A balancing act - Saving many at the expense of the few

I clearly recall one of my earliest Non Executive Directorships. I was appointed by a small but fast growing Organizational Consultancy in London specializing in financial services. The Directors were a great bunch of guys, all very smart and bright, from one of the big named global consultancies and they had done superbly in the seven years of their existence. The staff, who were equally bright and well-motivated were now up to around 100 and we were looking forward to a build and sell strategy. Most of the staff had shared options and the place was a very happy place with people sharing a common vision of success.  

And then we hit a wall – four months of drastically falling revenues as economic uncertainty swept through the financial services sector and clients postponing project after project with little prospect of a change. I sat staring at my laptop, looking at rows of red numbers in the management accounts and promptly called the Finance Director, who stated that “unless we made 40 percent of the staff redundant immediately, the company would go bust.”

Not a message I relished delivering just six months after being appointed but it had to be done! It hit the Directors very hard – they had never made anyone redundant before and many of the team members were friends and colleagues from years back but together with the FD, we persuaded them it was the only course to save the business, alongside a tremendously energetic recovery plan to increase our client base and shift our market offer into a new area. 

Everything from the moment of the decision was then conducted totally transparently and sensitively. The message from most of those who lost their jobs was one of understanding and a desire that the business should get back on its feet with or without them. An amazing sense of trust and selfless commitment and desire to save the jobs of the other 60 staff. The result was a gradual turnaround, based on business not economic transformation such that 5 years later we sold the business for the benefit of all the shareholders and option holders.

A happy ending for the owners – yes. But was it happy for those who were made redundant? Well, never “happy” but not as unhappy as it would be if they had not all been young, mobile and bright people with little difficulty finding another suitable job rather than aged 50 with 3 children working in a failing factory in the Industrial “train-crash” that a part of the north of England has become. This was another personal experience, much tougher and with a much less favorable outcome as the factory never really recovered (although it still employs some 70 people as opposed to 150 before). And yet the men and women took their fate with a calm reflection, free of bitterness – resignation I guess. 

The first and most important to me is that people are not “variable overheads”. They are individuals with financial needs and varying circumstances and deserve to be treated with respect and with trust. And, as is said in the British army, “you don’t build trust at the line of departure” – it takes years of consistent servant leadership to do so. In both cases, the employees had been kept well informed long before problems emerged and had been dealt with honestly and transparently. It wasn’t a case of a short term downturn so “let’s get rid of a few people to make more profit”. It was about survival of the majority and the business that they had all helped create. I believe that without this model of servant leadership, to recognize that the first responsibility of a true leader is to serve his followers and build long term trust, the decision and consequent reaction to redundancy would have been very different and more difficult.

Next, generosity in redundancy helps (there were some crazy voluntary redundancy schemes around in the financial crash – I know of several people who were paid a full year’s salary to leave and then re-employed weeks later by the same firm at a higher salary!!). When times are tough, it’s not always possible to be financially generous but sometimes generosity can be in forms other than money – like outplacing help or career mentoring or simply spending time with people who have to leave.

Third, Employees want to feel that the pain is being shared. It is generally more acceptable for the business to try to cut the salaries bill without cutting the head-count (for example, by making everyone take a period of unpaid leave or by limited short time working). Better, perhaps, that everyone has a job at 80% pay than cut out 20% of the work force.

Fourth (and most importantly) the “bosses” should bear the share of the pain. In both the examples above, the Directors cut their salaries very substantially and for long periods. How disappointing to read daily of the rapacious greed of “fat cat” bosses who have run their businesses into the ground and have walked away with huge salaries and a massive pay-out. What sort of a signal of trust and reciprocated loyalty does that give to the man on the shop floor or the woman in the call center?

Finally, a leader has a responsibility to see that the business performs at an optimal level. If there are people in the business who are working sub-optimally (including that managers!) then they must be helped to improve or they should be an early casualty in a “right-sizing” exercise. It is dispiriting in the extreme for hard working, effective people to be asked to leave when senior non-performers will remain, particularly when they are the ones with the highest level of potential financial saving.

Leading a business is a balancing act, sometimes rewarding but often hard, and it can be a little harder when making good people redundant. However, ethically it is surely better to save the many at the expense of the few, provided it is done with sensitivity and care based on trust and mutual respect.