IBM in Layoff Crosshairs

Friday, March 06, 2009

Is IBM deliberately scaling back American jobs for foreign ones? Is Big Blue trying to keep news of layoffs out of the press and away from stockholders who might look to invest elsewhere?

For a number of reasons, one arguably being to keep IBM's stock a consistent darling of the market, it appears IBM is in a bit of a public relations pickle with how it is handling layoffs and how it may be trying to weasel around the notification laws regarding employees by doing layoffs in dribs and drabs instead of all at once.

It doesn't help that the day after reporting strong quarterly earnings on Jan. 20, IBM's CEO Sam Palmisano publicly said that while other companies are making cuts, IBM would "invest in its people," and yet the very next day layoffs were announced. Weeks after the earnings call, the company has eliminated or will be eliminating nearly 4,600 jobs in North America. That's not a number easily dismissed as normal cost-cutting activity.

Here is some background information from the New York Times article about the WARN Act, which dictates the rules of communication of layoffs to employees:

The notification law, known as the WARN Act, is a legacy of an era when the economy was more dependent on manufacturers and legislators were concerned about blue-collar workers being locked out of their factory. That kind of shutdown is hard to hide, while white-collar layoffs spread across many locations are not.

The WARN Act requires 60 days' notice, but the events that require notification are site-specific -- a plant closing, a layoff of 500 or more people at one location, or a cut of at least one-third of the work force at a site.

If notification is not required, the standard practice at large companies is to give 30 days' notice before a layoff. Some states have passed their own WARN Acts to cover more layoffs. California, for example, now requires a WARN notice when a company cuts 50 or more workers in one place. Last month, New York enacted a law requiring 90 days' notice when laying off 250 or more workers at a site.

IBM isn't alone in this layoff predicament. Many companies, technology or otherwise, try and avoid press that can be construed as negative when it comes to labor relations and the elimination of jobs.

But if the CEO is going to tell investors one thing, then take actions that show the opposite, it's no surprise that the spotlight is on the company right now, and perhaps IBM needs to spend some more time explaining its strategy. I imagine stockholders want a better understanding of what is going on here, as do employees who feel the company may be taking advantage of a downturn to boost numbers for the year.