Case study: Barry Wehmiller

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Executive Summary

The case study of manufacturing company Berry-Wehmiller’s CEO Bob Chapman and his decision-making process during the 2009 great recession seeks to show how and why he decided to not use layoffs as a mean to counteract the economical downturn. Specifically, when a 40% order cancellation made drastic budget cuts unavoidable.

As literature on the topics of shareholder primacy, corporate social responsibility and decision-making processes in business are explored, a structured analysis on how and why Chapman chose the route he later successfully implemented in the company is provided. Explored mechanisms and their presumed influence in the decision-making process include satisficing, social norms/defaults, framing and optimization based on beliefs, preferences and restrictions, listed in order of significance. Some aspects of ethical decision making such as utilitarianism are touched upon.

While giving advice on such critical topic would be neither justifiable nor responsible based on the limited information deducted from a case study, it is shown how out-of-the-line decision making and coherence between communicated values and actual behaviour of a company can be a potential set up for success.

Table of Contents

Executive Summary        1

1.        Introduction        3

2.        Literature Review        4

3.        Methodology        5

4.        Findings        6

Shareholder Primacy/Theory and Social Norms        6

Mass Layoffs and Satisficing        6

Corporate Social Responsibility and Framing        6

Optimization based on Beliefs, Preferences and Restrictions        7

Rationality or Ideology        7

5.        Conclusion and Recommendations        8

References        8

Main Sources        8

Additional Sources        9

Other Sources        9

1. Introduction

During the great recession 2009, the CEO of manufacturing and consulting company Barry-Wehmiller, Bob Chapman, refused to the common practice of mass-layoffs, whilst roughly 40% of the company’s orders were cancelled and drastic budget cuts had to be made. Chapman opted to implement a furlough plan, resulting in every employee (including himself) taking 4 weeks of unpaid leave, turning the threat of existential financial crisis for some individuals into a collective but much less significant burden. Compared to the behaviour of the very most (especially American) companies at the time, one might wonder about the reasoning behind such an unorthodox decision. Was it ignorant or irrational? Was it refusing to accept the inevitable? Or an act of deep conviction?

Interestingly enough, after the recession, Berry-Wehmiller experienced significant economic growth and success in the following years, much more so than comparable manufacturers. Whilst we will not go into detail about the cause and effect relationship between Chapman’s decision and the company’s success, we will analyse what lead to the decision in the first place and how Chapman’s thought process might have differed from that of other executives of the time. Specific focus will be put into the decision-making mechanisms of satisficing, Optimization based on Beliefs, Preferences and Restrictions, Framing and Social Norms.

In the following, an overview of the consulted literature, the means of analysis including the research question, the resulting findings on shareholder primacy, people management and the decision-making process, as well as a conclusion and recommendation will be presented.

1. Literature Review

The following literature is explored and explained in order of the argumentation, following the ‘red line’ of the exploration of Chapman’s thought process. Starting with the norm of mass layoffs and shareholder primacy, moving on to the benefits of a more people focussed approach and finishing with conceptual framework for the decision-making process.

“The Layoff” by Fryer et al. (2009) is an article describing a similar situation in the US company Astrigo Holdings. In the form of a dialogue, multiple options for cutting 10% of the workforce are discussed and partially explained. This is supported by four comments/advices by business professionals. It must be noted that the article is not written in the classical style of an academic report but rather as a commented upon short story and Astrigo Holding is presumably a fictional company. Nevertheless, the comments on the topic are giving legitimate insight on the thought and decision-making process behind mass-layoffs and how they are usually discussed in business. Furthermore, the article fits into the same timeframe as the Barry-Wehmiller case, namely the great recession of 2009.

Elaborating on the psychology and perspective of potential layoff agents, Sronce&McKinley’s “Perceptions of Organizational Downsizing” (2006) was examined. They state, that accepting the necessity of mass layoffs is easier for managers who have acted as layoff agents before, even believing more strongly in its financial benefits. This insight can be used to contrast the “frames” of Bob Chapman and other CEOs, connecting back to the research question.

Because the concept of mass-layoffs for “balancing the books” was introduced with the business theory of shareholder primacy, making profit maximization for the shareholders almost universally the number one priority for American companies, the journal article “The Shareholder Wealth Maximization Norm and Industrial Organization” (Roe 2001) was examined to understand the reasoning behind the overall concept. The article mentions a “utilitarian basis” while also questioning the ethics behind favouring shareholders over employees. Even though the article was written before 2009, it was written during the recession in 2001, giving it a somewhat comparable frame. Regarding the research question, the article helps understanding the “social norm” of mass-layoffs and shareholder primacy and lets us investigate to what degree it might have affected Chapmans decision. Furthermore, the source provides clues on how satisficing fits into the decision-making process for mass-layoffs.

Further contradicting the wide acceptance of shareholder primacy theory, Grossman wrote “Refining the Role of the Corporation […]” (2005). He not only touches on the necessity of Corporate Social Responsibility for risk management but also on how intangibles such as trust, ethics, employee satisfaction etc. are increasingly relevant to all stakeholders of a company.

The more recent article “The imperative for employee-centric organizing […]” by Hoogerforsten (2017) adds to Grossman by detailing the “people-first” management style and it’s benefits in the modern economy. This article is far more recent, providing a somewhat retrospective view on the case and showing the direction that research is going. Both Grossman and Hoogerforsten explain the superior ethics of corporate social responsibility and employee-centric management among other reasons that support the belief that people should be prioritised over shareholders.

Finally, to further comprehend the decision-making process of Bob Chapman himself, the article “Judgement and Decision Making” by Mellers et al. (1998) informs on an admittedly less recent but no less applicable definition of rationality (and rational decisions).

1. Methodology

Ultimately, the report aims to show why and how executives like Chapman distance themselves (and by extend their companies) from outdated business practises. This insight may then be used to encourage innovation in business practises, society to move on from antisocial and unethical practises such as mass layoffs.

As the guiding research question to be answered stands the following:

“What methods of decision making did Barry-Wehmiller’s CEO Bob Chapman use during the 2009 recession (considering ‘satisficing’, ‘Optimization based on Beliefs, Preferences and Restrictions’, ‘Framing’ and ‘Social Norms’) to arrive at the furlough plan.”

The primary source for theories on decision making mechanisms (satisficing etc.) was Altman 2012. All other information and sources gathered for the study were collected through secondary internet research. Academic articles were found through the Hanze UAS’s database and Google Scholar. Primary Search terms include: “shareholder primacy”, “shareholder theory”, “(mass) layoffs”, “corporate social responsibility (CSR)” and “decision-making”. With all academic articles being peer reviewed, it is reasonable to assume that the information is viable. Still, due to the lack of direct insight to the company, chances are that relevant factors to the decision-making process in question, remain untouched, possible compromising the reproducibility and by extend reliability of this study’s findings.