Layoffs Speak to Senior Management Failure

“Mom Theresa’s joined the mob and happy with her full-time job.”-Primitive Radio Gods

A COMPANY I USED TO WORK for recently announced it was laying off thousands of people from an assortment of departments in its headquarters, including a few hundred from the IT department, and more from plants and various other facilities around the world. The local news programs ran footage of employees carrying boxes of their personal belongings through the parking lot, some acceding to inane and tearful interviews. When one husband and wife (both of whom had been laid off) were asked by a reporter how they felt, I had to turn the television off.

My dad spent most of his years working in aerospace, a heavily unionized, stunningly inefficient industry that is no stranger to layoffs. The cycles of war and peace, combined with arcane and inflexible work rules forbidding personnel reassignment or the restructuring of responsibilities, made periodic layoffs a fact of life. Few of the large companies that are currently downsizing, particularly those in high-tech, have unions of any kind. (See “IT Workers of the World: Are They Uniting?” Page 134.) There are few, if any, restrictions on management regarding reallocation of personnel, salary or benefit adjustments, or a whole universe of other cost-cutting measures, and yet these managers see fit to shed the intellectual assets of the company.

As far as I’m concerned, a layoff is the most glaringly obvious example of senior management malpractice, and yet I can think of few examples when a CEO has been called to account. On the contrary, most are lauded for their willingness to take bold action and awarded an increase in their stock price by Wall Street (for a day or two) in anticipation of a turnaround.

This is completely nuts, and here’s why. When top management decides to lay off a significant number of people, it’s because of one of three things: There’s a downturn in demand for their product that they’ve failed to anticipate and adjust for in a constructive way; they’ve been employing a large number of people who they really didn’t need; or they’ve run the company into the ground and have gone out of business. Under which of these circumstances, exactly, do we in senior management deserve to keep our jobs?

I have stayed pretty close to some of the people I left behind at my old company, and as much as we try to avoid it, conversations eventually drift back toward work. Like it or not, I’m pretty well up to speed on what’s been going on there. For instance, I know that the senior team, tired of their long commute to the wrong side of the tracks, leased very fancy, very expensive offices within spitting distance of the highly polished neighborhood they all happen to live in. I also know that they’ve cut departmental travel budgets but kept their executive jets.

That senior management gets away with this malfeasance speaks volumes about what drives short-term decision making in public companies and investors’ glaring underestimation of the value of human capital. For the past three or four years, the business planning and budgeting process of this company would begin and end with the precise profit-growth number the company needed to support its stock’s hyperinflated P/E ratio. All subsequent planning went from there. Every other revenue and expense number, including R&D investments in new product development and strategic IT systems development, was simply a shrinking derivative of the current year’s profit-growth requirement, without regard to its likely impact on profitability and competitiveness in the years ahead. In each budget cycle, the law of big numbers increased the degree of difficulty in maintaining growth percentages, and they began “burning the furniture,” so to speak, earlier and earlier in each cycle until the budget year arrived (this one) when there was no furniture left to burn, only people. Changes in flow cause changes in pressure.

The executives also get away with it because, in form and function, top management is not unlike other secret societies. Now, most secret societies (by virtue of the fact that we know of them) are not entirely secret. Some, like the Secret Service, stand out just because of the way they dress and carry themselves. I’d compare most management teams to an organization like the Masons, a secret society whose members put decals on their cars and wear special jewelry. As with all such groups, when senior staff are ensconced in their meeting rooms, no one knows precisely what it is they’re up to or what rituals take place, but neither do they, most of the time–something that becomes apparent to outsiders only after it’s too late.

Two hundred IT people got laid off. Investors, whose irrational first impulse is to laud management and run up the stock, should instead consider what just really happened. Management has, conservatively speaking, just taken 600 years of unique, specialized and expensively trained expertise and simply set it out on the curb to be picked up by any real or wannabe competitor that happens along. In many cases, released IT technical staff will have to be brought back under contract at a cost three times higher than when they were regular employees. (One unfortunate byproduct of all this is that it will result in a huge increase in the use of contractors, who by virtue of their status as mercenaries can be laid off without guilt and without even characterizing it as a layoff.)

Investors should know that during the next year, there will be 384,000 fewer hours spent at this company implementing and supporting systems that facilitate new products and services going to market; systems that would have improved customer service, competitiveness and worker productivity. For the foreseeable future, the company will suffer from the psychological damage to those who kept their jobs. The damage will be profound, the resultant effect to productivity measurable and the pretense of loyalty–in both directions–shattered.

Investors should consider all the things that won’t be getting done this year and who they have to thank for that.

Even if we were to give management a pass and say that the current round of layoffs was inevitable, then the question becomes, How will the cost cutting be managed to minimize the severity of the layoffs? Where layoffs do occur, how will they be handled? What provisions will be made to allow loyal employees as much dignity as possible and as little disruption to their families’ financial and emotional well-being? With how much humanity will the people who are not responsible, but who must suffer the layoffs anyway, be treated?

Based on what I’ve heard about how this particular company handled things, I’d give it a 5 on a humanity scale of 10. The criteria for dismissal amounted to a popularity contest judged by individual managers, with no time or mechanism for review or appeal. Surprised victims were given two months’ salary and a box to put their belongings in, and shown the door. Sad.

To those of you who have been laid off recently, let me just say this: You should take it on faith that you are in no way responsible for this temporary interruption in your career. It is true that personal and financial success is, in the long run, the result of how hard you work and how doggedly persistent you are, but it is also, in a very perverse way, a matter of grace. That is, when all is said and done, it is simply impossible to construct the higher parts of your destiny. This is important to remember, even when dealing with life’s simpler challenges.

Some years back, someone told me that if you’re ever let go from a company, you should always steal something on the way out the door. Not a Clinton-size, “wouldn’t this end table look great in Chappaqua” kind of theft, just something small and insignificant like a pencil or a stapler. Just something to say, “In the end, I got the better of this situation.”

I recommend the Swingline over the Boston stapler.