The Ultimate Leadership Challenge: Handling Layoffs with Thoughtful and Transparent Engagement (Part 1)

Layoffs are one of the most difficult and painful decisions that any organization can face. They affect not only the employees who lose their jobs, but also the ones who stay behind, the customers who rely on the products and services, and the society at large. How can leaders handle layoffs in a way that minimizes the negative consequences and maximizes the positive outcomes? Can they balance their business goals with personal and social responsibility? And how thoughtful and transparent can and should they be in their communication and actions? (This is part one of two, which is now posted online.)

“We will treat our people with dignity and respect, and act transparently. These decisions are difficult, but necessary. They are especially difficult because they impact people and people’s lives – our colleagues and friends.” – Satya Nadella, The Microsoft Blog

Prologue

One morning in mid-January, Microsoft employees found an email from Satya Nadella with some news about the future of the company. An outline of how we’re living in a time of rapid change and uncertainty, with customers shifting digital spending and AI creating new possibilities and challenges. There’s a need to adapt and innovate, he said, to stay ahead of the curve. So far, so good.

Then the bombshell: 10,000 jobs to be cut by the end of the fiscal year in June, needed to align our costs with our revenue and demand. An impact to 5% of the workforce that will result in a $1.2 billion hit to the bottom line this quarter due given the cost of the decision. Ouch. Even with all the reassuring talk of long-term vision and continuing investments in key areas, the company would divest from areas where there’s not a clear path forward. And with empathy and transparency, employees knew that this would be a hard time for everyone, especially those who would go on to lose their jobs. One employee shared...

“Lots of companies in the tech industry are going through layoffs, so it’s hard to find comparable salary/benefits for the same level of role. Last year at this time, I was fielding Big Tech corporate recruiters left and right. Now, all those recruiters are also laid off. It’s a nightmare.” ?

With the promises to treat them with dignity and respect, there were assurances to provide people with needed support and resources, all with a commitment to be open and honest about the process and the rationale behind it.

Did the communication inform, inspire, or infuriate? Like me, I’m sure that many employees, shareholders, and others wondered if the leadership from senior leaders was on the right course, or if they questioned the motives and priorities, and challenged the assumptions.

“Thoughtful and transparent…”

How do you lead with empathy and transparency when you have to lay off thousands of employees? The layoffs came as a shock to many, even as Satya pledged to be “thoughtful and transparent” in the process, and expect to leverage the company’s growth mindset principles and model, coach, and care.

I’m fascinated by how leaders communicate change to employees, and as well to customers and partners. Change is inevitable, but how we handle it can make or break our culture and performance. In this challenging instance – likely be a major milestone in the company’s history if it were not surrounded by uncertainty in the tech market and worldwide economy – I think Nadella did a decent job of explaining the why, the what, and the how of the change in the moment. At the same time, I believe he could have done more to engage the who: the people who are affected by it, and those remaining at the company.

Has Microsoft lived up to its own standards? Or are there areas where the company and leaders failed to show compassion and engagement to those who lost their jobs and those who remained?

I wanted to examine both sides of the argument: how thoughtful and transparent were Microsoft and its executive management during the layoffs, and at times not so much. I wanted to look at and explore what lessons other leaders can learn from this case, and how you can rethink your own approaches to managing change and uncertainty.

“The view you adopt for yourself profoundly affects the way you lead your life.”?– Carol Dweck

Pros

Microsoft laid off more than 2,000 employees in 2022 at the beginning of the current 2023 fiscal year, with impacts felt across many different groups around the world. But even with these cuts, the company said it planned to grow headcount in strategic areas. The cuts announced in January seemed to be a continuation of these initial changes, in concert with the shifts and cuts being made by other firms as the economy softened and the business landscape became more challenging to read. Rather than announcing a new more encompassing round of job cuts as a fait accompli, I presume that leadership invited feedback from across a spectrum of decision makers and business owners before making any final decisions.

Microsoft offered some generous benefits to the affected employees, some of which I outlined in my post on Why the Difference between Being Fired vs. Being Laid Off Matters More Than You Think. In some ways, these were measures that could be seen as signs of empathy and compassion from the leadership team, as well as an acknowledgment of the hard work and contributions of the laid-off workers. On the one hand, Microsoft can be seen as thoughtful and transparent in its layoffs by following some of the principles of the company’s culture and company values: respect, integrity, and accountability.

But there’s another side to this.

Challenges

“We listen to views that make us feel good, instead of ideas that make us think hard. We live in a rapidly changing world, where we need to spend as much time rethinking as we do thinking.” – Adam Grant

Microsoft’s layoffs raised some serious questions about the company’s transparency and accountability.?For instance, the company moved forward with the decision to cut 10,000 jobs when it was on track to report strong results with third quarter revenue of nearly $53 billion. How did the company determine which areas were strategic and which were not? Did the company expect that the layoffs might impact the morale and productivity of the remaining employees, especially those who worked closely with or depended on those who were laid off?

According to Adam Grant, one of the key principles of rethinking is to be open to feedback and criticism. Along with the positive attributes of a growth mindset, it also means being open to feedback, learning from mistakes, and trying new things without fear of failure. (See Grant’s interview on NPR: Why rethinking our ideas means we’re growing.)

Did the leadership teams at companies such as Microsoft follow this principle when they announced and executed the layoffs?

Employee experiences

I asked people recently laid off by the company to describe some of their experiences at Microsoft following their separation and was surprised in the responses...

Around 8% said that they had a positive (good or excellent) experience in applying for new roles, and more than half said the experience was lacking (poor or very poor). Similar results were found of their communication from recruiters, with slightly better results in the communications with hiring managers.

In some ways, there’s a lack of empathy and engagement in such layoffs, contrary to the principles espoused in a growth mindset culture.?Growth mindset also means being humble, respectful, and supportive of others (see Grant’s piece on A Key to Better Leadership: Confident Humility). It also means being open to diverse perspectives and seeking feedback. IMHO, some of the ways companies failed to demonstrate these values during the recent waves of layoffs are:

• A lack of vision and resolve when cutting key talent or projects that could have been vital for future success. (While a top-of-mind topic has been the programs that would have to be cut to balance the Federal budget it’s hard to know if the editing will leave valuable projects on the cutting room floor.) “Companies that tactically cut costs across the enterprise may achieve savings initially. Unfortunately, that success is often short-lived. A more strategic approach that incorporates driver-based decision-making and data analytics allows companies to be more targeted in where they invest and how they achieve value for the company.” (Gregg Clark on how cutting costs impacts brand – IndustryWeek.)
• Announcing the layoffs in a cold and impersonal way, without acknowledging the human impact or expressing gratitude for the contributions of the affected employees – and then not acknowledging it again. This lack of empathy, understanding, and compassion for employees illustrates how companies treat employees as disposable assets rather than valuable partners.
• Missing was the opportunity to keep from losing talent and resources. When faced with restructuring, leaders have a valuable opportunity to align skilled employees into new, important roles. While employees may be specialists in their roles, many people can morph to take on new opportunities and challenges. One former, long-time employee told me “the company could've proactively matched impacted staff with hiring managers with active openings. I imagine this task could have been automated, thereby preserving the multitude of resources required by recruiters and hiring mangers to find candidates while preserving trust and loyalty from those impacted. Find ways to slot (laid off) employees into existing roles, with streamlined, fast-tracked interviews and offers. No sense of urgency exists with hiring managers or groups looking to fill roles.”
• Ignoring or dismissing the feedback and concerns of the remaining employees, who felt betrayed, demoralized, and fearful for their own jobs as they struggled to pick up the pieces left behind by their departing peers. Such a lack of respect and trust for employees can equate to little value assigned to opinions and emotions. “I basically feel like Microsoft kicked me to the curb, and didn’t even get a ‘thank you’ for my many years of service to the company.”

In part two, I’ll take a look at the hidden costs across trust, employee engagement, and economic impact, and offer some thoughts on how companies like Microsoft can be more thoughtful and transparent in their layoffs, and help bolster employee wellbeing as a whole.

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