Best Practices for Layoffs

by francine Hardaway on January 19, 2009

What follows is a post I wrote during the dot-com meltdown. I think it’s as appropriate today as it was then, so I’m reprinting it since I couldn’t find it in the archives of my own blog. It was cached from the Noend Press, and I suspect it’s from before my blog, when I was only sending a weekly post out by email.

Unless you’ve been in a deep coma, you know that companies are beginning the inevitable rounds of layoffs that are “de rigeur” when you miss the whisper number or when your early stage company discovers it’s running out of cash. The way companies conduct these layoffs ranges from locking people out of their computers without notice to pre-announcing layoffs and allowing people to leave of their own accord. Because both my daughters live in the Bay area and call me daily to update me on layoffs, because I work with early stage companies, but mostly because I have laid people off before, I’ve come up with a set of “best practices,” which I feel are sorely needed, for laying people off.

1.) Remember you are dealing with human beings. You are not bringing a litter of unwanted kittens to the pound. Human beings have feelings. And most of them are trying to do their best, no matter how you, as a manager, view their performance. Their jobs are a large part of their lives, and layoffs are frightening.

a) Employees’ reactions to layoffs are all over the map. Although some may go postal, most will just go get drunk. Layoffs are not like firings, and a security guard is not necessary. Running around changing all the passwords in advance is cruel and rude.

b) Employees at early stage companies are risk tolerant. They know on some level that layoffs might occur, and they’ve made a choice to come on board anyway. This means that as a manager, you owe them a great deal of respect.

2.) Versata had an international conference call last week, and split the staff into two groups: one for the departing employees; one for the remaining employees. This is a good plan if everyone is not in one place, but in a small company it’s a better idea not to do this. It accentuates the “survivor’s guilt” for the people who stay, and deepens the shame for those who are laid off as they look at each other. Better to counsel the laid off employees out individually, with one-on-ones by the designated manager.

3.) Samantha (daughter #1) told me that one Bay area company laid off its entire marketing staff. This is unbelievably short-sighted, as the best way to finance a company during a down cycle is through customers. Building customer relationships, asking customers to pay in advance, and keeping existing customers are time-honored ways to reduce the impact of recessions. If you are brave enough to continue marketing (albeit with a limited budget), you will gain market share and presence as all the wimps cut their marketing staffs.

4.) Give employees time to plan. Pre-announce layoffs, as Fortune 500 companies regularly do. Don’t just call a meeting with no agenda, and when everyone shows up, lay them off and turn off their computers.

When I laid off most of my staff in 1990 during the real estate recession, I sat them down at a regular staff meeting, and said “guys, I can’t support this overhead anymore. There aren’t any clients out there. I’m going to have to downsize. Help me do it.” I offered to help them get other jobs, I gave them severance, I gave them advice, and I counseled them out slowly over a two-week period. Several of them are still my friends, because I explained carefully that it wasn’t them, and included them in my agony. I took a few people with me to a new office, and I spent hours explaining things to them, as well. It wasn’t fun, but at least they knew we were all in it together, and it was not a personal reflection on them — more like a personal failure of mine.

5.) Remember that the people who stay will feel worse for a long time than the people who leave. The people who leave immediately get wrapped up in a new job search, and get sympathy from friends and colleagues. They get to spread rumors about the company that make them feel better, too. The people who stay have to look at the empty desk of the girl they were sleeping with, the guy they did Happy Hour with, and all the others who were with the company when it was a success. New Economy companies, especially, tend to treat employees like family. When they lay off, it’s like disinheriting a child. The remaining employees are very scared that they’ve stayed with a failure.

6.) Over-communicate. Plan carefully in advance to have the correct communications tools and messages prepared: a press release, an investor relations piece, bullet points for the CEO. Release everything simultaneously, because five minutes after the layoffs, the press will know. So will the competition. So will the investors.

a) There are certain people who think they should know about your company. They feel like stakeholders, and should be treated like stakeholders. These people get antsy when they read about your layoffs in the newspapers. These people include your customers, vendors, suppliers, bankers. Make sure they are informed simultaneously with the press, employees, and investors.

7.) Over-plan. Inexperienced managers always think things should be done immediately. But a long-term strategic plan, complete with estimates of the feasibility of the new structure should precede layoffs. For example: how many customers will leave? How will that affect the revenue projections? How many key employees will bail after they see the layoffs?

8.) Don’t panic. This is a cycle. Perhaps you haven’t seen one before, but you’ll have plenty of time to learn about them, as they occur every 7-10 years, like the Bible says. Seven lean years. Whatever. If you’re healthy, you’ve nothing to fear.

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sukhjit January 19, 2009 at 8:59 pm

Francine, I would but a big star next to numbers 1 & 4.

This topic has been on the forefront of my mind lately. It comes at a time when I have had many (sometimes heated) conversations about layoffs and why they should be done humanely. To my surprise, startup/ web2.0 layoff culture has been shockingly brutal. Perhaps I am naive, but I expect a level of respect for good work. Respect that includes time to prepare for what is a major life change for many people, especially when you are a worker bee like me that puts heart and soul into your “job”.

I’ve worked in television for over 10 years and have had many shows end. Projects and productions come to an end, they just do. As the staff it’s your job to do your best till your last day of employment, then move on. When you know your show is going on hiatus and probably not getting renewed, you work hard till the last day of your employment but in the back of your mind you begin to look forward so you can figure out what’s next. You begin to budget differently, for a time you may not have work. In all my years in the workforce, I was afforded this respect … except for one time. And as grateful as I was and am for the job, I will never forgive my employer for giving me no notice whatsoever that the company was in enough jeopardy, that the job I was getting praise for on Friday would not exist by the end of Monday. When I think back, I feel saddened and hurt by the lack of respect. I’m sure it was not easy for the bosses to deliver bad news then deal with unhappy stockholders and investors. I appreciate that… but I do still get heavy hearted thinking about this. Stockholders and investors what you to make them money, as a business it is your obligation to do that. And, as I was informed, an employer has no legal obligation to give a employee anything when they lay them off. That’s fine, but in my mind, time to prepare doesn’t cost a thing.

Thank you for re sharing this blog post, Francine. I hope the CEO’s who find themselves in this terrible position will take a moment and consider the wisdom you’ve shared here. –sukhjit

Gordon January 20, 2009 at 2:37 pm

A good summary of bad and good, thanks

ruthseeley February 2, 2009 at 8:39 pm

This is an excellent guide to how to communicate layoff news. The one thing I’d add is that it can be fatal for an organizations to make a vague announcement about the need to reduce the size of its workforce. If the organization says things like, ‘we’re looking to downsize by 20% over the next three years’ without being any more specific than that – and without talking about the situation to employees first – it can end up losing all its best people. They’ll just pick up the phone and call their headhunters the minute they hear the word layoffs.

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