altogether the following hypotheses are drafted;
Hypothesis 2a. An organization is more inclined to enact in a procedurally just way when a large share of the laid of workforce is unionized.
Hypothesis 2b. An organization is more inclined to enact in a procedurally just way when law puts restrictions on a downsizing implementation.
Hypothesis 2c. An organization is more inclined to enact in a procedurally just way when company wealth is high.
Hypothesis 2d. An organization is more inclined to enact in a procedurally just way when procedures and concern for people in past changes contained a high amount of fairness.
Restraining antecedents. This paragraph addresses five antecedents that are supposed to restrain a company’s leeway to enact procedural just. Gilliland & Schepers (2003) already indicated that the size, the fear of litigation and/or unfavourable publicity, and the cause of downsizing may limit a companies’ leeway. In addition distrust is also assumed to restrain organizational leeway to enact procedural just.
Gilliland & Schepers (2003) correctly point out that due to personnel and/or time constraints, an organization may not be able to provide fair treatments to all employees. Individuals have emotions that must be attended to in a personal manner. When management time is scarce and the amount of layoffs is rather large, layoff size may be considered a restraint of procedural just enactment.
‘ammunition’, and therefore require that explanations be kept to a minimum (Gililand & Schepers, 2003). Employee perceptions on procedural just treatment are likely to decline, as critical information is withheld and communication is distorted. Thus, in order to prevent litigation and unfavourable publicity, the organization is supposedly restrained in its leeway to enact procedural just.
Distrust. Trust in management is an attitude held by employees towards the leadership of the organization that indicates a willingness to be vulnerable to management (Whitener, Brodt, Korsgaard, & Werner, 1998). Trust is forward-looking, as it involves predictions or expectations regarding another’s behaviour (Pugh, Skarlicki, & Passell, 2003). In essence, a low level of trust may result in employees viewing the change activities as purely negative, and management will have much difficulty getting employee support when undertaking change initiatives (Appelbaum, Lavigne-Schmidt, Peytchev, & Shapiro, 1999; Whitener et al., 1998). Thus when employees distrust management, they are supposed to be less willing to extend themselves on behalf of their employers (Cropanzano & Byrne, 2001).
Gilliland & Schepers (2003) offer a perspective upon the influence of the cause of downsizing. They state that layoffs resulting from economic hardship may be so unexpected that management cannot share the required information in advance of the decision. However logical this reasoning may seem, an additional consideration is apparent for this antecedent. When a downsizing effort is initiated due to obvious mismanagement it is imaginable that fair treatment will be extremely difficult. In contrast, when the cause of downsizing lies in economic hardship, employees may not blame management but the external environment. Despite of the negative outcome the workforce may still perceive the downsizing as relatively fair and justified. The drafted hypothesis is based upon the first perspective.
On these five restraining factors, hypotheses are drafted.
Hypothesis 3a. An organization is less capable of enacting in a procedurally just way if the size of the layoff is large.
Hypothesis 3b. An organization is less capable of enacting in a procedurally just way if it fears litigation
Hypothesis 3c. An organization is less capable of enacting in a procedurally just way if it fears unfavourable publicity.
Hypothesis 3d. An organization is less capable of enacting in a procedurally just way if employees distrust management.
Hypothesis 3e. An organization is less capable of enacting in a procedurally just way if the cause of a downsizing lies in economic hardship.
During periods of organizational change such as downsizings, managers play key roles as decision makers and as sources of influence (Bedeian & Armenakis, 1998; Kernan & Hanges, 2002). Those managers who have more experience in conducting layoffs are likely to have developed more effective strategies for communicating the layoff (Konovsky & Brockner, 1993). In addition, it is conceivable that a charismatic management style may be vital if employees are to perceive management’s demeanour procedurally just. Thus, management style and experience may be significant antecedents that determine whether an organization can actually enact just.
Another rather not startling antecedent is organizational culture. Organizations with cultures that value or believe in fair treatment of employees are more likely to implement layoffs in ways that demonstrate this justice (Gilliland & Schepers, 2003). In addition, such organizations are assumed to be more used to act fair.
The following hypotheses are drafted.
Hypothesis 4a. An organization is more capable to enact in a procedurally just way, when
management is largely experienced in conducting a lay off and managers posses a charismatic style.
Hypothesis 4b. An organization is more capable to enact in a procedurally just way, when the organization culture values or generally believes in fair treatment of employees.
This list of potential antecedents must not be interpreted as all-embracing, since scientific research simply did not attend this area of research sufficiently. For this reason, and because the disposition has not been empirically validated, it may not be unconceivable that the results of this profound study shed a new light on the influence of the antecedents above on procedural justice, or establishes several new distinct antecedents. Before drawing attention to the results, first a conceptual framework and methodological section are provided.
Conceptual Framework
FIGURE 3 Conceptual Framework
METHODOLOGY
Data Collection
As the subject of this study is relatively new and complicated, it requires a data collection method that can obtain very specific qualitative information. Because interviewing is well suited for gathering in depth information, it was chosen to be the primary data collection method in this case study. In addition to the interviews, some data was collected by studying company documents that were adopted during the downsizing. Equally important as data that is obtained from the field is academic literature. A profound literature study enabled me to evaluate and compare past research on procedural justice and lay-offs. The remaining data is acquired by studying several newspapers and the company’s intranet. An important remark is that since the main data collection method is interviewing, conclusions must be interpreted with care.
Respondents and procedure. The interviews have been conducted with representatives that were expected to provide different perspectives on the change process. It was imperative to include respondents that were involved in the decision to close the chemical plant and individuals that were directly responsible for communications and interpersonal treatment during the change effort; i.e. respondents that did actually experience the downsizing. Consequently, a distinction was made between plant management, organization management, workers’ council, and the human resource department. In order to enhance objectivity, interviews were conducted with three representatives from each group. As two interviews were cancelled, ten interviews were ultimately conducted. Each interview had a length of approximately one hour and a half, albeit naturally some deviations occurred. In advance, every respondent received a brief description on the content and purpose of the study and a list of specific interview topics. Employees were deliberately not included in this research, as the
H1 Potential antecedents of PJ Unionization Law Wealth Tradition Size Litigation Unfavourable Publicity Trust Cause
Style & Experience Culture
Effective Downsizing PJ Treatment
emphasis of this study is on identifying antecedents and not on attitudinal and/or behavioural consequences.
Instrument. In order to address the central investigative question, the instrument had to collect data about at least two levels; procedural justice and its potential antecedents. It was obviously crucial to examine if the company enacted procedurally just. Procedural justice in previous studies has always been assessed by employee questionnaires that had a quantitative nature. This, in contrast to my study which primarily collects data by means of interviewing (qualitative). However, the composition of the interview questions was structured, and derived from a combination of previously validated and reliable scales on the structural- (Moorman, Niehoff, & Organ, 1993) and the interactional component (Colquitt, 2001) of procedural justice. Also, organizational documents provided me with objective data about to what extent the organization did act procedurally just.
As said, knowledge on the antecedents of procedural justice in a downsizing context is scarce. However, as several antecedents were nonetheless hypothesized beforehand, it was essential for the interviewer to remain unbiased during the interviews. Consequently, the interview scheme was composed in such a way that respondents were not asked directly about the influence of these potential antecedents. Instead indirect and open ended questions were asked to discover and/or test antecedents. For example: “Why was it not possible to communicate everything?’ and “Why did management carefully explain the motives for the plant closure?” Thus, the respondent had to bring up antecedents from their own experience in the downsizing.
Naturally, the instrument also contained questions to clarify the change process in general. As every respondent performed a different role in the change process, the interview scheme was personalized for each respondent. Because not every respondent was involved in decision making (as others were not involved in directly communicating to employees), logically the data collected from each interview varied. Answers were noted on an answer form during the interviews. Subsequently, after each interview, all answers were processed immediately into an electronic document.
Data Analysis
The first hypothesis, about the relationship between justice and downsizing effectiveness, was evaluated by means of text analysis. By examining respondents’ comments and answers on specific interview questions about the importance of interpersonal treatment, communication, the objective of downsizing, and the moderating role of procedural justice, a conclusion could be drawn about whether the hypothesis should be accepted or rejected. Respondents’ comments on hypothesis 1 are described in table B1 in appendix B
screened and objectivity was enhanced by examining numerous documents upon the same dimensions. Documents included the request for approval, informing letters to employees, the weekly plant journals, and presentation sheets that were used during information meetings. The final version of this diagram is added below as table 2, and sheds a clear light upon the measure taken by the organization to enhance procedural justice in downsizing.
The remaining hypotheses, about the antecedents of procedural justice, were tested through field coding. In short, field coding means that interview questions appear to be open ended for respondents, yet the interviewer has a list of possible outcomes or classes on which answers are checked (Emans, 2002). In this study a quite similar approach was taken. Before conducting the interviews, a classification was made that distinguished three types of antecedents: stimulating, restraining, and increasing. A fourth category, ‘different’, was added in case respondents considered a proposed antecedent imperative but could not describe the exact influence of the antecedent. The classification enabled the interviewer to categorize antecedents which respondent mentioned during interviewing. In practice, this categorizing often meant that the interviewer had to ask complementary questions about the exact influence of an antecedent. Finally, a diagram was designed that combined all of the interview results about the influence of antecedents. This diagram made it possible to compare results and to evaluate the hypotheses. For reasons of intelligibility this diagram is added as table B2 in appendix B.
Additionally, this study identified several antecedents or preconditions about which no hypotheses were drafted. Similar to the evaluation of the first hypotheses, text analysis was used as a data analysis method. Preconditions or antecedents that respondents from different groups emphasized for being essential in downsizing, are added to the results section of this thesis.
RESULTS
‘No legacy is so rich as honesty’ (William Shakespeare)
Practical Importance of Procedural Justice
In order to find out if procedural justice was regarded essential, it is foremost important to identify what the organization’s downsizing objectives were. Respondents’ opinions on this subject did not vary much. Most pointed out that primarily cost effectiveness considerations were important for the downsizing implementation. The organization wanted to limit the financial losses in downsizing. However, no respondent denied or neglected the importance of attending to a more social responsible objective in downsizing. It was emphasized by several respondents that a social responsible solution had to be found, and that a downsizing could only be regarded effective if employees found a new job. An executive formulated it brief and clearly;‘The job is done, when everybody has found a new job.’ Interestingly, in practice it thus becomes clear that cost-effective downsizing requires a fairly social responsible demeanour. A plant manager remarked on this subject that; ‘You cannot do a cost effective job if you do not also reflect on the social responsibilities.’
In addition to the former, all respondents acknowledged the need for procedural just enactment in downsizing implementation. Consensus existed about the fact that downsizing has an especially distinct nature because, in contrast to most change efforts, the outcome of downsizing is basically always wretched: A downsizing is as hard as steel, all work simply ends. It triggers emotional responses and raises severe feelings of insecurity as it leaves the workforce to deal with an ambiguous future. One human resource manager remarked; ‘People have a need for security regarding their future. In a close down trajectory, communication and emotional support is especially important because a high level of insecurity exists…people feel that all of a sudden their social securities are brought down.’ Another organizational manager adds; ‘In a situation when people expect personal losses, you have to enact extremely precise and just, as employee judge and weigh management’s demeanour very careful.
Supplementary, respondents provided many more comments that answer for the apparent merit of procedural justice in downsizing. However, since expanding on every comment does not contribute anything to the purpose and understanding of this thesis, an overview of other meaningful comments is provided in table A1 which is added in appendix A. Results moreover indicate that fairness in procedures can assist people in better and faster accepting the negative reality. Respondents from each group also pointed out that, if management treatment is considered procedurally just, it may significantly moderate employees’ reactions towards the downsizing.
Attendance of Procedural Justice in Practice
This paragraph describes if the organization was able to address procedural justice sufficiently in the downsizing. The results are made clear by using the two components underlying procedural justice that were distinguished in the theoretical overview (e.g. the structural- and the social component).
Structural component. This component comprises six formal features by which a change process can be characterized. Leventhal (1980) distinguishes consistency, bias suppression, accuracy of information, correctability in case of error, representativeness, and ethicality. Each feature is evaluated below.
Consistency. Consistency across people and time was enhanced in the downsizing process, as the drafted procedures and conditions were identical for all involved employees. On the one hand, respondents accentuated that consistency was a relative easy feature to address in downsizing compared to other organizational restructurings, but on the other hand it still seemed rather difficult to ensure consistency in practice. An organization manager remarked that; ‘In organizational change in which only part of the workforce is laid off, employees are more likely to question consistency and justice criteria that determine dismissals…a plant closure creates cohesiveness, as the entire workforce has the same uncertain future; that makes the change process somewhat easier.’
Offering consistency in conditions and procedures does not imply that in practice everyone has the same opportunities. Several respondents indicated that employees regarded decision making and management demeanour inconsistent as they felt they have not been offered the same options as other employees. One human resource manager remarked; ‘Each employee has its own experience, skills, and education…in practice you have to offer more support to employees that have less chances on new employment.’ So even if the organization did act consistent formally (e.g. no different treatment, no criteria for dismissals), employees have difficulty accepting that management’s demeanour is consistent as they do not have similar options.
Accuracy of information. Accuracy of information is a feature of procedural justice that was addressed highly in the downsizing. Because the downsizing decision was not undisputed, awareness existed that employees needed accurate information. A plant manager remarked: ‘Early in the process, the choice was made to be as honest and open as possible towards employees…we tried to share all information that was available.’Immediately after the decision to close down, management explained the motives for the downsizing and the personnel consequences accurately and in a direct and understandable fashion. Another plant manager remarked: ‘Even if it concerns communicating a negative message, people need it when it provides clarity.’
The organization used several measures to emphasize the accurateness of the information in decision making and the change process. Most important were information meetings that management organized once every two weeks. In these meetings an accurate update was provided about the situation, and several presentations emphasised the accuracy of the decision by fully explaining the economic circumstances. In addition, in responding to employees’ questions and concerns accurately, a question and answer document was drafted that provided in depth information about the entire downsizing.
The accurateness of the information on which the decision was based was also validated by approval of the downsizing decision by the workers’ council and by the outcomes of an independent investigation performed by a consultancy organization. A marginal note on accuracy is that results show it is not always possible to communicate everything. An executive remarked: ‘If you are restricted in providing information, you must still communicate to the workforce why you cannot inform them, e.g. for confidentiality reasons in negotiations about selling of the plants…unfortunately, this does complicate the downsizing process.’ Despite of the latter comment, it can be concluded that the company enacted procedurally just in sharing accurate information.
Correctability. Correctability underlines that he fairness of a procedure is enhanced to the extent that it contains some provision for correcting bad decisions (Leventhal, 1980). It is extremely difficult to compensate for a loss of employment. However, management did offer employees assistance in finding new jobs, and provided the workforce with an exemplary social plan. The fact that 95% of the dismissed employees found new employment and the prevailing conviction that everyone would ultimately be relocated, stresses management’s effort in correctability.
Litigation also offered employees a means to correct perceived unjust treatment; however no employee made use of such a provision. Naturally, employees were given the opportunity to express their concerns and appeals during information meetings and individual conversations. In all, it can thus be stated that management put enough effort to ‘correct’ the poor outcomes for the workforce.
interests and concerns of all parties affected) and foremost employees interests, was indirectly attended to by the request for approval to the workers’ council to validate the downsizing decision. The workers’ council drafted several requirements for the content of procedures and management’s demeanour in executing the downsizing. If management wanted the workers’ council to approve the decision, they had to obey this ‘advice’ to a certain extent.
Representativeness was also accentuated in the negotiation process about a social plan. Respondents from each class, by referring to the ultimate social pan as golden and containing a diamante moulding, point out that other parties were not ignored in the downsizing process. Plant management involved employees in discussing technical concerns with employees about for example optimum production levels, and cost reducing measures. Thus, although the downsizing decision itself was not made after carefully weighing the interest of several parties, during the implementation process, several interests were fairly considered.
Ethicality. Results on the last structural feature show that as all jobs vanished because of the downsizing decision, no distinction was made between age, gender, and nationality in formal procedures.
Altogether, management took enough measures to address the structural component of procedural justice sufficiently. Even though procedures can be regarded just, employees were somewhat inclined to judge otherwise due to the nature and impact of downsizing.
Social component. This paragraph examines the outcomes on the four factors comprised by the interactional component; truthfulness, respect, propriety, and justification.
Truthfulness. Management highly valued this feature. A lot of effort was put in the process to treat employees in an open and forthright manner. A respondent from the workers’ council provided an example on the candour of the management; ‘The workforce was informed about the downsizing weeks before the decision was externalized…i.e. management trusted employees to keep this information secret.’
Despite the fact that cordial management’s intentions were not to make untrue promises, employees felt they had been lied to. Despite of the intelligibility of the communication, individuals can unintentionally interpret information differently and make fictitious promises that are not congruous with reality; especially when it concerns angry or hurt individuals. A human resource manager and a plant manager made the following notions about this topic: ‘As employees tend to take every word literally, you have to be terribly careful and prevent to offer employees the chance to create expectations that do not correspond with reality.’ and ‘Individuals had somehow internalized the presumption that management would find them new employment, however we did not communicate this.’ Altogether, the prevailing assumption of respondents was that management enacted truthfully.
Justification. Respondents deemed this second feature of interactional justice especially important, because downsizing concerns addressing a negative message which employees find difficult to accept: ‘When employees started to realize the impact of the decision on their future well being, negative emotions as anger, disbelief, and incomprehension occurred.’ In order to gather understanding and acceptance of the decision, management had to explain and justify the downsizing repeatedly in information meetings and by responding to questions. Two plant managers pointed out that the above measures are no warrant for acceptance: ‘In the process, you have to respond to criticism and negativism in an open and clear manner; you have to explain again and again and again…as a spokesman, by repeating the arguments, you may perhaps be able to convince employees about the rightfulness of the decision.’
The fact that decision was approved by the workers’ council and examined by an independent consultancy organization added to the rightfulness of the decision. A marginal comment stated by a human resource manager and a workers’ council representative was that management’s measure to hire a consultancy organization had little influence on employees’ opinion and attitude towards the downsizing as findings were considered highly biased. It must also be stated here that in the same economic region, due to economic hardship, more organizations were forced to downsizing and employee dismissal. Such developments assisted management to convince the workforce about the rightness of the decision. In all, the downsizing was extensively justified.
Respectful treatment and propriety. These features both have to do with interpersonal treatment. As outcomes did not show a clear distinction between the two concepts, the description of the features is being combined.
was given by management in two informal conversations. The conversations were meant to find out each employee’s skills and future job desire, and to provide emotional support and listen to employees’ concerns. A third measure that underlines respectful treatment is the permission that employees were granted permission to leave the organization as soon as they had found new labour; irrespective of the tasks that still had to be fulfilled.
Naturally, the information meetings had a crucial role to fulfil in respectful interpersonal treatment as well. Employees were offered the opportunity to express their concerns and ask questions. It was deemed essential to communicate very patiently and respectfully during these information meetings. One human resource respondent provided a comment on the difficulty of treating employees with respect during the meetings: ‘Management tried hard to treat employees respectfully…however, fact of the matter is that in communicating with angry or hurt people that distrust change, there is a very frail line between trying to be respectful and gathering respect.’
For employees, the primary concern was clear: employment and clarity about their future. Several respondents noted that management could have emphasized earlier in the process that the future was going to be highly uncertain. However, as management had really no means to take away the uncertainty, gathering respect can nearly be regarded a ‘mission impossible’. Altogether, management treated individuals in a polite and respectful manner.
It can be stated that management tried to attend to interactional measures. Similar to the conclusion on the structural component, attending to procedural justice does not imply that employees will cheer on the downsizing. The overview of the features underlying both components is depicted in table 1.
TABLE 1
Results of Procedural Justice in Downsizing
Consistency
- In downsizing, all parties have the same rights, procedures and are treated similarly
- Although every employee is offered the same procedures and conditions, every employee has different skills and capabilities; and therefore a different chance of finding new employment
Bias suppression
- Employees believed the decision to be biased as the plants had a permanent place in the display window
S T R U C T U R A L C O M P O N E N T Accuracy of Information
- Several presentations about the motives were held; the data in these presentations was accurate
- An independent advice organization confirmed that the decision was based upon accurate information
- The question and answer form provided reliable and accurate information on employees’ questions
Correctability
- Management offered the workforce assistance in finding new employment - The social plan contained exemplary conditions
- Litigation offered a provision for correctability
Representativeness
- Employees’ stance is indirectly represented in a request for approval and the negotiation process about a social plan
- Employees were not involved directly in decision-making
- Employees were asked participation on how to effectively close down the plants technically
Ethicality - As all jobs vanished, no distinction was made between age, gender, and nationality in the layoffs.
Truthfulness
- Information meetings presented an accurate picture of how the situation really was
- Weekly journals presented an accurate and honest stand on the situation - Employees felt they had been lied to by internalizing implicit promises
Justification
- The downsizing and its consequences have been justified in information meetings and presentations
- Findings of independent consultant organizations justified the decision - The decision was justified by approval of the workers council
- More organizations in the region could not cope with the economic circumstances S O C IA L C O M P O N E N T
Propriety & Respect
- Managers attempted to treat employees respectfully in information meetings - Respect for employee’s concerns and future was pointed out in individual
conversations
- Respect and concern for employees was shown through a letter at their home address that informed them about the close down before externals
- Lack of informal attention made it hard to gather respect from employees
Antecedents of Procedural Justice in Practice
Above, the distinction was made between stimulating, restraining, and increasing antecedents of procedural justice. This paragraph uses the same distinction to describe the results and also adds a class for other antecedents of procedural justice that were pointed out by respondents. By examining the results, it became clear that most hypotheses were not supported. Fortunately, the results did show that antecedents affected procedural justice, however, often not in the proposed manner. For this reason, an overview is provided of the specific influence of each antecedent in Table 2.
Stimulating antecedents. Underneath, the role of the four proposed stimulating antecedents (e.g. unionization, law, company wealth, and tradition) in the downsizing is examined.
power as a factor that can have significant impact in the change process. It was essential that unions perceived management’s demeanour just, as for this reason unions never encouraged resistance towards the employer. In contrast, union presence also somewhat restrained organizational leeway to communicate and to share information with the workforce because it could weaken the organization’s negotiation position. In all, the results underline that a high level of workforce unionization mostly enhances the need to act procedural just, but also limits the amount of information that can be shared. Based on the above, Hypothesis 2a was thus supported partially; unionization can be regarded an important precondition in downsizing that makes management, at least to a certain extent, more inclined to act procedural just.
Law restrictions obliged management to provide the workers’ council a request for approval on the downsizing decision. The workers’ council was provided with profound information and explanations in order to evaluate the usefulness and necessity of the downsizing. As proposed, law restrictions enhance communications, participation, and honesty. Thus, hypothesis 2b was supported.
Hypothesis 2c states that an organization is more inclined to act just in downsizing as company wealth enhances employees’ expectations. In practice, a meaningful answer given by a human resource manager indicates a similar notion: ‘Employee expectations about treatment and severance in downsizing are raised by the healthy financial state of our organization.’ In contrast to the hypothesis, respondents point out that although employees expect just conditions, management’s demeanour was not influenced much by this antecedent. A plant manager underlined this way of thinking clearly: ‘Even though we were aware of employees’ high expectations, our conviction about employee treatment did not change…we tried to treat employees respectfully in order to heighten their well being, as most of the workforce has been part of our company for twenty to thirty years.’ Altogether, the hypothesis was not supported; company wealth did influence employee expectations but did not enhance the organization’s inclination to enact in a procedurally just way.
Altogether, the results imply that past change influences procedural just treatment, however more profound research is necessary to shed a clear light on the precise impact. Thus, hypothesis 2d is not supported.
Restraining antecedents. The proposed restraining antecedents (e.g. size, litigation, negative publicity, distrust, and cause) are supposed to limit the organization’s leeway to enact procedural just. The following was stated about these antecedents in practice.
Size was proposed to be a restraining antecedent of procedural just treatment. In practice, respondents agree. Although individual conversations were held, respondents pointed out that individual attention and face to face conversations was not given sufficient management attention. A human resource manager and a plant manager both answer upon the motives: ‘It is hard to display support to employees, to listen and react to their concerns, and to prepare them for new employment, in individual conversations with a length of only 15 minutes.’ and ‘Because of the large number of discharges, there was simply neither enough time nor labour to hold lengthy conversations with each employee.’
A marginal note, underlined by several respondents, was that regardless of these restraints, management did not provide enough ‘informal support’. For example, by joining in with employees during coffee breaks. Despite of this comment, size is an antecedent that clearly restrains an organization’s means to enact procedural just. Hypothesis 3a was supported.
The hypotheses on litigation & negative publicity proposed that procedural justice (i.e. mainly communication) would be restrained as the organization feared litigation and damage of its reputation by negative publicity. That no respondent mentioned fear of litigation may indicate that this antecedent did not play a meaningful part in the process. Therefore hypothesis 3b was not supported and needs further research. Logically, the respondents did underline the importance of preventing negative publicity. The organization has historically built a significant reputation in acting socially responsible, and actually considered this reputation as an extra motive to act procedural just. This is underlined by the fact that management trusted employees with essential information before communicating it to externals. In all, hypothesis 3c was not supported. It must be noted that, although not by the proposed antecedents, the organization’s leeway to share information was restrained in practice. Management could not provide all information, as it could negatively affect their position in negotiations about the social plan, and negatively affect the sale of the chemical plants.
about revolting behaviour. Altogether, respondents indicated that awareness about the presence of distrust stimulated management to enact more procedurally just. Thus, the trusting relationship between management and employees is an important precondition in a downsizing and probably in any major change effort. Distrust must be regarded as an antecedent that stimulates downsizing organizations to enact procedurally just. As distrust was proposed to be a restraining antecedent, hypothesis 3d was not supported.
Respondents pointed out that the cause of the downsizing had significant implications for perceptions of procedural justice in the process. Several respondents pointed out that the workforce needed someone to blame for the dismissals. As management could not be blamed for the worsened economic circumstances which caused the downsizing, employees eventually blamed the government instead. Thus, even though it was not a conscious management consideration, it was fortunate that government functioned as a scapegoat. One organization manager comments on this notion: ‘…the leading economic motive made things easier, because employees uttered resistance towards the government instead of towards the management team.’ In contrast to the hypothesis, management leeway to communicate timely, or share information (i.e. to enact procedurally just), was not restrained by the unexpected economic conditions. In all, hypothesis 3e was not supported as downsizing resulting from economic hardship does not necessarily restrain an organization’s leeway to enact procedural justice. The cause of downsizing can nevertheless be interpreted as an important precondition that severely influences the change process; more profound research is essential to assess its specific influence.
Increasing antecedents. This last class of antecedents of procedural justice comprises management style and experience, and organizational culture. Influence of these antecedents in practice is described below.
Respondents indicated that management style and experience is vital for procedural just treatment in practice. Essential for the effect of communication and interpersonal treatment is the attitude or style a manager presents. A plant manager and a respondent from the workers’ council both provide a meaningful example on the above: ‘…when replying to employees’ questions, managers need experience and must show human integrity; else employees would feel they were treated insincerely.’ and‘In a downsizing you need more humanitarian executives.’
Altogether hypothesis 4a is supported. If management is experienced and managers have a charismatic leading style, an organization will be more capable of conducting the layoff in a procedural just manner.
social responsible employer. Most respondents pointed out that principally because of this culture management conducted the downsizing with the intention to treat employees procedurally just. For instance, management was inclined to assist employees in finding new employment. One plant manager states: ‘If we do not find new employment for every employee, we have not done enough.’ Corresponding with the organizational culture, management was at least more willing to conduct the downsizing procedurally just. However, this study did not find any evidence that an organization can actually do a better job in acting procedurally just when it has a culture that values procedurally just treatment. Consequently, based upon the results in this study, organization culture in practice can be regarded as a stimulating antecedent. Hypothesis 4b was not supported.
‘Other’ antecedents. It was pointed out previously that this research may identify other distinct antecedents or preconditions that affect procedural just treatment during downsizing. Indeed, respondents emphasized that the role of the workers’ council, the power of the workforce, the length of the change process, and management team cohesion were also important antecedents of procedural justice. Naturally each factor needs more in depth research before a conclusion can be justified.
Respondents emphasized several times the importance of the role of the workers’ council during the downsizing. The workers’ council can be considered a crucial stakeholder. It determines whether a decision and employee treatment is just and if employee interests are addressed sufficiently. The relationship between management and the workers’ council was collaborative, a dialogue was always possible. One plant manager remarked: ‘The collaborative relationship between management and workers’ council has affected employee’s resistance and reactions positively.’ Another organization manager added: ‘If the workers’ council had highly disagreed on our efforts and means to act procedurally just, strikes could not have been prevented.’ These examples do not imply that the workers’ council did not express any criticism towards the downsizing conduction at all. Altogether, it seems that the presence of the workers’ council is a stimulating antecedent for an organization to enact procedurally just. Workers’ council weighs justice in management’s demeanour carefully and can negatively affect resistance.
The relative power of the workforce is another important antecedent. Organizations in chemical industries employees are relatively powerful as strikes often may cause significant financial damage to such organizations. Respondents underlined that management feared employee resistance and was more inclined to act just during the downsizing because employees had the power and showed willingness to strike. One manager remarked: ‘Ultimately, a good social plan was negotiated because management was afraid of and deemed a strike, however undesired, highly likely.’ Thus when a workforce has a relative large amount of power (i.e. this may be for several reasons), it can be considered an antecedent that may stimulate organizations to enact in a procedurally just way.
