4: Develop a Fair Restructuring Process
“The layoffs happened on the sixteenth,” recalls Tom (a fictitious name), a survivor of a massive bloodletting at a large financial services firm. He continues,
They occurred in a glass-walled conference room at the back of the trading floor. It was a like a goldfish bowl—so exposed. And to make matters worse, when people left the conference room with a blue folder with the severance information tucked under their arm, they had to walk all the way across the trading floor—hundreds of feet—where they knew a lot of people, and everyone could see that you had that telltale folder and would understand that the person had been fired. It was like running the gauntlet. Everyone was treated this way, associates all the way up to managing directors. The building was abuzz. Employees on other floors found out—via phone and e-mail—who had gotten laid off before the names were officially announced, because the traders on the floor spread the word. People in other banks also knew, because traders talk to each other all the time. What they were saying was, “I can’t believe that’s how they’re laying people off! That company is a mess. They don’t know what they’re doing.”
From the vantage point of Tom, a high-performing young associate, “that decision—to conduct layoffs in such a conspicuous and humiliating way—cost the firm a great deal of loyalty and respect, not just within the organization but all across Wall Street.”
Reductions in force (RIFs) have become a grim reality, but bad downsizing can be bad for morale and bad for business. Participants in Hidden Brain Drain strategy sessions were honest when assessing the impact of layoffs on their state of mind: some 73 percent talked about being demoralized, 64 percent talked about being demotivated, and 74 percent talked about shutting down and turning off.
“Terms of disengagement” matter. Poorly handled RIFs leave a bad taste in the mouths of those employees shown the door and those picked to stay. Wayne Cascio, a business school professor at the University of Colorado at Denver, looked at eighteen years’ worth of downsizing data and found that even though expenses drop in the wake of large layoffs, revenues tend to drop, too—often disproportionately. This is because the remaining workers are coping with survivor syndrome—the anger, fear, anxiety, and decreased risk taking that follow a mass firing. Just when a company needs employees to charge over the hill to turn the organization around, they retreat to the bunkers.
These losses have the potential to multiply. The talented employees you toss on the scrap heap will be back in the marketplace—as customers, clients, and, when business picks up, competitors, eager to lure your top performers to their teams. And if those top performers are still scarred by a callous layoff, they won’t think twice about leaving.
In short, managers need to pay close attention to their remaining star performers during a restructuring. If RIFs are unavoidable, how do you protect and reassure your stars? How can you hold on to their best energies even as you let their colleagues go?
Start by reminding yourself that smart people aren’t stupid, and commit to being a straight shooter.
Commit to Transparency
Managers confronting painful RIFs usually want to get the bad stuff over with as quickly as possible and get back to work. No one wants to deal with the emotions of a wounded colleague. Yet that’s exactly what is necessary to prevent festering of anger and resentment and to reassure your remaining people that they are still safe.
“You can’t tell people they are walking the plank without telling them why,” says Tom Stewart of Booz & Company. “Help people understand why you jettisoned the buggy-whip division.”
As you explain the reasons for these difficult decisions, describe the train of thought that led to this outcome. Ideally, managers want their ex-employees to look back and say, “Yes, I understand why I was let go,” even if they are still angry.
Reflexite, a Connecticut-based company that manufactures products for fire departments around the country, recently developed a business decline contingency plan that identifies four stages of decline and points to steps that should be taken to cope with each stage as it emerges. Layoffs can happen only at stage 4, after all kinds of avoidance action has been taken by management as well as workers.
The benefit of this kind of contingency plan is the security it gives employees of knowing that many efforts will be made before the company gets to the point of letting people go. And managers are secure, knowing that employees are devoting their best energy to turning the company around and in the end will support the company’s action.
Not only the plan but also the process must be fair. That means allowing people—those who leave and those who stay—to see the process. One way to think about this: do not do anything behind closed doors that you would not want to read about online.
When an L.A.-based advertising company was forced to lay off employees early in 2009, the company created a process designed to be as humane as possible, both for those let go and those who stayed. Because their offices have an open layout and conference rooms have glass walls, people being given the bad news were asked to go to a different floor in the building, that was not being used—a traditional office suite with solid walls—that offered privacy.
In many RIFs, laid-off workers are immediately escorted off the premises by security guards. “We tried to design different options so as to make the process as comfortable as possible,” said the head of human resources for the company. Rather than being marched through a lockstep process, people were given choices: they could pack up their desks, or they could have the firm pack their belongings; they could take their boxes with them, or they could have the firm ship them; they could say good-bye to their colleagues, or they could decide to leave immediately. This unconventional approach might be seen as risky, but the firm decided it was a risk they were willing to take. It had real payoffs for the employees involved. The HR head gave an example: “In one case, a group of people who had been let go held a vigil in an area of the building where they knew colleagues would see them.” “The vigil morphed into an impromptu gathering which was part support group and part good-bye party. While sad, this gathering gave departing employees a measure of dignity—and comfort—and left those who were staying with a sense of closure.”
Make Layoffs Easier on Managers
The heaviest burden in a restructuring is often borne by line managers, who must translate the impersonal order “reduce head count by 20 percent” into brutal encounters with real people. Not only are the actual conversations daunting, but also they leave behind residual guilt, ill will, and sadness. Yes, a manager will be relieved that her own job is intact, but it is painful to put people on the street, especially in a down cycle, when the prospect of quickly finding a new position is dim.
Many of these line managers may, in fact, be the stars you most need to keep. Stuck in the cross fire, they need sympathy and support.
If you supervise a manager who must execute layoffs, pay attention to that manager’s potential stress and strain. Be aware that he may be hesitant to acknowledge anxieties either to himself or to colleagues. Support can include role-playing the actual dismissal conversation or helping him decide whom to let go. Simply acknowledging the difficulty of the situation can help mitigate the emotional tax on managers who must deliver the bad news.
One way to lighten the load on managers is to reduce the number of redundancies by a creative use of flexible work arrangements.
The economic downturn has hit professional services firms hard. U.K. accounting giant KPMG has developed an imaginative contingency plan called Flexible Futures, which was designed to decrease payroll costs while at the same time maintain the firm’s deep commitment to its people.
In January 2009, the firm gave its eleven thousand U.K.-based employees a four-way choice. They could volunteer for a four-day workweek and a 20 percent reduction in base pay; they could opt for a four- to twelve-week sabbatical at 30 percent base pay; they could opt for both; or they could stick to their current deal. Once staff volunteer, the decision to implement rests solely with the firm, although consideration is given to personal preferences.
Positioned as a way for the firm to “come together” in tough times, Flexible Futures is already seen as a winner. “We were trying to deal with reality but also give employees some control over their own destiny,” says Rachel Campbell, head of people for KPMG Europe and architect of Flexible Futures. To date 85 percent of KPMG’s U.K.-based employees have signed up for a flexible future, opting for one of the first three choices. The most popular choice is option 3, which features both a shorter workweek and a sabbatical. This choice gives a sense of how time-starved professionals are. According to Campbell, “Given this, the company is looking at an immediate savings opportunity of 15 percent of payroll costs.”
Although Flexible Futures is driven by cost savings pressure, Campbell is convinced that the plan will boost morale in a company that is already rich in esprit de corps. KPMG was recently named “top company to work for” by London’s Sunday Times.
Help Employees Help Themselves
One of the reasons RIFs continue to resonate among survivors is that even prized performers feel their future is uncertain. Realistically, there’s no way for employers to guarantee that more layoffs won’t happen. You can, however, reassure your top players by helping your critical core team members strengthen their safety nets.
In early 2008, the International Monetary Fund (IMF) downsized its workforce for the first time since its founding in 1944, a traumatic event for this usually stable organization of twenty-six hundred employees. To bolster morale, Dominique Strauss-Kahn, managing director, personally reached out to sister organizations such as the United Nations and the World Bank, to inquire about job openings and to request that IMF-ers be treated as “internal staff” and given preference when applying for jobs.
Helping displaced employees network and scope out what might be a next job—in other divisions or other organizations—reaffirms their value and minimizes ill will. At the same time, it lets the remaining employees know that management cares enough to do more than just wish them good luck. Going the extra mile builds a kind of loyalty that won’t be forgotten.
Booz & Company—in the manner of many top-notch consulting firms—makes cuts every year, asking about 15 percent of its professional labor force to move on to another career. This is known as the “up or on” career model in management consulting. Rather than just letting them go—wishing them good luck and providing a standard severance package—partners and senior staff at Booz reach out to help find the next job, tapping in to a network of former Booz consultants and clients. According to DeAnne Aguirre, SVP and senior partner, “Using the power of the company to help find the next job makes people who are being let go feel better, and allows ‘survivors’—employees who make the cut and stay with the company—to assuage their guilt and feel that they did what they could to help.”
In this time of deep recession, companies are beginning to recognize the value of creating a talent bank of employees who need to take time off—understanding that they may want to tap in to this valuable pool when conditions improve.
Don’t Just Cut—Create!
There’s got to be a morning after
If we can hold on through the night
We have a chance to find the sunshine
Let’s keep on looking for the light.
No one my age can forget this song from The Poseidon Adventure, a movie about a supposedly unsinkable ship being flipped over and sunk by a rogue wave. But just as a lucky few survive in the story, so organizations can emerge from tough times stronger and more resilient. The key is to restructure in a way that is both responsible and responsive to new opportunities.
At Time Warner, Lisa Quiroz’s answer to budget cuts was not simply to maintain a smaller version of the status quo. She held an off-site meeting for her staff and told them to get creative. “Rather than trim what we did, I challenged my staff to rethink the whole thing. I told them, ‘Make believe we were starting from zero. If you were told you had X amount of money and had to build a program, what would it look like?’ I wanted them to focus on opportunity, not loss. So we did some jiggering. Psychologically, it helped.”
For leaders who see their people as assets to be developed rather than costs to be cut, restructuring offers an opportunity to change the way leaders operate to make better use of the talent they have. And by being seen to make smart new choices in difficult times, they can spark a kind of creativity and commitment that money can’t buy.