‘The cost of firing is paid by those who stay’: Former HCL CEO Vineet Nayar
Amidst the current economic turmoil, a tsunami of layoffs has hit organisations across industries, leaving employees vulnerable and uncertain about their futures. The reasons behind these workforce reductions are multifaceted, ranging from the optimistic investment bubble to the misconception of scaling up and down as an easy process.
In an exclusive interview with People Matters, Vineet Nayar, former CEO of HCL Technologies and now Founder and Chairman of Sampark Foundation, delves into these reasons and provides valuable advice for employees and leaders on navigating these challenging times.
Nayar highlights the crucial considerations during the layoff process, and emphasises the importance of preserving the employer brand. He also sheds light on the evolving dimensions of leadership in the wake of recent events and offers guidance to the younger generation of leaders.
With your extensive experience, what do you think are some common reasons, or circumstances that lead organisations to resort to layoffs?
There is an optimism bubble under which we were working for the last few years. When the management starts looking at data which is different to cash flows and starts believing the hype, then they start believing that the future is brighter than actually it is. They create an 'optimism bubble' and go out and hire more freshers than they need, invest in new businesses...
That is what we call creating monolithic phantom businesses and phantom opportunities which really don’t exist.
Customers, too, can be influenced by the optimism bubble. They may perceive a highly promising future and consequently announce large-scale projects. In this dynamic, both the vendor and the customer feed off each other's optimism, creating the 'optimism bubble'.
Another aspect of the optimism bubble is the misconception among companies that scaling up and scaling down, including hiring and firing, is an easy process. However, extensive literature, including my book "Employees First, Customers Second," highlights that the true cost of layoffs is borne not only by the individuals being let go but also by the remaining employees.
When a workforce is subjected to layoffs, their enthusiasm and motivation levels decline, resulting in decreased productivity. Consequently, the organisation, as a whole, suffers in the long run.
The managements have to be a little more circumspect, feeling responsible for the people they hire. While investor returns are important, the decision to lay off employees should not be solely driven by financial factors, especially when viable alternatives exist. Therefore, it is not the macro environment that solely drives layoffs, but rather optimistic investments that can lead to such decisions.
When it comes to implementing layoffs, what are the crucial factors that organisations should keep in mind? Could you share some of the best practices that organisations should follow when conducting layoffs?
Organisations should keep in mind three important principles when considering layoffs.
Firstly, it is important to understand that for every person you let go, you demotivate ten others who remain. Therefore, before terminating an individual, consider the impact it may have on the morale and productivity of the remaining employees.
Secondly, adopt a humanistic approach during the process. This goes beyond providing proper notices; it involves offering opportunities for rehiring or supporting the affected employees in their reskilling efforts. Being compassionate and understanding can make a significant difference during this challenging time.
Lastly, be mindful of the broader actions and messages conveyed by the organisation. It is important to avoid contradictory actions, such as downsizing while simultaneously hiring expensive celebrities. Remember that layoffs are not just about economics but also about the emotional impact on individuals and their families. Behaving in a manner that is insensitive or counterproductive can harm both the affected employees and the organisation's reputation.
When a company undergoes layoffs, what advice would you give to leaders to ensure that the remaining staff remain motivated and engaged amidst the changes and uncertainties?
In every democratic country, when faced with a challenge, the leader takes centre-stage and clearly defines the nature of the challenge. This could arise from external factors like an attack by another country or a virus outbreak, like we witnessed during the coronavirus pandemic, among other possibilities. In such situations, people come together and unite in accepting the difficulties that the challenge presents.
So, the fundamental principle of effective management is to educate everyone about the true challenges faced by the company, the objectives being pursued, and the reasons behind the actions that need to be taken.
On the contrary, an alternative approach is to assume a godlike role, where only one person believes they know what is best for the company. They may take home bonuses while firing others. However, this creates a 'sense of unfairness' and amid remaining employees, two thoughts arise: first, they fear it could happen to them, leading to demotivation, and second, they question whether they want to work in an environment that is deemed unfair.
Therefore, the best approach when facing challenges is to conduct open houses where you can openly communicate the difficulties and be transparent about the alternate strategies implemented to minimise the need for layoffs such as reducing costs, adjusting bonuses, or implementing energy-saving measures. It is important to explain that despite these efforts, the organisation lacks the necessary cash flows to support all colleagues, resulting in the difficult decision to let go of underperformers initially, followed by those who are unable to meet productivity targets.
Transparent communication regarding the actions taken, a fair attempt to avoid layoffs, and the reasoning behind the selection process for layoffs will help maintain fairness and understanding among employees.
How do some companies, despite layoffs, continue to maintain their reputation as an employer of choice? What advice would you offer to leaders on how they can effectively preserve their brand image amid the retrenchment process?
I am currently leading Sampark Foundation, which comprises 500 employees, all of whom I refer to as "passion employees" as they exhibit tremendous dedication and drive towards our purpose.
This same passion and purpose were evident during the transformation of HCL Technologies, where we had over 100,000 employees actively participating.
As a leader, the first question to ask yourself is what type of employees you truly desire. Do you want individuals who are motivated by passion and purpose, or those driven solely by greed and money?
If you claim to be an employer of choice but find that many people join your organisation simply because you offer the highest salary in the industry, it creates a mercenary culture. This does not contribute significantly to the organisation's progress, primarily because employees aren't motivated by learning, experience, purpose, or camaraderie. When the fabric of an organisation's culture is mercenary, short-term success may be observed, but long-term losses are inevitable.
Companies that prioritise hiring based solely on top-dollar compensation and subsequently resort to immediate terminations lose the essence of their culture. These organisations are not built to last; they are built to sell. This trend has become increasingly prevalent in recent years.
However, large organisations like Tata, Birla, Infosys, HCL, and Wipro, among others, have been institutions that have an ethos around themselves and are built to last. If you're in a hurry and the objective is not to build for lasting impact, the company's existence will be short-lived.
Do you believe there is a contagion effect where one company's decision to downsize influences other organisations to follow suit?
Absolutely. It is very important to understand that business is about sentiments. When you are optimistic, everybody around you is too, and when you are pessimistic, then everybody is running scared. There is no real data to show that the business is going to go down
It's akin to throwing dirt outside your house. If one neighbour does it and faces no consequences, others may feel it's acceptable and begin doing the same. This holds true for layoffs as well.
Unfortunately, this contagion effect can lead companies to compromise their values, ethics, and organisational culture. In their rush to secure top talent by offering high salaries or resorting to hiring mercenaries, they may inadvertently sacrifice the very fabric that holds their organisation together.
How do you see the approach taken by some CEOs who choose to fire employees through a Zoom call, or in a blogpost or email? Do such methods reflect on the leader and the organisation's values?
I believe that conducting layoffs through impersonal means like Zoom calls, blogs, or emails reflects a sense of entitlement and a lack of understanding of one's responsibility as a leader.
It is important to recognise that holding a position of power is for a limited period of time, it could be five years or 50 years but will end one day, and it is our duty to handle it with a sense of responsibility and empathy.
The most respected CEOs are those who understand the weight of their responsibility, for livelihoods of thousands or even millions of people. These leaders are loved by their employees and customers alike, and are looked up to far after they have quit. It is crucial to consider the kind of legacy we want to leave behind when our tenure ends.
Take someone like Ratan Tata, for example. He is widely respected because of his human-centric approach and there are positive stories about him in the media.
While there may be other so-called “intellectual” leaders who are more successful in terms of financial metrics, they may not receive the same level of love and affection. It is important to reflect on our own actions and consider whether we see our job as a responsibility or an entitlement. Those who view it as an entitlement may act in ways that make them the most disliked individuals.
Have you observed any notable changes or new dimensions within the realm of leadership, particularly in light of recent events such as the pandemic? Also, what advice would you offer to the younger generation of leaders in today's dynamic business landscape?
Post-pandemic, individuals are questioning the purpose of their work. They are not willing to accept organisations in their old avatars, and rejecting traditional organisational norms.
They are reflecting on the value of their daily grind, considering if working 12-15 hours a day and chasing profit goals aligns with their true purpose of life, or should they be doing something dramatically different? The pandemic's impact, with its significant loss of lives, has prompted a reevaluation of priorities.
Working remotely has exposed them to a different quality of life and new dimensions of responsibility as they were not in that club cocoon of a corporate office. They are no longer satisfied with the confines of a corporate office.
So as leaders of today, it is vital to acknowledge this shift and understand that employees now prioritise purpose, responsibility, and a better quality of life. Motivation cannot rely solely on empty slogans or pursuing arbitrary goals. Instead, leaders must recognise the profound changes in their employees and foster an environment that embraces purpose, responsibility, and a holistic approach to work and life.
The second aspect is that within this bubble, many individuals believe they are better off pursuing their own ventures rather than working for larger corporations.
Ideas and innovation have gained prominence in smaller organisations where individuals strive to make a significant impact. This trend is both interesting and encouraging. However, the downside is that the investment landscape may not be as mature as required.
Investors have shifted their focus towards startups, leading to the emergence of high-quality startups with strong clientele, surpassing established companies like Zomato and Byju's. As a leader, it becomes crucial to carefully consider the source of innovation, as employees are leaving to pursue their own entrepreneurial endeavours and are no longer interested in being employees.
These are the two significant challenges that younger CEOs must navigate.
And to all startup enthusiasts, I would like to say be very careful of cash flows. Remember, you may be able to impress some investors temporarily, but long-term success lies in businesses that generate positive cash flows. Embrace the exhilarating journey of startups, but ensure you're self-reliant and financially sound.
What advice would you give to employees who have been laid off in terms of staying resilient and bouncing back?
When faced with a layoff, it's important to see it as a valuable opportunity for self-reflection and investment in oneself.
One realisation to embrace is that organisations primarily prioritise their own interests, not necessarily the individual's. This understanding should reinforce the need to be cautious and focus on personal development. It's crucial to recognise that being let go does not equate to personal rejection.
In many cases, organisational decision-making processes are often flawed and driven by convenience rather than thorough evaluation of talent.
So don't reach the judgment that A was retained and you were fired, and therefore A is better than you. Most organisations lack a clear understanding of talent and make hasty, ad hoc decisions. Instead, one should redirect their energy towards investing in their capabilities, such as technical skills, through courses and enhancing communication and soft skills. Remember, industries have historically rebounded within a span of six to eighteen months, providing opportunities for reentry into the job market.
During this transitional period, it is advisable to focus on building relationships, acquiring new skills, and gaining a deeper understanding of one's aspirations. This time can be utilised to lay the groundwork for future success over the next decade. Sometimes, being let go from a job can serve as a catalyst for positive changes in one's life journey. If you were not fired, you would be doing the same thing with the same company, now realising that the company was not worth it.
Appreciate the wake-up call and seize the moment to make the most of this opportunity for personal and professional growth.
His words carry lessons and insights from his own experiences that can help leaders build a better tomorrow. If you wish to meet Nayar in-person and engage in a conversation with him, join us at People Matters TechHR India conference on August 3 and 4 at Leela Ambience, Gurugram.