Why using layoffs as a business tool is bad business.
Why using layoffs as a business tool is bad business.
What's important is to recognize that you have an obligation to people who've given a substantial portion of their lives to your business.
As you may be aware, we have recently ended a year that broke all records for downsizing. There were, in fact, almost three times as many "announced" layoffs in 2001 as there were in 2000, and the trend has continued in 2002.
No doubt some of those layoffs have been necessary. Without substantial payroll cuts, a lot of companies wouldn't be viable right now. But there's something else going on in the current round of downsizing that I find very troubling. The layoffs are happening too quietly. We don't see the kind of anguish and regret that used to be common. I get the feeling that many people (especially owners and top executives) have accepted periodic downsizing as a routine part of doing business.
It's an attitude I heard expressed a few months ago at a conference in Boston. I was sitting on a panel with the owner of a fast-growing inner-city business in the Midwest, and the subject of layoffs came up. They really weren't such a big deal, my fellow panelist said. A company needs them every now and then. It's a good way of clearing out the deadwood.
Now, I've never been accused of being a soft touch or a bleeding heart, but I have big problems with that view. For that matter, I also have problems with Jack Welch's system of "forced ranking," whereby a company regularly fires the 10% of its employees with the lowest performance-review scores. It seems to me that an employer's primary responsibility is to provide a stable work environment in which employees can earn a decent living and have an opportunity to improve their lives. Granted, it's a two-way street. Employees also have a responsibility -- namely, to do an honest day's work for an honest day's pay. They need to show up on time every day and do the best job they're capable of doing in whatever positions they have. But as long as they hold up their end of the bargain, they should be able to expect that the owners will hold up theirs.
Using layoffs as a business tool is, by definition, a failure of responsibility on the part of owners. It's also grossly unfair to the people who lose their jobs, and a company needs to be fair with its employees -- not just for humanitarian reasons but for business reasons as well. Why? Because you can't have high productivity without good morale, and you can't have good morale unless people have confidence that the company is going to treat them fairly. That doesn't mean the company will always do what they want. But employees need to know that the owners respect and value their contributions.
Let's face it, businesses are built on the backs of their employees. The benefits that you, as an owner, get out of the company are to a large extent the result of what your employees do. They've given you a piece of their lives. The bigger the piece, the more you owe them.
Let me tell you about a former employee of mine whom I'll call Arthur. He'd been with me since the early days of the business. Although he wasn't the most gifted or versatile guy around, he was honest, loyal, and hardworking. Year after year, he came in every day and did his best for the company. At a certain point I realized that Arthur's job was in jeopardy. We'd put him in charge of figuring out the prices to charge in our delivery business, which varied according to the customer, the distance, the service level, the number of pieces, the weight, and so on. In the early days of the business, the calculations had to be done manually, but by the mid 1980s industry-specific software was becoming available that would render Arthur's function obsolete.
I discussed the problem with my managers. They agreed that we had to find something else for Arthur to do, and they tried him out in a few other positions. He couldn't handle any of them. "OK," I said, "if we really don't have a place for him, we should sit him down and tell him the truth. He needs to start looking for another job."
"No, no, no," people said. "We love him. He's such a great guy to have around. We'll hold off on the technology and keep him in his old job for now. Maybe another position will open up in the future."
"I think that's a mistake," I said, "but go ahead."
Five or six years went by, and I more or less let events take their course. We eventually brought in the new technology and moved Arthur into another job, then another, and another. Everywhere he went there were problems. The managers covered for him as long as they could, but they finally came to me and said they'd had enough. It just wasn't working out. Arthur had to go.
"Wait a minute," I said. "This guy has been here for 12 years now. That's a major portion of his adult life. You can't just tell him 'Thanks and so long.' " The managers agreed that it was unfair, but they'd run out of ideas for keeping Arthur gainfully employed.
As it turned out, there really wasn't a job for him in the company -- at least, not at the salary we were paying him. We'd fallen into a classic business trap. Like most companies, we give our employees raises every year. Those raises add up over time. In this case, we'd wound up paying Arthur so much that we couldn't afford to employ him anymore. His salary was too high to put him in a job for which he was qualified, and he wasn't able to do the work required in the positions that paid what he was making.
One possibility, I suppose, might have been to give him the option of taking a lower-paying job, but that never turns out well, in my experience. Cutting someone's pay is like firing the person without giving him or her the opportunity to have closure. People are better off getting a fresh start in an entirely different environment. In any case, it was clear that Arthur had no future in our company. He'd become what the panelist in Boston would have considered "deadwood" -- and therefore a prime candidate for being cleared out in a round of layoffs.
The important point, however, was that he'd ended up in that situation not because of his mistakes but because of ours. For 12 years Arthur had tried as hard as he could to serve the company in every position he had held. He hadn't always had the skills he needed to do a great job, but he'd never failed to give it his best shot.
We were the ones who'd screwed up by keeping him on when we knew his job was becoming obsolete and we didn't have anything else for him to do. We were the ones who continued giving him annual raises without thinking about the consequences. We were the ones who'd encouraged him to believe he had a long-term future with the company even though it should have been clear that he didn't. So I found myself torn between conflicting responsibilities. I couldn't keep employing someone who didn't have a real job in the company. That wouldn't have been fair to him or to us. Then again, I couldn't just put Arthur out on the street after 12 years.
In the end, I came up with a compromise. When I sat down with Arthur, I told him we'd reached the end of the line. His old job didn't exist anymore, owing to technological advances, and there wasn't another position in the company that was good for him and good for us. "You're going to have to look for a job somewhere else," I said, "but you're a longtime, valued employee, so we're going to help you. We'll keep paying your weekly salary for an extended period of time until you find something."
It took Arthur about eight months to land his next job, and he continued receiving a paycheck until then. Evidently, he was satisfied with the way things worked out. He still drops by to say hello from time to time.
I'm not suggesting that faced with a similar problem, every owner should do what I did. Some people can't afford to. Others may have better ideas for dealing with such dilemmas. What's important is to recognize that you have an obligation to people who've given a substantial portion of their lives to your business.
Yes, there may be times when business conditions force you to have a layoff, but that should be the last option you turn to, and -- for your sake and your company's -- you should never let it become routine. Clearing people out like deadwood is the worst way I can think of to run a business.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc 100 company and a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts.
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