Same actions, but different reactions

PHILIP MOELLER

April 10, 1991|By PHILIP MOELLER | PHILIP MOELLER,SUN BUSINESS EDITOR

Two prominent Maryland employers said last week that deteriorating financial conditions would force each to lay off as many as 1,700 people in the coming year. The responses to these situations were so wildly different that I immediately checked out the root cellar to see who'd been into the hallucinogenic mushrooms.

The employers are, of course, USF&G Corp., Baltimore's big insurance company, and the state of Maryland. With the recession leading to sharply reduced revenues -- insurance dollars in the case of USF&G, tax payments in the case of Maryland & Co. -- both organizations have been bailing furiously to trim expenses, freeze job vacancies and look for greater efficiencies.

But it's not been enough. USF&G already had gone through one round of layoffs before announcing last week that it was laying off (employer-speak for firing) 225 employees in Baltimore and consolidating branch offices around the country in a process that would cut as many as 1,700 more jobs in the coming year. The large property and casualty insur- er also unilaterally increased the work weeks of remaining hourly employees to 40 hours from 37.5 hours.

Maryland's government leaders, facing revenue shortfalls totaling many hundreds of millions of dollars, spent much of the recently ended state legislative session hunkered down over spending decisions.

In sharp contrast to past years, when the state's high rate of economic growth produced plenty of money, tough decisions were required to curb programs and say "No" to many worthy causes.

Even so, Gov. William Donald Schaefer said that layoffs of up to 1,700 state employees might be required to balance the books.

The governor was immediately challenged on this estimate by any number of sources within the legislature and state bureaucracy. Many of them have also harshly criticized his earlier efforts to increase the workweek of state employees to 40 hours from 37.5 hours.

State layoffs are so unusual, apparently, that when a reporter for The Sun found a half-dozen or so state employees who'd actually been laid off, the story made the front page of the newspaper.

Life has been a lot different, and much harder, in the private sector.

USF&G, for example, was generally praised by the investment community for taking its medicine.

Such cuts are viewed in the private sector as a necessary reaction to business problems.

And few companies have been immune from the effects of this downturn. Even IBM, to cite one of the world's most intelligently managed corporations, has had to depart from its cherished "no layoff" policies, in effect, by embarking on aggressive early retirement and "voluntary" separation programs.

This is not to say that the layoffs at USF&G are either inevitable or somehow accepted by the affected employees as a tolerable price for working in the private sector.

The company clearly made some dubious business decisions in years past. Those decisions returned to haunt the company when the recession hurt its basic business of selling insurance policies and, of greater short-term importance to insurers, led to substantial problems in its large investment holdings.

The fact is, however, that all organizations make dubious decisions. Everyone screws up eventually.

Fortunately, healthy organizations can financially survive their blunders, learn from them and become even more successful.

Also, economic growth is the savior of most organizations. It is true that a rising tide lifts all ships, and that roughly nine years of unbroken growth in the 1980s allowed USF&G -- and the state of Maryland -- to absorb some bonehead decisions and policies and still appear successful.

Recessions reveal organizational flaws, creating pressures that turn some of these flaws into cracks.

At USF&G, the cracks became so large that Jack Moseley, by all accounts the kind of wonderfully flawed guy that many men would like to emulate, was forced to resign as head of USF&G.

Norman Blake was brought in to clean house, thus initiating a painful private-sector ritual that's been around ever since the first shareholders put the screws to the first board of directors, who passed along the favor to management.

In Maryland government, the cracks were also plain to see. This was a high-tax state even before Governor Schaefer took office, and he successfully initiated a number of large new spending programs during his first term.

The legislature passed them after modest grumbling, and that ++ rising tide of growth funded the process with a minimum amount of squawking from taxpayers.

However, that growth was also putting great pressure on local governments, and they responded with their own spending initiatives.

By the time last November's elections arrived, anti-tax, anti-growth sentiments were high among voters, and the national recession was starting to knock at Maryland's door.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.