Handling Layoffs Competently

EPISODE #225 TRANSCRIPT

The restructuring and layoff season appears to be in full swing, and many of the examples that are popping up in the public domain feel a little chaotic and destructive.

If you find yourself in the unenviable position of having to lead through layoffs, no matter what level you’re at, you don't want to fall into the same traps as some of the more public sh!t-shows that we've witnessed over the last year. There's a way to execute layoffs that gives you a high likelihood of getting the desired outcomes, without having to slow the process down to glacial speed.

Although letting people go should never be done lightly, it needs to be done in a way that will give you the greatest chance of salvaging value from the process, and positioning your business for future success.

I released an episode of the No Bullsh!t Leadership podcast some time ago, to provide some critical pointers for redundancies and restructures, and it’s definitely worth tracking that one down on your favorite podcast player! It’s Ep. 64: Restructures and Redundancies, and in it, I laid out some really practical tips for how to lead your people when you have to execute on a redundancy program.

HOW NOT TO DO IT!

The Twitter circus has come to town, and it’s attracting a lot of media coverage. There's been a huge amount of reporting dedicated to detailing Elon Musk's every move to the world at large (which is entirely understandable, given his apparent comfort with airing his dirty laundry in public). The repercussions for the people who work at Twitter is obvious, and we can only feel for them. But remember, this is part of their career story and it'll certainly build their resilience going forward.

Last week, I spoke about leading through major upheaval: the accelerated learning that comes from the most difficult situations is absolutely invaluable. Having said that, it doesn't excuse a leader from treating people poorly.

But Twitter is almost comical to watch: the precipitous and seemingly indiscriminate laying off of a large chunk of the Twitter workforce; the sacking of people who stood up and tried to offer Musk a contrary perspective; and most recently, reports of a new category of Twitter employee that HR has invented to handle those who were accidentally fired, so that they have a basis for rehiring some of the more critical employees who were terminated.

It seems obvious when we look at it from the outside, but you’d be amazed how many senior leaders fall into these traps: good people who just execute poorly for want of understanding and following a few basic principles.

THE TYPE OF TERMINATION MATTERS

I do just want to point out one really important principle about redundancies and layoffs, though, before we get into this subject more deeply. The key principle is to make sure you distinguish between the different methods of termination. The three most common types are:

1. Termination for cause;

2. Termination for convenience; and

3. Termination by way of redundancy.

The lines here seem to have been a little blurred in recent times. For example, when the better.com CEO fired almost a thousand workers via Zoom earlier this year, he said it was because of the over-commitment to capability building and the market not growing as quickly as he'd anticipated. But then in another email, he accused a number of these staff of “stealing from the company” by working only two hours a day. 

So which is it? Is the role redundant or are you just not getting the performance you want from the person who's actually in the role?

Musk had a bit of a crack at this, too, when he was trying to get Tesla employees to come back to the office. He said, "If you don't want to come back to the office, you can go and pretend to work somewhere else."

In virtually every labor market in the developed world, the distinction between the various methods of termination matters, in both a practical and a legal sense.

Termination for Cause is when someone is sacked either due to lack of performance, or some other breach of their employment conditions. And causes can range from behavioral or performance issues, through to gross misconduct, and everything in between.

Except in the most extreme cases, these types of terminations should only come after the individual is given clear feedback and a reasonable opportunity to remedy the shortfall in their performance. In other words, to meet your expectations for the standard you're setting. This is a termination type that many leaders avoid because it requires the most work and the most personal risk. This is the one that generates the most conflict, which many leaders simply aren't up for. They'd rather just be popular.

But it's also the most brutal termination type for employees, because it's a real blow to the ego and self-esteem, and there's usually a minimal amount of residual financial benefit: normally just any accrued leave or salary owing.

The second category of termination is Termination for Convenience. Many employment contracts have a clause that enables either party to terminate the contract at any point, without giving a reason. I refer to this affectionately as the ‘love is gone’ clause. Sometimes, just like in a no-fault divorce, the love is gone, and either you want to move on, or the organization would like you to move on. This normally involves longer notice periods than termination for cause and certain benefits that would accrue to you as what we call a good leaver.

Termination for Convenience is used more often than Termination for Cause where it's available: it’s a little easier on all involved, and many leaders prefer “easier”. But I've also led in many situations where termination for convenience isn't an option at lower levels of the workforce, where they might be protected by blanket union-negotiated agreements.

The third category of termination is Redundancy and Retrenchment. This occurs when, as a result of a restructure or other strategic reshaping of an organization, certain roles are no longer required. This is the classic layoff scenario.

Redundancies, by their nature, are targeted at roles, not the individuals who just happen to be in those roles. But even though it's probably the least controversial method of implementing job losses, it can also be the trickiest, which is why I'm going to focus on this in more detail.

In recent times, we've seen the implementation of largely indiscriminate layoffs, which is really interesting because in my view, the number one objective of any redundancy program is to make sure, to the greatest extent possible, that you don't lose your best people.

Yeah, "No sh!t, Sherlock!" I hear you say.

Even though it sounds like I'm stating the bleeding obvious, you'd be surprised how many leaders I've seen break this cardinal rule. And it's not just the individual talent you have to look out for. You also have to be aware of which roles are critical to the functioning of your business.

TALENT MANAGEMENT AND SUCCESSION PLANNING

I've already touched on this in a few previous episodes. There's Ep.101: Keeping the Ones You've Got; and Ep.144: The Skills Shortage.

Talent management is a critical facet of leadership and organizational development for so many reasons. For a start, if you actually believe that your people make a difference to business performance, why wouldn't you nurture and develop their capability?

It's also critical to understand key person risk. How do you know where your vulnerabilities are in an organizational resourcing sense if you haven't mapped your top talent and your critical roles? It's a prerequisite for knowing where to invest your scarce training and development dollars, and it provides a framework for managing your people's performance based on actual evidence, not just impressions and opinions.

But most of all, if you do have to implement layoffs and make difficult decisions about who stays and who goes, your talent management plans provide the roadmap for getting this right, and not bleeding talent while you cut costs. When you have to implement layoffs, you'll find a number of competing factors:

1. Value. How do you reduce your labor overheads without damaging the ability of your team to create value?

2. Customer. Will the staff reductions be visible from your customer's perspective or will it all happen rather seamlessly?

3. Risk. You don't want to create gaps in the critical performance areas of sales, operations, supply chain, customer service, for example.

4. Talent. You don't want to lose your key talent while you're trimming the fat. And,

5. Speed. Whenever you're forced to lay people off, you want it done quickly but not recklessly.

This is why it all begins with talent management. Once you've got a really good idea of who your top performers are, it's much easier to be surgical about the layoffs. But here's the thing: if you don't already have a talent management framework in place, it's unlikely you'll be able to get one together when you need to make layoff decisions. This would impede your ability to move quickly.

So if you don't mind me butchering an old Chinese proverb, the best time to create a talent management and succession plan was three years ago. The second best time is today.

I find it staggering that some large companies seem so cavalier when it comes to managing their talent. They take years and they spend millions and millions of dollars building up their organizational resourcing and talent pools, and then react in the blink of an eye when something goes wrong by laying off thousands of workers. In my view, this is a classic sign of mismanagement.

Most companies in most industries don't have the luxury of managing so haphazardly, but when a business is so profitable that growth is virtually unconstrained (as it has been for many tech companies in the last five to ten years), the almost endless supply of capital and labor forgives a lot of sins.

Now, you may be thinking, Marty, I'm a small business. We don't have either the time or the resources to invest in setting up a talent management system. But hey, I hate to tell you this... that's almost never true.

The key principle here (and this goes for pretty much everything I cover on the No Bullsh!t Leadership podcast), is fitness for purpose. We use exactly the same principles to run our micro business, Your CEO Mentor, that I used in multi-billion dollar corporations. We just scale it back so that it makes sense... so that it's fit for purpose.

The good news is that if you are in a smaller business, you’re naturally dealing with a lot less people to manage and understand. You don't need an elaborate set of templates and processes, but you do need to regularly engage your leaders in the discussion. Who are our best performers? Who do we think is demonstrating the capability and potential to make the turn to the next level and be a leader of the future? What do we need to do for these individuals to prepare them for the next level and help them grow in capabilities, skills, and experience?

So, it’s critical to understand your talent before you need to make the types of decisions that come with restructure and redundancy initiatives. If push comes to shove, you'll be able to make smart decisions that take into account which roles are necessary to keep everything moving, and which are (reluctantly) expendable. This will enable you to match the talent you want to keep with the essential roles, so that you don't inadvertently throw the baby out with the bath water. When it comes to layoffs, you should try to use a scalpel, not a chainsaw.

THE SEVEN DEADLY SINS OF LAYOFFS

There are a number of things that you absolutely shouldn't do if you are ever faced with the challenge of running a layoff programme.

Deadly Sin #1: Not knowing who's who

This is all about the talent, and I've already covered this. Suffice to say you need to know who's who, and use this knowledge to make decisions quickly. With a good handle on key roles, you can make sure that any layoffs don't impose undue risk on the business. But if you don't know who's who, you're likely to bleed talent.

Deadly Sin #2: Not communicating your intent 

Communicating outcomes without communicating intent is a really common problem. You need to exhibit a level of transparency about the process. No transparency, no trust. And trust is something you are absolutely going to need to rebuild your business in the wake of any layoffs. 

If people understand why you’re choosing to impose the layoffs, and what the overall context of the business performance is, you're much more likely to gain a level of acceptance. Remember, you'll be relying on the people who are left to drive future performance and they'll be doing it with less support given the reduction of resources that the layoffs bring. 

Your people need to see you as a rational and considered decision maker, not just someone who has a knee-jerk reaction whenever investors become disgruntled with your financial performance.

Deadly Sin #3: Not locking in the talent 

Once you know who your talent is, lock them in. When I say this, I mean at least lock them in verbally and, if possible, financially as well. Tell them that they're part of the future of your business. Explain what future plans you have for their growth and career development. And yes, if you have the capacity to do so, lock them in with financial incentives.

I know that's not the main reason why people choose to stay or go, but in a war for talent, you want to avoid doing dumb sh!t. If people feel insecure, they'll be much more inclined to entertain competing job offers in the hope that they'll get some greater stability somewhere else. So at least make sure you pay your top performers in the top quartile of whatever remuneration band they could attract, based on their role, the industry you're in, and your location. Try to give them one less reason to leave.

Deadly Sin #4: Not listening to your leaders 

A decision to reduce staffing levels is often made at the top of the organization, which is fair enough. But if you want to get the best outcomes from the process, you need to rely on the leaders below to make some key execution decisions. 

So make sure you listen to them when they express concerns about certain roles being made redundant; listen to them when they tell you about a person that's a high potential employee whom you wouldn't want to lose; listen to them when they tell you about the risk of eliminating certain functions that you may think are non-core. You'll be much more likely to avoid the landmines if you pay attention to what your leaders through the various levels actually think. You're paying them to know this stuff, so why wouldn't you reap the benefits of their knowledge and judgment?!

Deadly Sin #5: Not giving the leaders accountability 

Once you have an overall shape for the layoffs, decisions on how to implement them should be made at lower levels, and they should be implemented by the line leaders who the affected people report to.

Accountability for any decision should be pushed to the lowest practical level in an organization, and it's no different when we're talking about layoffs. Let the people closest to the action decide the best way to capture the savings (within the parameters they're given, of course), and let them be the ones who execute the plan.

Deadly Sin #6: Not delivering the news face to face 

These days, it seems to be increasingly popular to give this type of bad news to people en masse, but that's pretty impersonal, right? 

I remember a few years ago, a power station in Australia notified all of its workers that the power station would be decommissioned in a few months time and that they'd no longer have jobs. How were they notified? Via a blanket text message. We're now seeing bulk layoffs executed via Zoom and Twitter, and of course, our old favorite, email. And sometimes, the first inkling that some people have that their role’s being made redundant is that they find they no longer have access to the corporate IT systems, or their security pass ceases to function!

Remember, you have a leadership structure for a reason. Every leader should be accountable for breaking the news to any of their direct reports who are affected. And I know this can be difficult logistically, but it doesn't need to take a long time or slow the process down too much: it just takes a little thought and planning. You can't convince me that these major organizations aren't capable of doing that.

Deadly Sin #7: Not getting it right the first time

How often do we see companies taking more than one bite of the cherry? At better.com, the 900 employees originally laid off was just the appetizer. Another 3,000 went a few months later. This is really unsettling. It tells your people you don't really know what you're doing. You react quickly, then find you haven't done enough so you go in for another round.

When you do have to impose layoffs, you should be able to say to your people, "This is a one-time deal. It's going to be painful, but once it's done, it's done. We don't have any plans for further cuts in the foreseeable future."

Of course, even if you do say this, many people won't believe you. But if you find that you have to go back to that well more than once, your people are just going to be waiting for the other shoe to drop. And while they're sleeping with one eye open, they certainly won't be focused on redoubling their efforts to make the new structure work.

DOING BETTER–FOR YOUR COMPANY AND YOUR PEOPLE

There are some pretty basic rules of thumb for layoffs and redundancies. It's not rocket science, but it does take a level of thought and planning that many companies seem to be incapable of at the moment. If you actually give a sh!t about your people and your company's brand, and you also want to make sure that you have a solid foundation for going forward after the layoffs, avoiding these seven deadly sins is a really good place to start.

And just because some very prominent people are choosing to do things differently, remember that for us mere mortals, we're going to be relying on the goodwill and discretionary effort of our people for as long as we're leading them. Great leaders put high levels of effort, thought, and planning into these difficult situations, and they’re prepared to do the hard yards to make sure that they do the best they can for the people involved.

RESOURCES AND RELATED TOPICS:

• Episode #64: Restructures and Redundancies - Listen Here

• Episode #224: Leading Through Major Upheaval - Listen Here

• Episode #198: Layoffs Are Back - Listen Here

• Episode #101: Keeping The Ones You’ve Got - Listen Here

• Episode #144: The Skills Shortage - Listen Here

• Join the Crush Your Career Challenge - Here

• Buy the NO BULLSH!T LEADERSHIP BOOK - Here

• Explore other podcast episodes - Here

• Take our FREE Level Up Leadership Masterclass - Start Now

• Check out our 8-week online leadership program, Leadership Beyond the Theory - Learn More

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