It's About Solidarity, Stupid! (Why Avoiding Layoffs Makes Sense)
It’s all about your people. Now more than ever. But in knee-jerk reactions to the coronavirus many companies are laying off large numbers. I want to shout out to the shareholder-value managers driven by their spreadsheets: “This is not only inhumane. It is bad for your business!”. Why? It will harm your company. Companies that treat their people best in bad times emerged as winners in the past.
We are currently seeing examples of corporations - including top global brands - making large numbers of people redundant. This often happens in times of crisis—especially when large, shareholder-driven companies react to the math, and fire nameless workers. This is meant to show shareholders you are taking swift and resolute action. But this type of ‘strong leadership’ is not about solidarity, but about which names to select from a spreadsheet, and announcing layoffs via memo or, more recently, a Zoom call.. I argue strong leadership is exactly the opposite. It is about avoiding layoffs!
A lot of research says companies that are more humanitarian, that put their people first, are the long-term winners—while shareholder-driven companies rarely come out on top.
For example, "The living company”, written by Arie de Geus at the end of the nineties said companies that react in a humanitarian way, and put people first, do better. The good news is that being humane in crises can really pay off. (In my opinion this is not the main reason for acting this way, but at least there is no conflict of interest.) This might be helpful in your discussions with shareholders. You can argue from an economic point of view that putting people first, and avoiding layoffs, is a better strategy in a crisis.
When companies lay off staff in a crisis, they can expect criticism that is hard to defend after years of good profits. It makes them look immoral and inhuman. What people want to see in a crisis is solidarity – even more so than in normal times.
Why do the public react so harshly? Because they expect solid companies to take care of employees. Of course, some companies are so enormous we cannot expect the upper echelons to know individual staff members by name. But despite the distance from the boardroom to the workshop, people should never be seen as numbers. They should expect respect and dignity.
You might think avoiding layoffs is a typical “soft” European solution, and easier said than done. The opposite is true. It is more difficult than culling names from the spreadsheet. It is time to reframe what is soft and what is hard. Let’s look at a shining US example to illustrate.
At Gravity, CEO Dan Price faced the choice between laying off 20% of his employees or going bankrupt. He refused either option, despite a 55 percent drop in revenue. Instead, he talked to his employees about company finances and asked them for their ideas. Together, they decided each person would reveal how much they could sacrifice in a pay cut. Because Price had been open, his colleagues were willing to sacrifice to keep their business going.
Gravity is a good example. They were transparent, put people first and acted to survive by tapping the collective intelligence of the company.
Viisi is our company. We are a mortgage advice company and have not experienced a severe backlash yet. In fact, a fear of rising interest rates has even boosted our business in the short term.
But when the lockdown occurred, we did not expect this. And we still expect to suffer from a general recession. But we were prepared, after an extended period of growth. We already had our strategy for a crisis. So, when the corona crisis hit, we followed it.
A transparent 'People first' crisis plan is not only useful for managers sitting doing cash flow planning. It is especially helpful for those who fear being laid off to help them think about potential solutions, instead of being ‘frozen’ like a rabbit confronting a snake. We wanted to show that it was not only up to the managers in the boardroom. You can influence the outcome of the debate in your company, too.
The silent majority
The public debate about layoffs is dominated by stories from big corporations, and the flamboyant - mainly male - entrepreneurs who put their own personalities "first". Smaller/medium-sized enterprises (SMEs) and family-owned businesses are not in the limelight. They do not write articles for the Harvard Business Review. They just manage, and mostly, in a humane way. We did not invent the “How to avoid layoffs strategy.” We are just implementing what most of us do.
1. A clear statement: Put People First
People expect to be treated as human beings. They are not human resources. They expect solidarity in times of crisis. In such times everybody understands that human nature is noble, not egotistic. Most humans give help to others when it is needed. So, the starting point is clear: “We are in this together. We want to avoid lay-offs.” Full stop. We have always been committed to “putting people first”. In a crisis it is clear we commit ourselves and our company to that idea.
Yes, we are often asked: How can you take such a stand if the company loses a lot of revenue? The answer is simple: It is all about mindset. It is all about the “We”. We are in this together. Does this mean companies cannot fire people? No, it does not, but everything else should be tried first. We should discuss it together, with lay-offs always the last resort.
2. Worst-case scenario: Zero revenue
Cash is king and in times of crisis even more so. How to deal with this? We have always been transparent, and shared our financial situation. Every employee can see our bank accounts. So in times of crisis, everyone knows exactly what cash we have, and how much we need to survive the current situation. A culture of radical transparency is an advantage. We don’t need to change policy to discuss our cash situation.
Although nobody knows how long this situation will last, we can assume it is temporary. Recovery is dependent on the economy. It is possible to sketch a worst-case scenario and discuss with your team: How many months will we be without business? What are our current funds? What is the shortfall? These should be your starting points.
At Viisi, we estimated a revenue of zero for the next three months. This worst-case scenario was our starting point. From there things could only improve. Revenue would not be zero. Plus, there might be more clients than expected, or some help from our bank or the government. But calculating with zero revenue created a basis. Indeed, we had more than zero revenue at the end of the first week. Colleagues saw business was better than we had ‘estimated’. Our worst-case strategy had generated a self-invented positive dynamic!
3. Cash: Build liquidity
Once you have a financial forecast, look for new solutions with your team. Collectively. But the starting point - and we believe that in times of crises this is even more important - is to lead by example. “Shareholders come last” means that in times of crisis it is our duty to act first. That means we put money into the company to strengthen its cash position, or lower our salaries. As we have done this before, it is part of our culture. Leading by example is ‘walking the talk’ in times of crisis. We recommend starting with yourselves as shareholders or CEO or board members. Then you can ask staff what they can afford to sacrifice. Your obligation is to act first, because leaders eat last.
Then, maybe ask: “Who can take a temporary pay cut, to be paid back later?”. Working fewer hours is another common strategy. But a more intelligent way is to keep full productivity, whilst lowering costs and/or otherwise filling the liquidity gap. Full productivity opens an opportunity to think about other measures to stabilize revenues. In the end, it is the openness and honesty of the joint search for solutions that counts. Collective intelligence will get you the most interesting solutions, and the decisive factors to bring the company through tough times.
4. Solidarity: Peer to peer
The basic human attitude is to help each other. That is why we now see much humane behavior, like neighbors who offer to do each other’s shopping, or help the elderly lady on the upper floor. Similarly, solidarity can evolve in teams of colleagues who work together. It is easier with people you know and trust. If you work in a team, and you know your colleague raises children alone, and cannot afford a pay cut, you might be more willing to think about his or her situation than about a stranger. And if you have no children, you may be willing to offer a temporary pay cut, or a reduction in your workload to help this colleague—especially if you have known each other for years.
So have the guts to show solidarity as a company. Treat others as you want to be treated yourself. Treat them as human beings and not as human resources.
Trust your people. Let them find intelligent and human solutions. Give them a chance. You will be amazed how humane your people and their solutions can be.