UPPER HAPPY VALLEY, CA - Eternal Networks will reduce its workforce by an unprecedented 120 percent by the end of 2001, believed to be the first time a major corporation has laid off more employees than it actually has.
Eternal stock soared more than 12 points on the news. The reduction decision, announced Wednesday, came after a year-long internal review of cost-cutting procedures, said Eternal Networks Chairman and CEO Sam Goldstein. The initial report concluded the company would save $1.2 billion by eliminating 20 percent of its 88,000 employees.
From there, said Goldstein, "it didn't take a genius to figure out that if we cut 40 percent of our workforce, we'd save $2.4 billion, and if we cut 100 percent of our workforce, we'd save $6 billion. But then we thought, why stop there? Let's cut another 20 percent and save $7 billion. "We believe in increasing shareholder value, and we believe that by decreasing expenditures, we enhance our competitive cost position and our bottom line," he added. Eternal Networks plans to achieve the 100 percent internal reduction through layoffs, attrition and early retirement packages. To achieve the 20 percent in external reductions, the company plans to involuntarily downsize 18,000 non-Eternal employees who presently work for other companies.
"We pretty much picked them out of a hat," said Goldstein. Among firms Eternal has picked as "External Reduction Targets," or ERTs, are Quaker Oats, AMR Corporation, parent of American Airlines, Lockheed, Boeing, and Charles Schwab & Co. Nortel's plan presents a "win-win" for the company and ERTs, said Goldstein, as any savings by ERTs would be passed on to Nortel, while the ERTs themselves would benefit by the increase in stock price that usually accompanies personnel cutback announcements.
"We're also hoping that since, over the years, we've been really helpful to a lot of companies, they'll do this for us kind of as a favor," said Goldstein. Legally, pink slips sent out by Eternal would have no standing at ERTs unless those companies agreed.
While executives at ERTs declined to comment, employees at those companies said they were not inclined to cooperate. "This is ridiculous. I don't work for Eternal. They can't fire me," said Michelle Moore, a flight attendant with American Airlines. Reactions like that, replied Goldstein, "are not very sporting." Inspiration for Eternal's plan came from previous cutback initiatives, said company officials. In March of 2001, for instance, the company announced it would trim 10,000 jobs over the next year.
However, just two months later, Eternal said it had already reached its quota. "We were quite surprised at the number of employees willing to leave Eternal in such a hurry, and we decided to build on that," Goldstein said. Analysts credited Goldstein's short-term vision, noting that the announcement had the desired effect of immediately increasing Eternal's share value. However, the long-term ramifications could be detrimental, said Bear Stearns analyst Shelly McGwire. "It's a little early to tell, but by eliminating all its employees, Eternal may jeopardize its market position and could, at least theoretically, cease to exist," said McGwire. Goldstein, however, urged patience: "To my knowledge, this hasn't been done before, so let's just wait and see what happens."