Principles of Retrenchment in Financial Distress - Essay Example

A number of organizations are on the brink of bankruptcy. Despite efforts for the status quo, those organizations which are seriously evaluating retrenchment options are faced with ethical issues versus business survival. It is in this regard that this essay is written to explain the circumstances and then outline an action plan where the principles of retrenchment would be implemented in order to restore equilibrium.

Strategies and efforts are being evaluated to assess the possibility of retrenchment to ensure the very survival of the organization. It is in this regard that this essay is written to explain the circumstances of the financial distress and to outline an action plan where the principles of retrenchment would be implemented to restore equilibrium.    Financial Distress In the year-end statement written by the president of Cornell University, David J. Skorton on July 1, 2009, he identified the following effects of the global financial crisis in Cornell University, to wit: (1) a looming budget shortfall in one of its major colleges, Ithaca; (2) a 27% reduction in endowment (“reducing base budgets across the university; drawing down uncommitted fund balances; reducing endowment spending by 15 percent; implementing a construction pause, during which we reconsidered several proposed new projects, and decided not to pursue over $662 million in incremental capital expenditures; implementing an external hiring pause, which preserved opportunities for current Cornell employees who lost their jobs; and responsibly reducing our workforce”) and (3) a reduction in the cost of the university administration to focus precious resources on core activities of teaching, learning, discovery, scholarship, and outreach, among others. (Cornell University, University Statements, 2009)   General Principles of Retrenchment The university applies the following principles of retrenchment: (1) Selective Retrenchment Efforts where the university will use curtailment or reduction of selective activities, functions, or programs within areas as the means of retrenchment rather than equally shared, across-the-board reductions. These selective curtailments or reductions will be made in such a way that the education of students currently enrolled in a program is not jeopardized. (2) Teaching and Research Least Affected. Since teaching and research are the major functions of the University, every effort will be made to ensure that these functions will be the least affected by any retrenchment effort. (3) Evaluation of Areas: The areas for possible retrenchment will be evaluated under the criteria set out by the Board Members of the University. (University Retrenchment Policy 1985)   Action Plan for Retrenchment Having identified that there indeed is a need to reduce the current workforce, to enable the university to continue focusing on its core activities, the following suggested action plan would assist in the restoration of equilibrium: (1) Implement a Staff Retirement Incentive Program which would give options and benefits to those employees who voluntarily opt for early retirement. (2) Implement an Early Retirement Program for those who are 55 years and above. (3) Eliminate administrative redundancies between colleges and the central administration. This move means if there is a position for an auditor in the central administration and also in the colleges, only one would be retained to do the tasks for the whole university. (4) Consider approval of extended leave of absence and sabbaticals to lessen salary costs.   Conclusion Layoffs are management’s option when faced with situations such as financial difficulties, positions that are no longer required, business slow-down, or work interruption. This could be categorized as follows: to save the company, to change, and to improve the company. Regardless of the rationale, layoffs cause undue stress, emotional pain, anguish, and suffering for the terminated employees. At Cornell, since the employees have been taken care of through their years of service in the academe, management’s decision to lay off is seen as a strategic move to save the company and to continue in the Cornell tradition of excellence. It is an inevitable decision to articulate a renewed vision of how the university will carry out its core mission of education, scholarship, and outreach in the years to come.  Read More