Downsizing Dow

Dow Chemical has announced that it will be cutting its labor force by 11%:

Dec. 8 (Bloomberg) — Dow Chemical Co., the largest U.S. chemical maker, rose the most in more than a month in New York trading after announcing plans to eliminate 11 percent of its workforce, close plants and sell businesses.

Dow soared $1.46, or 7.7 percent, to $20.46 at 11:40 a.m. in New York Stock Exchange composite trading. A close at that price would be the biggest gain since Oct. 28. The Midland, Michigan-based company’s shares fell 52 percent this year before today.

Chief Executive Officer Andrew Liveris today outlined plans to cut 5,000 jobs, permanently shut 20 facilities, temporarily idle 180 plants and reduce the company’s contractor workforce by about 6,000. Dow joins DuPont Co. and BASF SE in slashing output as the global recession reduces demand for materials used to make houses, appliances, automobiles and packaging.

However, Dow doesn’t plan to cut dividends:

Liveris repeated his promise to maintain the quarterly dividend, which hasn’t been reduced for 96 years.

“We will continue to pay our dividend,” Liveris said. “We will not break that string, not on my watch.”

I have severely mixed feeling about this. I’ve repeatedly said here that management’s primary responsibility is to preserve and expand shareholder value and I hold to that statement. However, continuing to pay dividends and preserving shareholder value aren’t synonymous. I don’t know of any company that ever downsized its way to greatness. As a short term move, I can accept it but I wonder about its prudence and have serious reservations about a company that isn’t in serious difficulty cutting jobs in the worst job market in decades.

Here’s something else that President Obama can do: he can start castigating managers of companies who lay off workers when it isn’t absolutely necessary. Workers can’t shoulder all of the pain; stockholders need to take some of it, too (and I realize I’m talking about my own mother here).