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Downsizing With Dignity

You Can Downsize With Care - for People and the Business
Executive Summary

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Downsizing or doing layoffs is a toxic solution. Used sparingly and with planning downsizing can be an organizational lifesaver, but when layoffs are used repeatedly without a thoughtful strategy, downsizing can destroy an organization's effectiveness. How you treat people really matters - to the people who leave and the people who remain. One outcome of downsizing must be to preserve the organization's intellectual capital. How downsized employees are treated directly affects the morale and retention of valued, high-performing employees who are not downsized. Downsizing should never be used as a communication to financial centers or investors of the new mana gement's tough-minded, nononsense style of management -- the cost of downsizing far outweighs any benefits thus gained.


Make no mistake: downsizing is extremely difficult. It taxes all of a management team's resources, including both business acumen and humanity. No one looks forward to downsizing. Perhaps this is why so many otherwise first-rate executives downsize so poorly. They ignore all the signs pointing to a layoff until it's too late to plan adequately; then action must be taken immediately to reduce the financial drain of excess staff. The extremely difficult decisions of who must be laid off, how much notice they will be given, the amount of severance pay, and how far the company will go to help the laid-off employee find another job are given less than adequate attention. These are critical decisions that have as much to do with the future of the organization as they do with the future of the laid-off employees. So what happens? These decisions are handed to the legal department, whose primary objective is to reduce the risk of litigation, not to protect the morale and intellectual capital of the organization. Consequently downsizing is often executed with a brisk, compassionless efficiency that leaves laid-off employees angry and surviving employees feeling helpless and demotivated. Helplessness is the enemy of high achievement. It produces a work environment of withdrawal, risk-averse decisions, severely impaired morale, and excessive blaming. All of these put a stranglehold upon an organization that now desperately needs to excel.

Avoiding the Pitfalls of Downsizing

Ineffective methods of downsizing abound. Downsizing malpractices such as those that follow are common; they are also inefficient and very dangerous.
Allowing Legal Concerns to Design the Layoff

Most corporate attorneys will advise laying off employees on a last-hired, first-fired basis across all departments. The method for downsizing that is most clearly defensible in a court of law, for example, is to lay off 10 percent of employees across all departments on a seniorityonly basis. This way no employee can claim that he or she was dismissed for discriminatory reasons. Furthermore, attorneys advise against saying anything more than what's absolutely necessary to either the departing employees or the survivors. This caution is designed to protect the company from making any implied or explicit promises that aren't then kept. By strictly scripting what is said about the layoffs, the company is protecting itself from verbal slips by managers who are themselves stressed at having to release valued employees. This approach may succeed from a legal perspective, but not necessarily from the larger and more important concern of organizational health. First, laying off employees by a flat percentage across different departments is irrational. How can it be that accounting can cope with the same proportion of fewer employees as human resources? Could it be that one department can be externalized and the other left intact? The decision of how many employees to lay off from each department should be based on an analysis of business needs, not an arbitrary statistic. The concept of laying off employees strictly on the basis of seniority is also irrational. The choice of employees for a layoff should be based on a redistribution of the work, not the date the individual employee was hired. Sometimes an employee of 18 months has a skill far more valuable than one with 18 years' seniority. See More Pitfalls of Downsizing --------------------------------------------------------------------------------Alan Downs is a management psychologist and consultant who specializes in strategic human resources planning and helping business executives reach their maximum potential. He has authored several books, including AMACOM's Corporate Executions (1995), the muchacclaimed expose on downsizing, The Seven Miracles of Management (Prentice Hall,1998), and The Fearless Executive (AMACOM 2000). Downs is widely sought for interviews by newspaper, TV, and radio broadcasts. He has also written on management topics for numerous national newspapers and trade publications, including Management Review and Across the Board.
Give as Little Notice as Possible

Out of fear and guilt many executives choose to give employees as little forewarning as possible about an upcoming layoff or downsizing. Managers fear that if employees know their fate ahead of time, they might become demoralized and unproductive -- they may even

sabotage the business. However, there is no documented evidence that advance notice of a layoff increases the incidence of employee sabotage. The lack of advance notice about downsizing, however, does dramatically increase mistrust of management among surviving workers. Trust is based on mutual respect. When employees discover what has been brewing without their knowledge or input (and they will when the first person is let go), they see a blatant disrespect for their integrity, destroying trust. By not giving employees information that could be enormously helpful to them in planning their own lives, management initiates a cycle of mistrust and helplessness that can be very destructive and require years to correct.
Afterward Act as if Nothing Happened

Many managers believe that after a layoff, the less said about it the better. With luck, everyone will just forget and move on. Why keep the past alive? The reality is, surviving employees will talk about what's happened whether the management team does or doesn't. The more the company tries to suppress these discussions and act as if nothing has happened, the more subversive the discussion becomes. Remaining employees will act as a consequence of what has happened regardless of whether the management does. Recovery from a layoff is greatly hastened if managers and employees are allowed to speak their minds freely about what's happened. In fact, it can be a great opportunity for the team of surviving employees to pull together and renew ties. When management refuses to acknowledge what has really taken place, it appears emphatically heartless, feeding the employees' sense of helplessness. If management won't talk about it even after the fact, what else is it hiding? "To downsize effectively you have to have empathy with the people who are losing their jobs. " (Percy Barnevik)
Downsizing Effectively

When faced with an organization that isn't functioning at optimal efficiency and thinking that a layoff is needed, there are a few key principles to keep in mind. Observing these principles won't completely eliminate the dangers of downsizing, but they will help to avoid the common pitfalls of a poorly planned layoff.
Is the Problem too Many People or too Little Profit?

The critical first question to ask before any layoff is: Is the need for this layoff driven by having too many employees or too little profit? If it's too little profit, this is the first warning sign that your company isn't ready for a layoff. Using a layoff solely as a cost cutting measure is utterly foolish: throwing away valuable talent and organizational learning by dumping employees only makes a bad situation worse. When your business lacks revenue, annihilating intellectual capital and thus reducing the efficiency of remaining resources as well as the potential for future growth is not the solution. If the answer is too many employees, then you've begun the process of a well-thought-out strategy for change. To legitimately determine if you have too many employees, look at the organization's business plan, not its head count. What product and services will you be

offering? Which of these products and services is likely to be profitable? What talent will you need to run the new organization? These questions will help you plan for the post-layoff future. These issues will enable a quick turnaround from the inevitably negative effects of downsizing to positive growth in value and efficiency.
What will the Post-Layoff Company Look Like?

Having a clear, well-defined vision of the company is imperative before the layoff is executed. Management should know what it wants to accomplish, where the emphasis will be in the new organization, and what staff will be needed. Without being directed according to a clear vision of the future, the new organization is likely to carry forward some of the same problems that initially created the need for the layoff. Unfortunately, many managers underestimate the momentum of the old organization to recreate the same problems anew. Unless there is a clearly defined, shared vision of the new company among the entire management team, the past will be likely to sabotage the future and create a cycle of repeated layoffs with little improvement in organizational efficiency.
Always Respect People's Dignity

The methods employed in many poorly executed layoffs treat employees like children. Information is withheld and doled out. Managers' control over their employees is violated. Human resource representatives scurry around from one hush-hush meeting to another. How management treats laid-off employees is how it vicariously treats remaining employees -everything you do in a layoff is done in the arena, with everyone observing. How laid-off employees are treated is how surviving employees assume they may be treated. Why does this matter? Because successfully planning for the new organization will keep it going and improve its results. You must keep that exceptional talent, who are also the employees most marketable to other organizations. When they see the company treating laidoff employees poorly, they'll start looking for a better place to work, fearing their heads will be next to roll.
Respect the Law

While it's important not to allow the legal department to design a layoff, it's nevertheless important that you respect the employment laws. In different countries such laws include entitlements tied to civil rights, age discrimination, disabilities, worked adjustment, and retraining. These laws are important and should be respected for what they intend as well as what they prescribe -- or proscribe. If you have planned your lay-off according to business needs, and not on head count or seniority, you should have no problem upholding the law. You will almost always find yourself in legal trouble when you base your layoff on factors other than business needs.
Mini-cases: Good Examples

During the merger of BB&T Financial Corporation and Southern National Corporation, redundant positions were eliminated through the strategic use of a hiring freeze.

Hewlett-Packard implemented a so-called fortnight program in which all employees were asked to take one day off without pay every two weeks until business revenue increased.
Mini-case: Bad Example

Scott Paper conducted a layoff of 10,500 employees in the mid-1990s. In the years that followed Scott was unable to introduce any new products and saw a dramatic decrease in profitability, until it was eventually bought out by competitor Kimberly-Clark.
Making it Happen

Downsizing successfully is immensely difficult. The following ideas can help to focus thinking for anyone considering such a move.
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Treat all employees with respect. Communicate too much rather than withhold information. Research applicable laws and follow the spirit of the legislation. Afterward, give employees the psychological space to accept, and discuss, what has happened.


There are two important factors to keep in mind when planning a layoff: respecting employee dignity and business planning. No one, from the mailroom to the board-room, enjoys downsizing; but when the need for a reduction in staff is unavoidable, a layoff can be accomplished in such a way that the problem is fixed and the organization excels.

The Ethics of Downsizing

March 17, 2009 by Stephen G. Donshik Filed under Opinion 5 Comments

During the past several weeks we have read about major staff reductions taking place across the Jewish world. Tens of valued professional Jewish communal workers along with competent and loyal administrative and support staff have received pink slips in some cases they were given just two days notice to clear out their

offices as their jobs were being retrenched. These costs saving measures are not unique to Jewish organizations and have been seen thorough-out the public, private and not-for-profit sectors the world over. However, these massive layoffs raise the issue of the ethics of downsizing and whether or not there is a Jewish approach to these practices, particularly when it concerns employees who work for the Jewish community. No one is oblivious to the massive firings that have been taking place over the last eight months. As the recession has been felt in countries throughout the world we have witnessed not only the collapse of financial markets but also the retraction taking place in mutli-national corporations and among the largest manufacturers on all continents. More and more people are finding themselves unemployed, either the result of firms closing or staff reductions. There is always a question of focusing on whether there is a better way to deal with retrenching staff (as a cost saving measure) and during these months we have witnessed a number of examples where employees have come together to help save their colleagues jobs. Economists and financial advisors have made a number of suggestions which generally include reducing the work week as well as employees sacrificing a percentage of their salary to preserve their colleagues positions. Of course the major dilemma is whether these cost cutting measures ultimately result in enough savings to enable the work force to remain in place. Perhaps one of the unique aspects in the world of Jewish communal service and the organized Jewish community is the role that Jewish ethics should play in guiding the decision-making of our institutions and our leadership. When Jewish Federations, as the largest employer of Jewish communal professionals in North America, began cost cutting measures how were their decisions reflective of Jewish values particularly when we are dealing with employment, employees and service cutbacks. We are all familiar with the Rambams conceptualization of charity where the most important aspect of assisting a person is to enable them to be employed and not to provide charity (as we refer to financial assistance today). This being the case, then the imperative would be to find a way to keep our communal professionals employed. Not only to enable them to earn a living but also because everyone is aware of the difficulties faced by those looking for employment. It is also far better to keep someone employed than add them to the already exploding rolls of the unemployed. The question is, how does the central communal institution simultaneously deal with their decreasing income and also handle their own finances responsibility. One of the fundamental assumptions is that if there was no recession most of the employees would still have their jobs as they are not only competent but perform a valued service for the community. Having said this, is there an alternative to the massive laying off of scores of Federation and affiliate agency staff? There have been a number of private firms that have shown both leadership and compassion for their employees and there is much that we, the organized Jewish community, can learn from their example. Of course, it may not be able to save 100% of the staff positions, but the Federations have a responsibility and an obligation to both care for its employees and represent a Jewish approach to the challenges presented by the financial situation.

There are two possible approaches that if they are joined can potentially result both in serious savings of communal dollars and maintain staff positions so people are not let go in wholesale numbers. In the same way employees in private industry have volunteered to accept a 10 plus percentage decrease in salaries (so that other employees might keep their jobs) this could be presented to the staff of the Federations in question. It does not take a rocket scientist to figure out that it is one thing for a professional on the senior level who earns above $150K a year to take a 10% salary cut and it is another for an administrative assistant who earns $35K to take the same cut so adjustments would need to be made. The point is, if the staff voluntary agrees to this move, it is not a result of an administrative or board decision, and it becomes something the employees agree to do for each other. The message is important and communicates a real sense of care and concern for those who work to make the organized Jewish community what it is. In all likelihood this alone would not be sufficient. It might also be necessary for employees to adopt a four day staggered work week. The implementation of such a move would have to be planned so that the organization can continue to properly function. Managers and line staff would work together in all areas to reduce disruption and hopefully cause only minor inconveniences. Some of us remember the recession of the early 1990s when employees were let go those involved in planning and program development were harder hit than those employed in the financial resource and development side. The same is probably also true today. In dealing with the ethics of downsizing our communal organizations we have an opportunity to demonstrate both our leadership and our commitment to the Rambams approach to charity and the people we employ. Imagine the message the Federation system would be giving to the Jewish world, specifically, and to our greater society in more general terms. I would challenge the UJC to consider coming up with a recommended practice based on these values that could be utilized by all Federations as they struggle during this difficult period. Working together, and with their vast collective wisdom, new policies and practices could be established that will serve as a model for all. Even though a number of Federations have already implemented cuts and made difficult decisions it is not too late to assist others who are yet to face the need to retrench staff members. This is an area that is clamoring for both clarity and direction. Lets hope we can rise to the occasion. After all, it is in our tradition that we are a light unto the nations. Stephen G. Donshik, D.S.W., is a lecturer at Hebrew Universitys International Leadership and Philanthropy Program and has a consulting firm focused on strengthening non-profit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.

By David Gebler President, The Working Values Group from The Boston Business Journal ETHICAL DOWNSIZING: PROTECT YOUR REPUTATION DURING LAYOFFS It seems you can't open a newspaper these days without reading another article about this dotcom or that tech company going through a "downsizing", a kinder euphemism for layoffs. What has been most troubling to me as a business ethics specialist, however, is not the layoffs themselves (after all this is a free economy and no one is guaranteed a job.) The truly disturbing news has been about the way some early-stage companies are letting go of employees. The New York Times reports that the unlucky employees of fob Inc. received a bloodless email informing them of their demise. Some employees of New York Times Digital learned of their fate in The New York Times itself. Dot.coms from Boston to Silicon Alley to San Francisco have behaved thoughtlessly and, yes, unethically as they frantically scrambled to salvage their companies. No Policies, but Plenty of Soda and Snacks What strikes me about these poorly handled layoffs is that many dot-coms went out of business the way they went into business: haphazardly, brashly, without a long-term plan. Companies that were built around an exit strategy, not a vision, had no time to build a set of values and had no way, therefore, to apply corporate values to their decision making. The concept of "doing the right thing" when downsizing didn't resonate with organizations that flew by the seat of their pants, without policies and procedures, HR manuals, and so on. Unfortunately, it's too late for many young companies to do the right thing when handling layoffs. But those that are contemplating downsizing should consider this: Every action you take should be consistent with your values. If showing respect is something valued during good times, it becomes particularly important during the bad. If open communication is a corporate value, it becomes more important during a downsizing. How are you telling the laid-off employees? How are you communicating to your stakeholders--the community, the shareholders? What are you telling the staff that stays and how are you saying it? How a company treats the people who are leaving sends a strong message about how it will treat the people who are staying. That advice holds true for outside stakeholders as well. If I were a potential vendor reading about unethical or poorly handled lay-offs, I would be wary about extending credit to that company. Likewise with current or potential investors.

How a company treats downsized employees has an impact on a business' reputation, and affects investors' assessments of whether financial support is warranted. Research data supports the assumption that "doing the right thing" has a positive impact on stakeholders. According to the organization Business for Social Responsibility, a 1999 DePaul University study of 300 large companies found that firms making an explicit commitment to follow an ethics code provided more than twice the value to shareholders than companies that did not. Never too Late to Put Your Values to Work Building a values-based culture is never more critical than when you go through a crisis. For companies that want to do the right thing, here are some tips on building a culture that is consistent with corporate values.

Ask yourself, "What is the current corporate culture and how far is it from where we want the culture to be?" What are your values, where are you today, and what steps can you take to close that gap? Every company has a culture and values. The questions to ask are: have they been articulated; and, have your employees been asked to participate in articulating the behaviors that reflect those values? It is essential to get employees to buy in. Spell out how you're going to achieve your strategic goals. What is expected from all stakeholders to reach those goals?

Few emerging tech companies have a code of conduct or training programs like larger organizations do. You need to focus on ethical work process behaviors--i.e. how will we work with vendors? What are our competitive intelligence standards? Ultimately, you'll find yourself with a code of conduct for the company. I don't want to give the impression that all "new economy" companies have handled downsizing poorly, it should be noted that several have conducted highly ethical closings. Acting ethically during difficult times is a true test of a company's mettle. If an organization can do the right thing during a lay-off, it will reap the rewards for years to come with all of its stakeholders.