A Guide to Being Compassionate During Layoffs

A Guide to Being Compassionate During Layoffs

A Guide to Being Compassionate During Layoffs

Kenneth W. Freeman

FEBRUARY 25, 2016

Far too often, leaders who are closing or shrinking an operation take the old tough guy approach. They make the hard decision, move swiftly to reap the maximum savings, and do whatever they can to please Wall Street. But in my more than 40 years in industry, much of it in turnaround situations, I have become convinced that the tough guy approach makes no sense. It can alienate surviving employees, anger customers and suppliers, and destroy shareholder value. Leaders can avoid, or at least greatly minimize, these repercussions by taking what I call a “soft hands” approach, treating important constituents with consideration and compassion. It consists of four essential principles that may appear obvious and commonsensical but are often ignored.

Treat employees with dignity, fairness, and respect.

Address “What does it mean for me?” Tell them why they’re losing their jobs, whether it’s because of a drop in demand, changes in technology, or productivity and quality issues. Explain how the closure will affect them in terms of timing and severance benefits. Tell them what you will do to help them land on their feet, and what you will need from them to help customers through the transition.

Communicate until it hurts. Keep people constantly informed all along the way. Counter the rumor mill with frequent town meetings and forthrightly tell people the truth. Be sensitive to language barriers. When I was at Kohlberg Kravis Roberts, I was responsible for helping to improve the performance of a number of companies in KKR’s portfolio. One of them, Accellent, a supplier of precision components for medical devices, had to close a plant in Memphis, Tennessee, in 2008. Many of its employees were Vietnamese and didn’t speak English. So we brought in translators to ensure that they understood our communications.

Be visible and personal. A closure or a downsizing is not an excuse for leaders to go into hiding. If the operation being closed or downsized is large or historically important to the company, the CEO should make at least one visit. Other executives — the division manager or the head of the business unit — should be visible from beginning to end.

Set the tone. The leader should take personal responsibility for the organization’s behavior. While I was CEO of Quest Diagnostics, we acquired SmithKline Beecham Clinical Laboratories (SBCL). At the outset of the integration, I told everyone at both companies, “Yes, there are going to be layoffs, but we’re going to treat everybody — I mean everybody — with dignity, fairness, and respect.” I made it clear to the organization, which was not used to a soft-hands approach, that I was taking it really seriously.

Don’t summarily throw people out into the street. I cringe whenever I see newspaper photos of newly laid-off employees toting boxes of their personal belongings as they’re being escorted off the premises of some company. Concerns about sensitive information are often used as an excuse for such behavior. I don’t buy it. You can protect information and treat people humanely at the same time.

Treat everyone equitably. Who stays and who goes should be decided on an objective basis. When Quest Diagnostics and SBCL joined together I put the top layers of both companies — more than 200 people — through an evaluation process, including an externally conducted assessment of their leadership skills and behaviors. As you might expect, about half of the senior leaders I chose came from Quest Diagnostics and about half from SBCL.

Help people find jobs. If conditions warrant, consider affected employees for opportunities at other locations in your company or offer them contract work. At the very least, hold job fairs, help them write effective résumés, and teach them how to leverage their personal networks.

Treat your customers and suppliers like valued partners during the shutdown process, and they will stick with you.

Make sure they’re informed and consider their needs. Before announcing a closure, tell your customers of your intentions and your desire to work out a solution that serves everyone’s interests. In some cases, that might mean keeping an operation open longer than you initially wanted. The higher cost of putting off a closure by a week or even several months may be more than offset by the future business your company gains from an appreciative customer.

Don’t reduce the focus on quality. This is one more reason to treat employees of an operation that’s being phased out with respect; you don’t want disintegrating morale to take a toll on quality.

Work with suppliers to ensure that service and product quality are sustained. Like customers, important suppliers should be treated as partners and be told in advance where you’re heading and why. Then hammer out a joint plan with them.

Manage the closure or layoff like a project.

Appoint an experienced, full-time project leader and a strong team. The project leader should have sufficient experience, authority, and credibility in the organization to address the interests of all constituents. And that leader should assemble a team of people with the special expertise that’s required — not just technical skills but also product knowledge, customer sensitivity, disciplined focus, and strong people skills.

Use the techniques of conventional project management. Define stages from the planning phase through the closure; assign clear responsibilities; establish criteria that must be met to get to the next stage; and conduct regular reviews involving senior leaders.

Use judgment and, if necessary, fight back.

If a customer repeatedly asks you to postpone a closing, you will ultimately have to decide when you’ve gone far enough. At the same time, resist those who would have you go so fast that the wheels fall off.

After the merger of Quest Diagnostics and SBCL, I had to stand up to Wall Street. Analysts told me, “You’ve got to go very fast, Ken, and get those synergies right away. Just get it done.”

I said, “No, we need to have a sustainable business when we’re through. We’ll get the synergies, but it’s not going to happen in three months, because we’re going to proceed in a deliberate manner, making sure that we take care of our customers and our employees.” In the end, the integration took almost three years, and we created much more value than if we’d done it the old-fashioned way.