Protecting Our Human Capital

Projected increases in M&A activity demand careful risk vs. benefit analysis, and not only on the ledger sheet

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By Agnes Shanley, Editor in Chief

Since last year, roughly 30,000 pharmaceutical industry professionals in the U.S. alone have lost their positions through mergers and acquisitions, and corporate restructurings.

In fact, job insecurity has become such a given that most respondents to this year’s Salary and Job Satisfaction Survey (www.pharmamanufacturing.com/articles/2007/015.html) have stopped being concerned about it. After all, as one of you wrote, “Worrying about it won’t change anything.”

But I was sad to learn that Pfizer will lay off 10,000 people, 10% of its workforce, this year. Although the balance sheet reasons were clear as day, they begged questions about past balance sheets, and why the company had found it so necessary to buy Pharmacia in the first place.

Surely Pfizer’s highly skilled professionals will easily find positions elsewhere. They have many options: working for a contract manufacturing or research organization, consulting, teaching. Some will start up their own companies, others will work for equipment or IT vendors, developing the technology needed for Quality by Design.

But that’s enough on lemonade from lemons. I still worry a bit, not only about those who were laid off but also the survivors. As a recent study published in January’s issue of the Journal of Epidemiology and Community Health made clear, layoffs are bad for everyone.

Tracking 27,000 workers over a period of six years, the researchers found that downsized employees were 64% more likely to be given a prescription for an antidepressant, anti-anxiety drug or a sleeping pill than those who worked for companies that didn’t restructure. But those who kept their jobs at those restructured organizations were still 50% more likely to be given such a prescription than their counterparts at companies that didn’t restructure.

As the winds of political changes blow in Washington, projections of increased drug industry M&A may put U.S. pharma professionals in a potential three-way squeeze, between fallout from M&A activity, offshoring and outsourcing to contract organizations outside the U.S.

Shouldn’t a concerted effort be made, now, to assess the true costs of recent mergers and acquisitions within the drug industry, and to determine the potential long-term impacts of the loss of entire chunks of the U.S. drug innovation and manufacturing base? Concerted efforts should be made to prevent a wholesale loss of U.S. based industry jobs.

But that study must involve the human cost of eliminating jobs, and the impact that it has, particularly on those who are established in their careers, and their children.

The closest thing I’ve seen, so far, is Louis Uchitelle’s book, “The Disposable American,” which came out last summer. Uchitelle examines the numbers behind the official statistics. As President Clinton also noted at last year’s BIO show, there is a small but growing, and largely invisible, group of people in this country over a certain age who have simply given up looking for challenging and interesting work.

As Uchitelle discussed in an interview, the published number of “downsized” Americans is now about 4%. But when you include those given the choice of “early retirement or else,” or other indirect alternatives to the pink slip, the total rises to 7%.

Remember, not everyone working in this industry is a scientist or engineer. Last year, a Canadian study tracked 60,000 families, comparing a group whose fathers had suddenly been downsized, with those whose fathers had not experienced restructuring. Children in the “downsized’ group, whose parents were those on the lower end of the wage spectrum, grew up to earn 17% less their counterparts in the other group.

Mergers and acquisitions are one thing, but so is relocating due to tax breaks elsewhere. Was it merely coincidence that Pfizer’s facilities in New York and in Michigan were targeted for closing, since taxation in both areas is notoriously high?

Uchitelle proposes that international trade agreements be developed to counterbalance the impact of foreign such tax breaks.

The drug industry has never undergone the wrenching layoffs that the automotive industry continues to experience. But it may already be seeing the impacts of layoffs in Generation Y. Our survey found that many of you find that your youngest recruits feel little loyalty toward the company or peers, don’t want to put in extra effort, and expect to become CEO in two years. How many of them saw their parents, or other people’s, laid off?

What goes around comes around. In the end, valuing and trying to retain existing human capital makes very good business sense, wherever your company is based. In 20 years, India and China, now treasured for their low costs, will be facing these same questions as their costs increase. Let’s be a positive role model.

 

 

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