Letting People Go

Matt Shlosberg

• Publisher: Business Expert Press
• Year: 2011
• Print ISBN: 9781606492079
• eBook ISBN: 9781606492086
• Topic: Business
• Subtopic: Gestione delle risorse umane
• Index: Business

Whether they do so willingly or not, employees get terminated all the time. It's simply a fact of business. But poorly executed terminations may result in challenges ranging from short term annoyances to complete brand destruction. Terminations must be done right! This book covers why terminating employees correctly is important and provides a framework for doing so. It covers both firings and layoffs. This book reviews terminations from the organizational perspective, not from the legal perspective. The target audience is human resource managers as well as managers that direct people. Readers will benefit by learning how to avoid costly mistakes when terminating people and how to use properly executed terminations to their advantage.

Chapter 1

The Firing Squad

Introduction

The moment I sat down and started to write this book, I received a phone call from a friend who is the founder and chief technology officer (CTO) of the number-one company in his field. He called to tell me that he was about to lay off four vice presidents. He asked me if I could use one of them in my firm. He proceeded to give me a great recommendation on the person he was referring. He had recognized that it was the chief executive officer’s (CEO’s) mistake in hiring these people in the first place—he knew the reorganization was coming and these positions would be eliminated.

At first I was impressed. He did two things most executives don’t do when they let people go: he recognized the source of this mistake and he was trying to help these people find jobs.

But then I got startled. His vice presidents, the very top people he was about to let go, didn’t know they were going to lose their jobs the very next day. They knew nothing about the impending financial reorganization. They didn’t know their firm was in financial danger. Frankly, some of them didn’t even know what their role was. If his VPs were unaware of company issues, what did it say about rank-and-file employees?

As my friend continued, he alarmed me even more. Neither he nor the CEO was going to personally get involved in the layoff. Nor was it delegated to Human Resources (HR)! In fact, his head of HR was laid off just two months earlier under the premise that HR isn’t a needed function at all. The CEO decided that this layoff was a financial function. The chief financial officer (CFO) was appointed to run the firing squad.

I can almost predict what will happen next. These executives will get offended. Some may file lawsuits. Others will call the lucky ones that kept their jobs and breed doubt into the organization. The surviving employees will wonder what happened to their peers. People on the bottom will lose trust in senior leadership, spread rumors, and start looking for jobs. Productivity will become a concept of the past. Customers will no longer matter. A wave of negativity will slowly grow into a cancer that will eat this ultra innovative organization and feed it for lunch to competition.

Does this sound familiar?

Most leaders don’t recognize what goes on in people’s heads when layoffs and firings occur. A lot of them don’t see problems even when these problems are clearly shown to them. In fact, most managers believe that firings and layoffs are just unpleasant things in life that must be done and gotten over with. What they don’t realize is that poor execution of layoffs and firings destroy their organizations, often making them even worse off than they were before!

Let’s look back at the case I just described. We can point out a lot of things that went wrong, but it’s too late to change anything. Well-executed layoffs start early and begin with great leadership coming from the top. This particular organization has built a great legacy. Its product is embedded in over 300 consumer goods that are used by tens of millions of people around the world. But this legacy will get destroyed with a cancer that was essentially produced by the same leadership that created this legacy in the first place.

Remember the old saying “Every system is perfectly designed to achieve exactly the results it gets”? In other words, if this organization gets destroyed, it will happen because the leadership acted the way it did and not because the recently departed staff became disgruntled.

I’ve worked and consulted for dozens of organizations over the years and the pattern seems steady. Senior leadership mismanages layoffs and then blames organizational failure on employees who became disgruntled for some unknown reason. Sometimes leaders don’t even notice the behavioral transformation and manage dysfunctional organizations. One CEO that went through rounds of layoffs concluded in a conversation with me that all people are incompetent. He now spends 95% of his time managing emergencies. Growth, good customer service, loyalty, and faith in leadership are unknown concepts in his organization. Management of this so-called incompetence became such a routine task for him that he no longer recognizes that his organization can behave any differently. He isn’t managing change. He is reactively managing daily operations.

Another example I’ve seen is perhaps the extreme illustration of layoffs hurting the firm. Years ago, I was a consultant for a global firm headquartered in Norway. Located in Baltimore, our unit was in charge of development of one of the firm’s key products and was led by the firm’s CTO. One day, a senior executive from Norway arrived in our office for a tour. He walked around, introduced himself, and gave us a beautiful speech about the future of the firm. He also told us that he wanted to set up a global product testing center in our facility. This center would be responsible for the testing of all products produced by the firm around the world. He left everyone excited about the future. A week after he left, the VP of marketing for the United States showed up in our office. He gathered everyone in the cafeteria and announced that our guest from a week ago was unimpressed with what he saw and our unit was being shut down. He told the staff that everyone will be laid off within a week or two. He then asked employees to pack all company belongings, inventory them, and deliver them to another company facility located in Virginia.

What do you think employees did? Not a single one continued to perform work! Young staffers spent the remainder of their tenure playing video games. The more experienced crew and folks with families spent time looking for jobs. Managers didn’t care to control anyone. They were busy seeking jobs for themselves. One manager took the initiative to rent a truck and deliver the company belongings to the other office, as promised. However, half of the company hardware managed to disappear from the truck and later found itself for sale on the internet or in other employees’ homes.

So what went wrong here? This employer thought the layoff was handled properly. People were given a two-week notice. But employees saw something different. First, the gentleman from Norway lied. As a result, employees lost trust in senior leadership. Second, they wanted a senior leader from Norway to come and explain to them what happened. This was a manufacturing unit and they wanted a manufacturing executive to perform the layoff. Instead, they were let go by a junior executive from another division. This seemed like a spit in their faces. Third, they were expected to help the company move its belongings. They felt like this company hadn’t been loyal to them, but they were expected to stay loyal to the company. Finally, there was no explanation, no severance, no assistance with job finding, no senior leadership to mentor the upset personnel, and no sign of the CTO, who was quietly laid off the night before the announcement.

Things That Go Wrong: The Importance of Doing It Right

Companies don’t let staffers go just because they feel like it. They typically do so to correct a problem or to improve the bottom line. Regardless of the reasons, companies have positive end goals in mind.

But what are some of the things that can go wrong? Experience shows that there can be a myriad of things.

Unemployment costs. Most companies believe they will save money when they let people go. But a lot of them spend more money on employee termination than payroll. One telecommunications company spent millions in legal fees when its terminated employees suspected they were let go due to age discrimination. A large car parts manufacturer was hit with huge early retirement costs when it laid off a part of its workforce. A large technology company paid out huge severance packages equivalent to a six months’ salary when it let people go before the economic downturn only to rehire them two months later.

Opportunity costs. Sometimes you will find that reduction in demand for your product will result in reduction in resources needed to execute. This can be a good reason to reduce your staff. If that’s the case, go for it! But every now and then companies lay people off without realizing how this reduction in workforce will impact the business. The truth is that every company should be lean. If it is lean, it should never be able to find people to lay off. If it’s easy for the firm to identify thousands of people it can do without, these people shouldn’t have been working for the firm in the first place. Great companies should lay off during good economic times, not when things go bad. I witnessed an example in early 2002 when a telecommunications company laid off a large number of its customer service staff. A financially oriented CEO was hoping that customers wouldn’t notice that their on-hold time with customer service went from 0 to 5 minutes. Not only did customers notice; they left. Another great example I’ve seen recently is where a large shopping mall operator decided to reduce layers of management and lay off its operations managers, replacing them with regional managers. The idea seemed great. The company saved tons of money on payroll. But people that made this decision didn’t understand how this move would impact operations. The old hands-on, financially savvy, community-oriented operations managers knew customers, kept them happy, made sure malls ran smoothly, and ensured occupancy was high and malls were profitable. The new guys knew nothing about operations or finance, didn’t know customers, were spread too thin managing several malls, didn’t know their own staff or what was expected of them, didn’t understand the overall mission, and didn’t know how to execute. Not only did they miss the how, but they were demoted in their own minds when they took new positions and had absolutely no desire to make anything happen. Their staff saw the reduction in performance of their leaders and followed suit. Cost savings went away. So did customer service. One mall I studied increased its operating cost by over a million dollars per year after reducing its payroll by $150,000.

Employee stress. Most companies don’t care about stress of outgoing employees, but this stress can kill the very company that let them go. Stressful employees are known to call the peers who stayed behind and plant doubt into the organization. They can sue and spend countless hours and dollars in unemployment and legal hearings. They spread the word to their friends and the company’s brand slowly dies. Customers stop buying. Potential employees don’t apply for future jobs. I’ve heard one senior executive complain that she couldn’t find people to work for her. Prospective employees heard so much negativity about the firm that they’d rather stay unemployed than work for this organization.

Negative action. This can be expressed in a lot of ways. From stolen company property to objects flying in bosses’ faces, from broken car windows to lawsuits, people react and this reaction can cause you money and stress.

Remaining employees. This is the most obvious and most important weakness in the organization. Yet most employers tend to ignore it. When people get laid off, the remaining employees always ask the same questions: “What happened? Why a lay off? Why them? Why not me? Is this the end of it? Will there be more? When will I be laid off? What is the risk?” If no one can answer their questions, they start speculating. Speculation turns into rumors, and the rumor mill has no limits. Whatever they decide, the end result is always the same—it’s time to look for another job. Some employees leave. Others start looking for opportunities. All of a sudden, money becomes less of an object than it was when they first accepted the job. They all look for stability. This search for a new job becomes their new purpose in life. Their regular job no longer exists. Neither does productivity. This remaining workforce turns into a slow-moving, careless liability. People who were once considered stars create the basis for not doing their work: “It doesn’t matter anymore. I’ll get laid off soon anyway.” These words will come from the same people you considered for promotion just weeks earlier. But wait! They will go many steps further! First, they will let their friends know to not accept a job with your firm. Why? Because they’ll get laid off as soon as they join! Then your stars will become heavily stressed and sometimes go into depression. They will use it as justification for poor performance and they’ll strongly believe in the validity of their excuse. They will call the employees that just left to exchange their stress. Although they expect that they’ll feel better after such conversations, they usually become stressed even more. Your customer service people will talk to customers with a sigh instead of a smile. Your demotivated customer retention team will work to lose customers. All of a sudden, people will start taking vacations and sick days (of course, they need to interview!), raising your fringe benefit rate and reducing work coverage and productivity. The bottom line is that work will no longer exist in your organization.

As you can see from the previous examples, termination of employees can harm the organization in both the long term and the short term. If companies have positive goals, they have to do whatever it takes to prevent any harm to the organization. That’s why layoffs and firings should be done correctly.

Horrors of the Firing Squad

I hate to compare letting people go with killing them. Of course these are two different things! Luckily, firings don’t typically result in deaths. But history shows many cases where lost jobs took people to extremes no one ever thought possible.

Consider the following examples.

Example 1

Some time ago, I interviewed a gentleman for a junior manager position. He interviewed well. He possessed great functional knowledge and had great leadership skills. He looked like a star. But there were two things that surprised me. First, this highly paid individual was unemployed for an extended period of time, which seemed unusual for his position, especially given the exceptionally great market conditions. Second, I noticed that he lived in low-income housing, where payment in cash was required for rent every month up front. This combination surprised me. I ran his background check per company policy and found two issues. One, he had a dishonorable discharge from the military. Two, he had a felony on his record. Per state law, I disclosed the findings to him and heard the horror story as a reply. This young man made a mistake when he was in the army. It wasn’t a big deal; he probably would have kept his job if he was in the private sector. But he was discharged, or, in the words of the private sector, fired. This discharge went into his record and haunted him for the rest of his life. He couldn’t get a job. This highly skilled individual was left on the street while his wife was staying at home with a newborn baby. He spent many months looking for another job until he found one. A few months later he got laid off. By the time I met him, he was unemployed for over a year. He went into a heavy depression. How could he take care of his family if he couldn’t find a job? He moved into low-income housing, but he couldn’t afford to pay for it. He told me he had plenty of interviews, and he heard good feedback from potential employers, but the process would always stop when his potential employer heard of his termination from the military.

Unfortunately I wasn’t in the position to hire him either. I felt bad for him. This extremely capable individual ruined his whole life by getting fired from the army. His story also explained the felony on his record. He got caught stealing. But he didn’t do it because he was a bad person. He was a desperate person trying to feed his family.

I have a friend who used to be a fatalities-processing clerk in the military. He told me he used to process one suicide per week that either current or ex-military personnel committed due to their financial problems.

Example 2

I met a manager who was laid off from a major diversified technology-services firm. This individual was highly competent. He was a successful serial entrepreneur and worked as a senior executive for a variety of companies. He wasn’t worried when he lost his job. It seemed like he could find another one quickly. But things didn’t turn out the way he wished. It took him almost three years to find another job. He went into a heavy depression. His wife tried to commit suicide and then spent time in a mental institution. When she came back, she filed for divorce and took away his life’s savings. In turn, he stole money from his business partner so he could survive. As in the previous case, this man justified his theft because he needed the money to survive. He lost lots of friends as well as his reputation, which he may never recover.

Example 3

I used to play in bands when I was younger. The rock ‘n’ roll scene exposed me to the world of individuals who had low-paying jobs as a way to survive while they played music with hopes of making it big someday. I remember I met an excellent drummer. He was laid off from his job after having spent 15 years there. The day he got laid off, he drove home fast so he could see his wife and relax from the stress of unemployment in the comfort of his home. He was pulled over by police for speeding, and the officer suspended his license. He desperately tried to look for another job, but he couldn’t even go to an interview—he could no longer drive. One day he took the risk and drove to an interview. After all, he didn’t have a choice. He had a family to feed. His wife was handicapped after a car accident and couldn’t work, so she stayed home with their two kids. As he drove to the interview, he got pulled over by police. He was arrested for driving with a suspended driver’s license. T...

Table of contents

• Title Page
• Copyright
• Table of Contents
• About the Author
• Preface
• Chapter 1: The Firing Squad
• Chapter 2: Firing
• Chapter 3: Laying Off
• Chapter 4: More Food for Thought
• Conclusion
• Notes