Trading Jobs For Profits May Backfire Corporations Starting To Pay Attention To The Human Price Of Mergers

Corporate marriages tend to be heartless affairs that often leave hapless employees without jobs in the name of lower costs and higher stock prices. But a backlash may be brewing.

First Interstate Bancorp, a large California bank, accepted a merger offer this week for less money than a competing bid. The bank said it would result in fewer layoffs and less trauma to employees.

In a year of record mergers, that’s a remarkable admission and represents the first time Wall Street watchers can recall that a prominent company has rejected a deal because it would mean too many layoffs. It suggests that business sensitivity to job loss has increased.

Howard J. Rubenstein, president of the public relations firm Rubenstein Associates Inc., said corporate clients are expressing greater concern today about the perception of trading jobs for profits.

“With a company that might be regulated or involved with the government, they have to be concerned with a public reaction that might backfire politically on them,” Rubenstein said. “Second, companies don’t want to be portrayed as anti-people.”

In the case of First Interstate, other reasons, too, were given for the choice of merging with First Bank System Inc. in lieu of a hostile offer from Wells Fargo & Co.

But for the banking industry in particular, job cuts have become an emotional issue. Each new multibillion-dollar bank merger means thousands of overlapping employees can be axed, saving money.

The biggest job slashing in banking will result from the merger of Chemical Banking Corp. and Chase Manhattan Corp., which would create the nation’s largest bank.

“They were somewhat vilified in the country for announcing that there would be over 10,000 layoffs,” said Stephen Brobeck, executive director of the Consumer Federation of America, a Washington lobby group.

Brobeck said he believes companies are waking up to the new atmosphere. “They’re now beginning to understand that the public is critical of callous disregard for employees and that they will pay a price later not only in diminished employee loyalty but also in the marketplace.”

Mergers in industries other than banking have resulted in widespread layoffs. Some traumatize entire communities.

At a Lockheed Martin Corp. plant slated for closure in Upper Merion Township of eastern Pennsylvania, for example, the 2,000-odd employees who will lose jobs may have to move to find work.

“They’re fairly well-paying jobs and it’s not going to be easy for those people to go back out into the marketplace if they want to stay in the area and have comparable positions,” said Ronald G. Wagenmann, township manager.

For labor leaders, this story is nothing new. Richard L. Trumka, secretary-treasurer of the AFL-CIO, says merger-related layoffs have left many local communities embittered.

“It’s been wonderful for the elite, the Wall Street elite,” he said. “But is that good for America? The workers of the country say ‘no.”’

Nevertheless, the trend shows little sign of abating. From August to October, about 18 percent of the 108,000 total layoffs announced were the result of mergers, according to Challenger, Gray & Christmas Inc., a Chicago-based job placement firm.

Price is still the main consideration in mergers and many are predicated on lower costs.

Steven Wolitzer, co-head of mergers and acquisitions at Lehman Brothers Inc., said merger partners are caught in a bind. While they might like to portray more compassion, they also must show savings before their investment bankers will sanctify a deal.

Reasons do exist, however, for companies to worry about the severity of layoffs caused by their dealmaking. For one, customers may shun the products of corporations deemed cold-hearted. Worker loyalty and productivity can suffer.

That’s already happening, said John A. Challenger, executive vice president of Challenger, Gray & Christmas.

“An interesting thing we’ve been seeing recently is fewer people are willing to relocate for a job, or for a company, than they used to be,” he said. “There’s a real sense of ‘Why should I make this move for a new company or job?”’