Notwithstanding my last rosy post on the economy, "Fear sells," we are indeed spending a lot of time at our firm talking with clients about layoffs. They are, without a doubt, one of the worst things an HR professional or a management lawyer has to deal with. (Of course, let's not forget: they are much harder on the laid-off employees.)
One of the concerns we heard over and over from our corporate clients was how to avoid the gossiping and rumormongering that can surround layoffs like circling vultures. Oftentimes, ahead of a planned layoff, companies will go all CTU-style need-to-know on their employees. The thinking here is that layoffs should be kept secret until they're rolled out at H-hour. This keeps the rumors to a minimum, and keeps employees productive until the embargo lifts and the layoffs actually occur.
That's dumb.
Well-intentioned, but dumb. You see, one of the principles of this blog is that any given employee at any given time has a certain probability — P — of suing the employer. Certain events, such as firing the employee, tend to raise P. While it is impossible to reduce P to zero, it is the role of managers, HR pros, and employment lawyers to help lower P.
This is my fifteenth year of helping employers fix workplace problems. In my experience, surprising employees with bad news tends to increase P. For that reason, we always tell clients that an employee who is about to be disciplined or fired should not be surprised by it. Otherwise, the surprise acts as a multiplier of the bad feelings that come with the bad news, and it raises P even more.
The same is true in a layoff situation. To be sure, no one wants the workplace shut down because everyone's too busy gossiping and spreading rumors before an expected layoff. But carefully leaking some information about the upcoming layoff, maybe a week beforehand, gives people a chance to come to grips with their possible fate. Those whose departments are underperforming, or whose own work performance is weak, may come to realize that their departure is inevitable. I'm not saying that they're going to be happy about it. But without the element of surprise to exacerbate the hurt feelings and other emotions that come with a layoff, their personal P may be low enough to avoid lawsuits.
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.
Posted by: Satisfied Client | 13 January 2009 at 11:50 AM