Comrade John de Payva, President, NTUC,
Mr Dhanabalan, Chairman, DBS
Distinguished Guests,
Ladies and Gentlemen,
Pre-emptive Lay-offs
Two weeks ago, at the Topping-Out Ceremony of One Marina Boulevard, I mentioned in my speech that competition had grown more intense, and margins had become thinner. Companies that are still profitable would retrench even though they are profitable, in order to stay in business and compete.
Many people thought this was morally wrong.
I would like to highlight this once again, as it was not the first time that I had mentioned this, and warned unionists of the new reality in the world of work today.
A few years ago, we observed that many companies in the US were laying-off workers early. They did this with the aim of cutting costs, bolstering their stock prices, streamlining their operations and improving their productivity. This emergent trend was recorded in an internal paper of NTUC in June 2001.
Cutting Costs
Employee layoff is an effective short-term cost-cutting measure. The impact on the companies' bottom-line is almost immediate. We observed that with past experiences of downturns, these companies did not want to wait until a recession to slash payrolls. They wanted to be in control of the situation ahead of time, to ensure a good and quick recovery of the business when the economy picks up again. A pre-emptive lay-off thus gives them a headstart. It conserves the working capital of the company for developing its future capabilities.
Bolster Stock Prices
Secondly, many companies aim to maximise shareholder value in anticipation of weakening sales. As their stock price is an indicator of investor confidence in their company, they have to boost stock prices in order to sustain investor confidence. Some management also have substantial share options and are hence driven to keep stock prices up. This leads to a focus on short-term profits and stock values, rather than on long-term profitability. A pre-emptive lay-off improves short-term profits and hence gives them an added boost to their stock prices. Keeping stock prices high is not wrong - it helps the company's finances.
Streamlining Operations - "Just-in-Time employment"
Thirdly, technology has allowed many companies to better streamline their operations faster. Companies know exactly where their inventories and sales are in real time, so they can act faster to lay off workers during lull periods. In sectors and jobs where the labour market was not as tight, these companies see no problem in recruiting workers when business picks up again. They can afford to practice "Just-in-Time Employment".
Re-structure operations and improve productivity
Last but not least, companies believed that it was important to streamline and restructure their operations early rather than wait for the whole economy to be in a recession. They believed that if more companies took the hard decisions and make cutbacks early, then the streamlining and layoffs would ultimately lead to greater productivity and boost the overall economy.
Extent of Pre-emptive Lay-offs
Alarming though these practices might appear to some of us, they had emerged in the US as early as 10 years ago. In August last year, the International Herald Tribune published an article entitled "U.S. layoff surged even in boom times". The data from the US Bureau of Labor Statistics confirmed that the trend had been developing for more than a decade.
In our study, the NTUC found that pre-emptive lay-offs were practised by companies from all sectors of the economy - manufacturing and services industries. GM, Motorola, 3M, Corning, Walt Disney, Morgan Stanley, Credit Suisse First Boston, etc, had laid off staff to better re-position themselves in an increasingly competitive environment. Some of these companies announced lay-offs even as they announced record profit figures for the year. [Some may describe this situation as meaning that employees are now a commodity. Not exactly. The majority still stay with the company. A minority suffer the axe. But most do not like the uncertainty, and therefore empathise with the minority.]
Will this trend develop in Singapore?
The question we have to ask ourselves is whether this trend would also develop in Singapore.
In the book "The Empty Raincoat", first published in 1994, Dr Charles Handy visited a company whose CEO summed up his principle of Productivity and Profits very neatly using the equation of 'P = 1/2 x 2 x 3'.
The 'half' refers to the number of people in the core of a business. The '2' refers to their pay. And the '3 refers to the output of their work.
The CEO's vision was that in five years' time, his company would employ half as many people, who would be paid twice as much each and each would produce three times as much as before. That CEO's vision was not unique. Toyota Corporation had for years before that developed the concept of "lean production". It could be summed up as: "Design a new product in half the time, using half the number of engineers, and produce it using half the factory space." It was a philosophy that propelled Toyota to become the most efficient and profitable car manufacturer in the world.
Several CEOs drove their companies with the same philosophy, as it is survival of the fittest in the market place.
In Singapore, SingTel quietly did that. Not quite so drastically, but it did trim its workforce substantially over a period of time - when times were still good for SingTel. Much of it was done by natural attrition and redesign of work. There was less hardship then for employees who were laid off.
In contrast, PSA did the conventional thing - keep excess employees. It was then surprised by a new competitor, and came under severe price competition. Recently it had to trim costs, as it is determined to be the last company standing if the price competition gets bloodier. It was extremely painful for those who had been laid off under the glare of the media. Unfortunately many of our companies have been more in the mould of PSA than SingTel.
Some of us may still feel that retrenching workers should be a last resort. Unfortunately, as a small economy, we cannot go against the tide. Even the Europeans who subscribed to a different philosophy from the Americans could not resist that tide, and were now trying to reform.
Likewise the Japanese, although we might find them dressing up their changes in socialist language, and they would try to make the changes more palatable. Their welfare systems could not support high unemployment for long periods. And they had observed that unemployment in the US was lower than in Europe, even though the hire-and-fire policies seemed so harsh to them.
Preparations on Our Part
And so, the answer to my earlier question of whether the trend would develop in Singapore is a definite 'YES'.
I am not saying that pre-emptive lay-offs are right or wrong. As I had told the journalists two weeks ago, I do not like it either.
But, we have to live with the reality, and adjust.
When companies restructure during good times, workers could still find new jobs as the labour market could still be good. When companies retrench during bad times, the laid-off workers would have difficulties finding a new job. Between these two situations, I think it is better to restructure during good times. It means trimming the workforce, either by natural attrition or retrenchment, even as the company is profitable. And employees have to be prepared should they be the ones to be let-go by the employer. It means regularly updating skills, even acquiring new ones, and saving for that rainy day.
I am aware that DBS had been re-structuring itself continuously as it consolidates its competitiveness within Singapore and the region. I would like to commend both management and union for having successfully managed these transitions smoothly.
To the newly-elected leaders of the union, I would like to convey my congratulations. I understand that there had been a tough contest and am happy to note that the spirit of servanthood remained strong within the union.
With the election of a new team of union leaders, I would like to encourage both management and union to renew their mutual commitment towards making the Bank an icon in Singapore and beyond.
Your members and staff would look to you for support and help. By working closely together, you would help make it easier for them to adjust and adapt.
Thank you.
