How We Got along after the Downsizing: Post-Downsizing Trust as a Double-Edged Sword

ABSTRACT This article discusses a central debate in organizations and society today. Is organizational downsizing beneficial or detrimental for organizations and their employees? Arguments are presented supporting both sides of the debate, revealing two radically different perspectives on this question. A theoretical framework is then discussed offering some reconciliation of this debate. In this framework, employees' interpersonal trust is viewed as a mediator of the relationship between managerial beliefs and actions and subsequent employee and organization outcomes. The article contains 12 testable propositions and includes suggestions for further research on the role of trust in organizational downsizing. INTRODUCTION Do trust, loyalty, and commitment really matter in organizations today?1 Organizations currently seem to be challenging many previously established managerial beliefs and actions in regard to this question. In particular, beliefs concerning relationships between employee attitudes and work behaviors are challenged as management defines new psychological contracts in response to a postmodern, hypercompetitive, global business environment (Berquist, 1993; Burack, 1993; Boje, Gephart, and Thachenkery 1996; Hakim, 1994; Heckscher and Donnellon, 1994; Noer, 1993; O'Reilly, 1994; Peters, 1987; Rousseau, 1995). The available evidence suggests that organizational downsizings are not diminishing in frequency but instead will likely continue to alter future organizational landscapes (Cameron, Freeman, and Mishra, 1991; Leana and Feldman, 1995; Littler, Bramble, and McDonald, 1994; Lublin, 1994; Murray, 1995; New York Times, 1996). Indeed, recent surveys indicate that most top executives believe they will be engaged in at least as much downsizing in the future as they have been in the past five years perhaps explaining why a majority of middle- and upper-level managers believe they will not be working for their current employers in five years (Emshoff, 1994). Further, if merger and acquisition activity continues to be a strong predictor of future downsizing, it is possible that downsizing in the near future will continue to increase (McKinley, Mone, and Barker, 1995); and the long-term view suggests that downsizing may become a permanent way of conducting business (Byrne, 1994; Richman, 1993). The prevalence of organizational downsizing has spawned a burgeoning literature on the functions and dysfunctions of intended reductions in personnel (e.g., Baily, Bartelsman, and Haltiwanger, 1994; Bruton, Keels, and Shook, 1996; Cascio, 1993; De Meuse, Vanderheiden, and Bergman, 1994; Kozlowski et al., 1993; Levine, 1978, 1979; Levine, Rubin, and Wolohojian, 1981; Mone, 1994; Randall, 1995; Rubin, 1980; Tomasko, 1987). Within this literature, there exists considerable debate over a seemingly simple question: Is downsizing beneficial or detrimental to organizations and their employees? For example, representing the "downsizing is beneficial" argument, several authors suggest that corporate downsizings foster organizational goal achievement (e.g., Bruton et al., 1996; Hammer and Champy, 1993; Lublin, 1994). These authors, among others, argue that through downsizing the corporation is able to cut costs, Wall Street responds favorably, and remaining employees are "empowered," "liberated," or "unshackled from the bureaucracy." In direct contradiction, several authors maintain that the "downsizing is detrimental" perspective, suggesting that downsizing hinders organizational goal attainment (e.g. Baily et al., 1994; Cascio, 1993; De Meuse et al., 1994; Faltermayer, 1992; O'Neill and Lenn, 1995; "The death of corporate loyalty," 1993). Echoing others' arguments, Cascio (1993:95) observed that "in many firms anticipated economic benefits fail to materialize, for example, lower expense ratios, higher profits, increased return-on-investment, and boosted stock prices." While most published evidence supports one side or the other in this debate, there has been little attempt to reconcile these divergent perspectives. …