Layoffs Are Back: Q&A with Marty and Em

Episode #198 Layoffs Are Back: Q&A with Marty and Em

It’s interesting how quickly things change. The Great Resignation is in full swing, and this is causing a shortage of people in the labor market… which in turn is pushing up wages… which is increasing the cost of doing business. From the other side, the squeeze is coming in the form of higher inflation, leading to higher input costs… which prompts companies to raise their prices… which leads to reduced demand for their products and services.

Now, these two forces are making it harder for companies to remain profitable, and so, the cost cutting begins. Big tech companies like Netflix, Carvana, better.com, Peloton and even the weight loss app company Noom are laying off staff in their thousands as growth slows.

Reality returns as people realize that even market darlings like these companies need to manage their businesses to ensure they’re stable, profitable, and sustainable. But somewhere down the line, this affects people’s lives. Those who are laid off and those leaders whose accountability it is to do the laying off can be significantly affected by the experience.

I’m going to examine this from both sides and share some ideas for how to handle it if you do happen to find yourself on either side of a layoff conversation. It seems that every second day, there’s a new article online that talks to mass layoffs. Which begs the question:

What the hell is going on?

Apart from the factors I’ve mentioned in the introduction, there are some really interesting post-pandemic dynamics at play. If you look at a company like Peloton, it’s leading edge combination of a physical station – a cycling machine – with tech driven features such as comprehensive data collection (complete with competitive leaderboards and rankings), video streaming, live and on demand classes, and some of the most breathtaking scenery in the world delivered right to your home. It was a huge winner during COVID. But now, people are back out in the world doing the real thing. Peloton’s awesome – but it’s not as good as the real thing. Demand has simply reduced. Their market capitalization is now almost 90 percent lower than it was during the pandemic. So of course, Peloton recently announced the layoff of around 20 percent of its workforce – that’s almost 3000 people.

Not all the layoffs are coming from the post COVID hangover

This is another trend we’re seeing as a result of current business conditions. Tech stocks have been falling for a while, and investors now have much less patience for companies that focus on blue sky more than they do on shareholder dividends. What it looks like from my vantage point is that better.com was just poorly managed. They invested way too much ahead of the growth in revenue. They put too many people into their workforce ahead of the demand, and now they’ve had to rebalance it to a more appropriate level in light of a slight market downturn. But how they did this is an awesome story – it’s just a classic example of how not to do layoffs.

GET THE COMMUNICATION RIGHT

The CEO of better.com sacked about 900 hundred people on a Zoom call, and he made a lot of really fundamental mistakes in how he executed this decision:

1. He did it by zoom and it was recorded

I’m a massive believer in the fact that anytime you put something into the public domain in your workforce, it doesn’t matter what you say about confidentiality, it will leak. You have to expect that it will leak. So you don’t put anything out in an email or a company missive, unless you expect it to turn up on the front page of the Wall Street Journal. I think these videos took about three and a half minutes to leak to the media.

2. He showed some remorse and took some of the blame, but he also made it all about himself

He spoke about how hard it was for him and that the last time he laid off people, he cried. I suppose he was trying to seem more human and compassionate, but that just made him seem like he was disconnected and not in touch with his people.

3. He made contradictory comments in other speeches to his staff (which, of course, were also leaked) 

He said that many of the people who were made redundant were lazy and stupid, and they’d stolen from the company because they didn’t produce the work that they were paid to produce. This is a classic rookie error of confusing redundancies and layoffs, with dismissal for cause as a result of non-performance. Those are two completely different things that have to be handled very differently.

4. better.com took more than one bite at that cherry.

I firmly believe that if you have to do layoffs, you take one crack at it. You do it all in one go, and you say to people, “That’s it, it’s all done. The pain is over. Nothing to see here, let’s get on with it.” When you chip away and you do 1,000 here and 500 there – eventually better.com got to 4,000 – everyone’s sleeping with one eye open. Their mornings are all spent on online job-boards looking for their next job. They are really nervous about when the axe is going to fall on them. You have to be really careful of the dynamic that sets up.

All in all, a disastrous outing for that CEO.

What should he have done differently?

First of all, my view is that for anything significant, such as telling someone they no longer have a job –  whether that’s for redundancy or performance reasons – they should hear that from their direct manager. It’s the only decent thing to do because the direct manager is their organizational touchpoint. It takes a lot more work and planning, but it’s worth it to know that the people who are affected are given the opportunity to talk to someone that they at least have a relationship with.

There was another example in Australia several years ago. Over 500 power plant workers in a remote town in Victoria, were notified via text message that the plant they’d worked in all their life would be closing within a few months, and they’d all be losing their jobs. Really?

This is what happens when you let lawyers and corporate affairs people drive the process. Of course, all due respect to lawyers and corporate affairs people, they have a role to play.  But they’re conservative by nature. They value the consistency and ease of execution in being able to notify everyone at the same time above the care for the individual – and this can actually result in some pretty perverse outcomes.

You may recall the movie, Up In the Air. George Clooney’s character would fly around the country, terminating his client’s employees. Sure, he was an expert in the contractual side of the experience, but it was awful to see the look on people’s faces as the implications of the news sunk in, and on the other side of the table from them? A complete stranger with zero empathy.

Benefits of notifying everyone at once

If you’re doing mass layoffs, there’s value in notifying everyone at the same time with the same message: it’s certainly faster than going one-by-one. I’m often asked if the potential for receiving a diluted message, or hearing via gossip on the grapevine makes a mass notification more compassionate.

Like all communication there’s value in the consistency of message. But people want to know what it means for them individually, and they want to have the opportunity to ask questions to get a better understanding of that. Group broadcasts are pretty impersonal and people absolutely won’t feel valued if that’s how they’re told.

I would always plan the communication to make sure it was layered. What I mean by that is, with anything really significant, there’s probably a need for a general high level announcement to the whole organization about what’s happening and why. Then the communication cascades through the layers, and each leader in each layer is briefed on the specific messages that she has to give to her team.

For individually significant events like layoffs, the direct manager should be having any one-on-one conversations with the affected individuals. This is important so that the organization gives each individual the respect and courtesy that they’re due. It doesn’t have to take forever. If you plan this well, you can plan it to be done within a 24 to 48 hour period because no single manager has a span of control that’s too big to do that. But many leaders simply can’t bring themselves to do it and they try to shirk their responsibilities, particularly in larger organizations where HR is expected to step into the breach and do the work of the line leaders.

GET THE PROCESS RIGHT

My first redundancy experience was a double whammy. It was almost 20 years ago with a mining company I worked for in Australia. The company was the target of a semi-hostile takeover. My fate was sealed early–they said to me, “Look, we’ve got a Chief Information Officer in London. We don’t need another here in Australia, so you’re out of a job.” That was fine. I understood that, and it was good.

But then I signed up to actually help with the transition and the integration of the two companies. And when it came to that, I insisted on giving the news of redundancy to every single employee in my group. The interesting thing is we feel as though people are going to be upset when they’re made redundant, but I had just as many people who are upset because they weren’t made redundant. Isn’t that crazy?

But some people know they can get a job next week. So the opportunity to get a large payout from redundancy is like it’s a wealth creator. I had a number of people who said, “Please make me redundant. I know I can get another job. I’m really good at what I do, and I’d love to bank that cash!”

How do you decide who to lay off?

This is an interesting question, because redundancy and layoffs are specific to the position, not necessarily to a specific individual. For example, if there’s an excess of roles in the workforce some have to be removed. Or maybe it’s a restructure as a result of a merger / acquisition. Just like my experience, you don’t need two CFOs, you don’t need two full procurement teams. The economies of scale are actually baked into those takeover assumptions.

These types of layoffs are not supposed to be performance-based, but they always are – at least to some extent. There could be for example, multiple roles that are the same, or at least very similar. So you have to work out which of the individuals populating those roles you would prefer to lose. The rule of thumb is if you have to do this, determine the key roles and determine your key people who you want to keep under any circumstances, and make sure that none of those are caught in the friendly fire. You want them to have a seat when the music stops.

What are the rules of thumb for laying off people?

Without going into too much detail on any particular one, there are just some really good principles that you need to observe:

1. Don’t ever make the redundancies voluntary 

You’ll run into the problem where the people you’re going to lose are the ones who know that they can get employed really easily. They’ll take the money and they’ll go to another organization – and you will be left with those people who know they can’t easily get another job because they’re not that good at what they do. You might be able to get that cost cutting in place, and the market might even reward you for that by seeing you cut your costs, but you will have a lower average capability in your workforce.

2. It should be done by the manager who actually leads the person involved. 

You need to do it in the line, not through HR. Any Game of Thrones fan would know there’s a quote from Ned Stark: “He who passes the sentence should swing the sword.” It is visual, but it’s really important that we think about that and take on our duty of care and responsibility as a leader.

3. Don’t mix redundancy with dismissal for cause

When making someone redundant or laying them off as part of a general cost cutting exercise, do not talk about performance. It’s only about the position that needs to be removed. Even if there’s a performance element behind it, you can’t muddy the waters by talking about the two things because that will be confusing.

4. Don’t be overly apologetic

Quite often I’ll hear leaders say things like, “I’m so sorry. I know it’s really bad. We shouldn’t have done this to you. You’re such a good person.” Don’t do that. Don’t grovel. It’s part of life, and it’s part of business. Yes, show empathy. Yes, show compassion for their situation. But don’t be overly apologetic – you’ll just look weak, and people may think they have a justifiable cause for being victimized and targeted.

5. Don’t blame the leaders above you

Don’t don’t go in there and say, “Look, Marty. You know I would absolutely keep you, but I’ve been forced to lay you off because those bastards above me have just told me that I have to let you go.” Don’t take yourself out of the situation, own it and take on your accountability as a leader, because you will have had something to do with it in terms of who you’ve chosen to go from your team.

6. Be really clear about process and entitlements

In other words, give them the next steps. Let them know:

• What they’re entitled to under their employment contract in the terms of separation benefits

• What they can expect going forward

• What the company is going to do to help them

• What the timing looks like.

You need to have all of that done. Make sure that you can articulate those things and they understand it. It’s also good to have something in writing to support that because the minute you say, “Your role is being made redundant”, they won’t hear another word that comes out of your mouth. Give them something to take away that summarizes the process and their entitlements.

7. If possible, demonstrate support for each individual’s transition

Understanding their particular circumstances is good. This is why a faceless HR person can’t do it. You need to have a line leader with a relationship to say, “I know what this means to you. Let’s talk through how you are going to handle it.”

8. Don’t talk about yourself. 

Don’t make it about you, like our CEO at better.com: “I’m so sad. I’ve had to do this before and it made me cry.” No one cares. It’s their life you’re affecting and you are making the call. So don’t talk about yourself and don’t make it about you.

Should I give them something in writing? 

You can do it either way. I prefer to have something in my hand in writing when I have the conversation, because you don’t know what a person’s going to do when they leave the room. They may not necessarily go back and read their email straight away. It’s a very emotional thing for them. They may not hear any of the details that you speak about so they can walk out of the room and they’ve got something in their hand to read.

The first thing they might do is leave the room, go downstairs and call their husband. And if they’re going to do that, they need to have something – they’ll get a hundred questions. They need to know how to answer those. It just gives them something tangible, straight away that they can lean on and rely upon that tells them what’s going to happen to them.

GET THE LEGALITIES RIGHT

When it comes to letting people go, especially in public service roles, it may be more difficult to remove people through either layoffs or underperformance. Knowing what boxes to check so that you don’t fall foul of the process is important, especially if you don;t have HR support on hand.

Obviously I would always recommend getting professional advice, but believe it or not, it’s actually a lot easier if you don’t have an HR or legal department because you’re not getting caught up in the bureaucracy. It probably means you’re in a smaller company and you have more flexibility. You do need to understand workplace relations law, but it’s more friendly to the company if you’re in a smaller business, it’s not as bureaucratic.

In Australia, companies with less than 15 employees are classified as small businesses, so if you’re in a startup or an entrepreneurial venture, then you have much more freedom to do what the business needs as opposed to being caught up in red tape.

But I do have a couple of rules to work your way through, and to think about so you’re not tripping over any of the legislation or regulations:

1. Follow any applicable legislation in your country or state

You cannot compromise that. You need to know what that is, and that’s where expert opinion comes in handy. Laying off people in France or Japan is much harder than laying off people in the US.

2. Make sure you follow any company policies that have been approved by the Executive or board and that you’ve made available to your people

If you’ve laid down some ground rules for how these things are going to work, you can’t change the rules of the game halfway through.

3. Make sure you don’t do anything that contravenes an employment agreement

Whether it’s a person’s individual employment contract or a broader industrial agreement that’s been negotiated with the unions on behalf of the employees.

4. Don’t do anything that the senior leadership of the organization doesn’t endorse in principle

Often CEOs and leadership teams simply don’t have the appetite for making the changes that will improve organizational performance. That’s exactly what this question homes in on. I think the thing with organizations such as government organizations, sometimes not for profits, they simply don’t have the appetite to do the work and saying that the process is too hard is their excuse that lets them get out of it. It’s just a rationalization. Legally, there’s no reason why you can’t do this anywhere.

There’s probably just one thing that supersedes all of these rules about technicalities and process: make sure you are leading with integrity. Don’t do anything to your people that’s unfair or dishonest, and by the same token, don’t hide behind the excuses that you can’t do anything because the process is too difficult or time consuming.

EXIT GRACEFULLY

Tips if you are the one being laid off

It can be quite an emotional time – and sometimes you don’t realize that until you actually get through the process. When I was first laid off, 20-odd years ago, I was super happy about it because I was one of those guys who thought, “Great! New opportunities! I’m freed up to go and take on the next big adventure and they’re going to pay me a bucket of money to go and do it!” So even though I loved that,  once I was released, the toll of it emotionally was quite surprising.

For example, I couldn’t get a postpaid mobile phone plan because at all of the big telcos, they said to me, “Well, hang on, you’re not employed. I can’t give it to you.” It didn’t matter how many zeros were in my bank account since leaving the job. Their online form says “current employer”, and if you can’t fill that in, they say, “Well, we’ll give you prepaid because we don’t trust you to pay your bill.” It’s little things like that where you just don’t anticipate it will be a little bit harder.

But as I said, don’t take it personally. It’s part of business. It will happen to you once or twice and you need to learn from the experience. Just remember one thing: it’s very rare that a company will let their best employees go. Unless of course you’re the casualty of the sort of mayhem caused by a takeover – obviously that consolidation will spit out a number of roles. But most organizations think carefully about who goes during these processes. If you’ve been let go, it may mean – and just consider this – it may mean that you are not their favorite child. So have a think about what you can do to shore up your position so that the next time it happens, it won’t be you if you don’t want it to be.

If you are the one being laid off, focus on the benefits:

• You’ll have lump sum payouts,

• You’ll have gardening leave,

• You might have career transition plans or training.

A lot of organizations will give you some great benefits, which are of high value in any context. And it’s really all about mindset: this is what’s going to free you up for your next great opportunity.

When I used to run with a group of guys, we had this expression FLAP – it was an acronym for Finish Like A Pro. If you’re running a marathon, it doesn’t matter how ugly kilometer 32 to 36 looks like, when you come into that last half a kilometer, you lift your head, you puff out your chest, you lengthen your stride and you look like a pro when you cross that finish line. So we had the expression: finish like a pro. In this context, regardless of what’s happened, if you are being let go, don’t play the victim. Maintain your integrity and deliver value right up until the end – even if the people who made you redundant didn’t do a good job of that.

On your last day, you want everyone to look at each other and say, “Holy sh!t. Why did we let Marty go? He is awesome. I mean, really? Was he the one that had to go through this set of layoffs? I can’t believe it!” That’s what you want. And you want to leave people with that impression because you finished like a pro, so FLAP! It’s what a true no bullish!t leader would do.

Want to know more about how you can finish like a pro? Listen to Episode #184: Exiting Gracefully and Asking For More