How Leaders Show Accountability During a Layoff

Layoffs are hitting the news again as company's struggle to meet shareholder expectations. When money is tight, companies have two options to survive; reduce costs or increase revenue. Companies get into these situations when markets shift and costs increase. Leaders should strive to do their best to predict these shifts and steer towards financial stability. Forces impede these efforts like the want to win big, the Ikea effect, and shareholders wanting risks that lead to big rewards. Historically, shareholders preferred dividends to share value, then companies like Intel and Microsoft set a standard of reinvesting all profits into the business. This practice means there is almost never a financial safety net of cash on hand or the option to just give shareholders less (because most companies these days give nothing).

The sooner you see changes are needed the more options you have and the more thoroughly you can plan. Being transparent will be critical to how you're judged as a leader. Transparency also enables a wider pool of people who can offer advice.?

The first layoff I survived was years before the pandemic. I was the DevOps Lead at a small startup. As soon as it happened I realized there were several ways I could reduce costs for the business. We had been outsourcing IT work that I could easily handle so we ended that contract. I also found we had several redundant services (multiple repository hosts and multiple monitoring services). I eliminated those redundancies. We had been historically keeping the same amount of AWS instances running regardless of their use. I implemented automation that turned off employee servers during off hours and introduced auto-scaling based on our server load. Finally, I saved us some money by using AWS reservations. All of these efforts combined saved the company more than my salary. Had I known prior to the layoff that we were spending too much I might have been able to save at least one job. While not all employees are in positions to save this amount of money, there are enough to warrant transparency. Sales people might also be able to propose pricing changes and ways to onboard more customers.?

Often companies hide their financial status to protect share prices and limit employee attrition. This might feel like it helps in the short term but when the news eventually breaks employees and shareholders will feel duped. It will be a break of trust that may be impossible to repair. Some shareholders might panic and sell. The employees who stay will work at a diminished capacity due to stress and survivors' guilt. Many employees will go on job hunts. Employees will consider organizing and at some companies unions will be formed.

Repeatedly companies avoid transparency to get employees through a big release or a major sales event like Black Friday. After the milestone has come and gone they feel they don’t have time to explore options other than layoffs. This makes employees feel like leaders were trying to keep morale up while squeezing one last bit of productivity out of them.?

Many companies try to foster a family feeling. As experts point out on Harvard Business Review podcasts, you can't layoff a family member. The instant a layoff happens the family illusion will disburse.

When announcing a layoff companies want to reassure employees to prevent voluntary attrition. They then say things like, "we have tons of money in the bank," and "this layoff means it won't happen again." If you have plenty of money in the bank, why did you have a layoff? If there was no transparency leading to the layoff there is no reason to trust there won't be another, and if there is another, people will walk.

MEDITECH upper management liked to use the phrase, "don't fire us and we won't fire you." They were founded in 1969, and to my knowledge have never had layoffs. While attrition was low, the hope behind the phrase was that employees would talk to management before considering leaving. Similarly, we gave under performing employees a lot of notice they were at risk and provided them guidance for improving.

In 2020, many companies laid off a disproportionately large number of LGBT employees just prior to Pride month and then for Pride month temporarily changed their logos to have rainbow themes. Allies and queer candidates will avoid companies like this in the future. Netflix faced public criticism that could impact subscriptions for targeting a layoff to queer and non-white departments.

If cutting costs are required to keep the business running you should give people very transparent options including furloughs, pay cuts, and voluntary attrition. As a manager, I've been happy to choose myself for a layoff over my employees. Morale and loyalty is going to be higher when employees can be part of the decision making.

Lastly, it's critical that executives "feel the pain." When the Wii U didn't meet sales expectations Nintendo's CEO voluntarily cut his salary in half sending a message that he was in it with all the employees. As leaders, we are ultimately accountable for the performance of the business. If we miss sales targets it is in part the fault of the head of sales, if we create less leads than planned it's partly due to the head of marketing. For engineering, if we don't meet our service level objectives, if we have more bugs than promised, if we fall short on our delivery commitments it's partly the fault of the head of Engineering. The CEO and board of directors all take ultimate responsibility for these issues. They also are ultimately responsible for overhiring. Nobody will want to follow them if they don't own up to their part in the mistakes. We're all human, it's okay.

For more advice and ideas please message me on LinkedIn. This article is a sneak peak of a leadership book I’m working on.