‘Tis the Season… for Layoffs

by Timothy B. Corcoran on December 20, 2011

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Autumn is the time of year to see the orange and black of Halloween and the red and green of Christmas.  It’s also the season of pink slips.  As corporations reach the end of their fiscal year, the likelihood of senior management initiating layoffs is as certain as Santa Claus appearing in the Macy’s Day parade. And the aftermath is typically as messy as the kitchen after a Thanksgiving dinner for twenty.

The two primary catalysts for these layoffs are short-term profit maximization and strategic reorganizations.  Simple business math suggests that a company expecting to fall short of its top line revenue projections must lower costs in order to deliver the bottom line expected by Wall Street analysts.  By the time the fourth quarter has come around, misplaced optimism has masked the under-performance for too long and now there are few options to quickly lower costs.  Terminating employees is a guaranteed get-rich-quick scheme for many companies.

This is also the time when company executives engage in the annual budget dance which inevitably concludes in taking on questionable revenue and profit goals assigned by the parent company leaders, who in turn are influenced by industry analysts who don’t acknowledge business cycles and accept nothing less than steady, predictable growth.  When there is no rational plan to achieve stretch goals, then it’s time to reorganize!  There is no greater disruption to a company’s performance and growth than constant reorganization, yet some companies engage in such activities every year, even multiple times each year.  And every reorganization is accompanied by employee terminations.

Obviously there are many poorly-run companies in dire need of change, and there are always employees who don’t perform well and need to move on, and competitive forces can lower demand which requires a company to downsize.  But many companies fail to distinguish between the layoffs caused by poor performance and those in which the employees are merely economic victims.

I recently re-read this Wall Street Journal article “If You Fire People, Don’t Be A Jerk About It” by Kelly K. Spors, which discusses different approaches for terminating an employee. The article strongly urges managers to act reasonably so the terminated employees can depart with dignity and self-respect. As I’ve written previously, change doesn’t have to take place without compassion.

There are very few circumstances in which an employee, a grown man or woman who days before was a valued contributor, should be given a few moments to place personal belongings in a cardboard box and be escorted to the door in full view of colleagues.

Managers shouldn’t allow the personnel or legal departments to unilaterally dictate the terms of all severance packages.  Every seasoned manager has a story of a jilted employee who was denied proper benefits ending up in an influential position with a client, and the loss of sales resulting from their residual anger always costs far more than simply offering a fair severance package.

Sadly, there are many hiring managers who assume an out-of-work employee is always damaged goods.  So employees who are terminated due to economic conditions rather than poor performance should be given a respectful reference, acknowledging that their departure resulted from business conditions.

Yes, I know that the lawyers and HR staff will offer different views, based on their zeal to eliminate all risk. Managing a business is all about managing risk, and successful managers make risky decisions every day.  If we took action only when we could be sure of eliminating all risk, then we wouldn’t act and we would inevitably fail.

When it comes to conducting layoffs that aren’t performance-based, make the decisions that are appropriate for the short-term and long-term health of the business.  Incorporate the expectation that alumni of your organization will talk about you when they leave and the impact of this viral marketing will be meaningful, one way or another.  It’s your choice whether they leave as happy alumni or outraged alumni.

If you’re a business leader exploring options for downsizing your workforce, it’s good business to take an approach that preserves the departing employees’ dignity, and preserves for your organization the opportunity to do business again somewhere down the road with these employees, their families, their friends, their acquaintances, their social media connections, their subsequent employers and their clients. It is indeed a small world.

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