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Satisfied Client

As a very satisfied long-time public company client of Jay's firm, I could not agree more that the P-Factor matters and that anything you can do to treat your employees like human beings is worth doing, both because it is the right thing to do, and because it is good business on a number of levels. So I am 100% on board with this post. Bravo. However, as someone who has had to be part of surprising employees from time to time, and with due respect to Sir Philip Sidney, I feel the need to offer the following "Apology for Surprise."

Employee rumors are a hassle, but that is not why managers all go CTU-style.

We do it for several other very good reasons:

(1) securities laws - lay-offs can give rise to nasty SEC and stock-exchange issues if they get out before you are ready: (a) they can be material events, (b) they can cause rumors sourced to the company which can give rise to a duty to update, and (c) they can trigger immediate 8-K filings before you have your spin ready - all major IR issues at a minimum, worst case, SEC violations.  And even if only an IR issue, an IR issue is a short way of saying something that can actually unnecessarily destroy shareholder value if not managed properly

(2) accounting rules - charges need to be taken and disclosed (by both regulation and by IR best practice requirements) and they can take a while to tally up and prepare and agree on with your auditors, especially with all the managerial horse-trading and back and forth about who is in and who is out that goes on towards the end and, most importantly

(3) distraction and fear caused by a partial "leak" of info without all the facts, the full story and the necessary context, can actually irreversibly harm a business way worse by taking on a life of their own and, for example, driving good people out who you were not going to lay off, causing a worried sales person to spook a big customer with an off-hand comment, causing someone to say something to a strategic partner, traveling to your competitors or industry analysts through a grapevine that magnifies and mangles things like no game of telephone could ever do.

All of these things have the potential to do real and lasting harm to a business.  Harm that in revenue terms can be measured in the tens of millions, but in market cap terms, can sometimes be measured in the hundreds of millions.  So against this backdrop, a few employee lawsuits from surprised employees are simply a cost of doing business.  You do your best to do the lay off well, and humanely as possible so as to minimize the P factor as best you can, but at the end of the day, if you get a few lawsuits from ripping the bandaid off, so be it.  The stakes are too high to do it any other way, so you play the hand you are dealt.

Employees know lay-offs suck for everyone, and that their manager and management team doesn't want to go through it any more than they do.  But when it is necessary to ensure the survival or protect the long-term health of the business, they respect a quick, clean, decisive and professionally-executed cut that gets the job done with an absolute minimum of collateral damage.  One where everything is carefully planned to allow managers to make the necessary cuts first thing and then quickly get all the "survivors" into a townhall meeting and say, "that sucked, but we did it thoughtfully and it is over and here is how we have adjusted our plans, here is how we can and will be successful and over there is the next hill we are going to go climb as a group." I submit, that in situations like this, employees don't focus on resenting the surprise, they see the necessity of it and appreciate the crispness and humaneness with which it was done.  Within the actual 2 on 1 meetings, the managers handle the human stuff as best they can to manage the shock, protect the feelings and preserve the privacy and dignity.  No perp walks, no histrionics, nice folders of benefit and out-placement info, etc.  Lay-offs suck, but in the modern capitalistic knowledge economy, unfortunately, people understand them to some degree.  Earnings pre-announcments, delayed hirings, stressed managers, scaled back incentive trips, tightened belts on expenses, all these things soften the ground plenty.  And in a VC-backed start-up, that the cost consciousness is even more accute. And no management created leak is going to get more specific than that anyway; i.e. down to the level of making someone good feel safe or warning someone likely to get cut.

So the cloak and dagger tactics endure.

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