Lower-than-expected earnings reported by one publicly-traded company after another have led to a year of stock market dips, rolls and dives - with the accompanying assurances to Wall Street of future success through immediate layoffs. Layoff-based growth strategies create an odd paradox: The corporate layoffs almost always result in a decline in or disruption to employee morale, retention and productivity.
You might even be asking, "If layoffs help improve our stock position, why do I need to worry about anything else?" Perhaps you've not noticed the rather large, dark-gray cloud attached to that silver lining? Yes, we know only too well that "that's just the way it is" in a market driven by Wall Street analysts (have any of them ever created or actually run a company, I wonder?). So if layoffs are a standard reaction to the threat of a bear market, the next best thing is to be very mindful of the shadow-side and right ways of communicating in this reality.
The shadow-side of using layoffs for a short-term stock-price boost
Employee morale is as important as ever during a cost-cutting period because continued productivity is crucial. The expenses that proactive, preventive measures require - such as those associated with an effective leadership and communication program - can significantly offset the costs that a company incurs when employees get laid off and others flee the coop, resulting in lowered productivity. For example, if orientation and retention issues have carried high financial and cultural costs for a company, inspired leadership and high-quality communication prove a nominal expense to help decrease layoff-related costs, which otherwise threaten to increase when the company moves into expense-reduction mode.
USA Today reported plummeting morale as layoffs hit a slew of companies, and quoted Richard Chaifetz, CEO of ComPsych, a Chicago-based provider of services such as employee assistance programs, as saying, "We're seeing a strong increase in anxiety and stress? employees feel shell-shocked."
You can imagine what this does for morale and productivity, which research shows are related to higher levels of performance and lower levels of turnover. Why is this a problem after layoffs? A survey of 1,468 restructured companies by the Society for Human Resource Management reports that employee productivity either stayed the same or worsened after layoffs. So after several years of steep turnover rates, shaky morale levels, and reduced loyalty to the company (and that was in a bull market!), just imagine what this "same level or worse" productivity might look like. Not able to conjure this vision up? Here's a little help making the connection. Most company leaders see their layoff strategies playing out this way:
- Cut employees for a short-term stock boost,
- Follow layoffs (and hoped-for stock-price boost) with a high level of productivity for high sales leading to strong longer-term stock performance.
The key to making this myopic strategy work? Some seriously high morale and productivity from the remaining employees.
When a company halts leadership and communication initiatives at a time when they are most needed, as the above example illustrates, it only fuels the need to cut more costs. Similarly, when a company scales back marketing efforts to reduce expenses, it is actually reducing the number of opportunities it creates to reach out to potential customers, who bring in more revenue and decrease the need to slash areas of the business it once deemed important to develop. The grand irony? It' s a costly, vicious and unproductive cycle.
Practices that shed light on right communication
There' s no "right" answer or quick fix for every organization going through belt-tightening or restructuring. However, here are some tips that any company, during any stage of a business, can use to truly enhance the quality of organizational culture, interactions, morale, retention and productivity:
Increase efforts for inspired leadership and respectful communication: As explained above, one of the worst actions a company can take is to strip away the lifeline that most employees and leaders identify as important to them and the company: Communication, collaboration and vision.
Review and select resources smartly: Understanding that executives are pressured to cut costs, evaluate what' s most effective and which resources can suit the need. Did you know that consultants and advisors - mindfully and appropriately tapped - typically require less of an expense than hiring and training a new employee? Despite the Dilbert-esque caricature of doltish corporate employees and idiot consultants who loathe one another and get nothing done, savvy inhouse employees can work very effectively when assisted by respectful, sensitive consultants who offer much-needed outside perspective.
Reconnect and recommit to your vision, mission: No decision - especially as one as large as corporate layoffs - should be made devoid of the organization' s vision and mission. If you are able to make decisions without these guides, your company and/or its executive team are not committed to any vision or mission beyond short-term stock-price servitude. And you wonder why such a company has problems relying on solid retention, morale and productivity? This is not to say that companies with higher mission and visions don' t lay off employees. The measuring stick is whether they consult these values and beliefs when making and implementing decisions to reduce the size of the workforce. Executive teams planning layoffs, or implementing them if already announced, might do well to review their own public-relations literature to ensure that their actions are in sync with their hype.
Assess what' s working, reject what' s not: Before taking action, be certain your company knows - and understands - what practices and approaches are working toward the desired success of the business. Assess communication, team effectiveness, employee satisfaction, etc. The alternative: The company concentrates layoffs in one band of management, only to learn that the people in this ' strata' were the primary and preferred source of knowledge, information and inspiration to most employees.
Look to history - your company' s and other arenas - for guidance: Your company is not the first to cut costs or to lay off employees, and, in our culture, it won' t be the last. Pause long enough to learn how such efforts affected companies in the past (after several decades of such cycles, there's no shortage of case studies). What worked well for others in terms of leadership and employee communication, retention and morale, and in generating new business? Expand your thinking to include other historical events, such as effective leadership in ancient times, that can provide a broader perspective, a new way of seeing an issue and ways of presenting news that respects employees and the business' integrity.
Be honest: This might be the most often cited "qualification" listed in template leadership and communication programs: Be open and honest. However, the prevalence of this advice has almost weakened its power. Take a moment to truly reflect on this advice, its intention and the successful possibilities associated with it. Then consider the effects of being dishonest. Mistrust, employee turnover and bad press that cuts into consumer loyalty are known quantities, and they just scratch the surface.
Involve employees as best as possible: If employees feel that a change or transition has been decided and "dictated down" by the executive team, they understandably resent it and feel a loss of control, and hence, greater degrees of fear. These conditions make it incredibly difficult to create a productive, creative, innovative, efficient, and even remotely positive work environment during a transition. Some of the most effective case studies involve companies who presented the problem or need for cost-cutting to a team of "front-line" employees, who in turn came up with a solution that was superior to one that would have been made by executives alone. Which approach to problem-solving do you think remaining employees would feel the most loyalty toward?
Communicate, don' t dictate: Effective communication and inspired leadership - and the choice to maintain them - are shown in study after study to be key to the success of an organization' s transition (and ongoing performance, for that matter). But remember, the leadership and communication strategies must be effective. That means using approaches, vehicles and language that match the company' s culture and preferred modes of learning and sharing information. It also requires that all levels of management and employees interact with each other on a human level. Don' t dictate bad news via reams of rational information and cold-facts in a memo. Recognize that the employees doing the work of a company are people, not automatons or "units" on a spreadsheet.
Jamie Walters is the founder and Chief Vision & Strategy Officer at Ivy Sea, Inc. in San Francisco, CA.