Lessons from the Layoffs

Letting employees find out about your company's financial woes in the media instantly destroys trust built up over the years

On Monday, Sept. 14, some 25,000 Lehman Brothers (LEH) employees heard the news of the 128-year-old firm's bankruptcy filing from the news media. According to The New York Times, there was "no direct communication from Mr. Fuld [Richard Fuld, Lehman's CEO] or other Lehman executives." Ironically, Lehman's mission statement, which is still posted on its Web site, reads: "We are one firm defined by our unwavering commitment to our clients, our shareholders, and to each other." The firm's lack of internal communication is a lesson in what not to do when announcing bad news in any business.

With mass layoffs taking place in a variety of industries (on the same day of the Lehman filing, Hewlett-Packard (HP) announced plans to lay off 24,600), employees around the country are understandably nervous. I've spoken to several business leaders in the past week who have experience dealing with layoffs, to get their advice on delivering the bad news.

Integrity leaves a lasting impression. In 2005, veteran software entrepreneur Dave Duffield helped thousands of his PeopleSoft employees deal with layoffs after Oracle (ORCL) purchased the company he had co-founded in a hostile takeover. Duffield, now the CEO of Workday (BusinessWeek.com, 8/19/08) told me he felt so "guilty" about the takeover that he created a fund with $10 million of his own money to help employees who were having trouble finding work. Many former PeopleSoft employees are working for Duffield today.

"Integrity should be a cornerstone of any business," said Duffield. "If there is a major meltdown and you cannot afford to keep staffing levels where they are, you must be respectful of employees and customers. Be honest with people from Day One. While your employees will not like being out of a job, they will appreciate the treatment they get, and you can hold your head high. Hard times don't have to lead to hard feelings."

Two words that earn respect: thank you. Former Berry Co. (T) CEO Pete Luongo spent 33 years at the Yellow Pages advertising outfit. His leadership was tested in 2001 when, as part of a mandate from then-parent company BellSouth, the firm had to offer voluntary retirement packages or risk involuntary layoffs. It was the first such reduction in the company's 93-year history.

Says Luongo: "My concern was how this would be perceived, not only by those affected but also by the balance of our 2,600 employees." Luongo made it a priority to visit personally each of the employees who accepted the offer. "I wanted to share what I felt was a wonderful opportunity for us to say 'thank you' for their loyalty and years of service."

Luongo said his visits demonstrated to remaining employees that management genuinely appreciated their service. "Do the right thing for the right reasons and you'll earn something valuable—respect."

Make the process transparent. Sara Roberts, who heads San Francisco's Roberts Golden Consulting, helps clients in different industries improve customer service and employee engagement. Her clients have included Cisco (CSCO), Hilton Hotels (HLNQ), and Disney (DIS), among others. "True leadership is about being a straight shooter in good times and bad," Roberts told me. When delivering news about layoffs, she suggests you prepare employees as soon as you can, telling employees exactly what is happening and why.

She also suggests you provide transition services and other help for the employees you're letting go. Yes, Duffield created a fund with his own money. Of course, not every business owner has the ability to take such action, Roberts reminds business leaders to keep in mind that everyone will be watching to see how you treat the affected employees. She says the worst thing a leader can do after a layoff is to hide behind closed doors. Provide opportunities or remaining employees to voice their concerns and needs.

Perhaps Duffield has the best advice—avoid layoffs in the first place. Offer an innovative product or service, hire the best people, and deliver exceptional customer service to create a winning company. But above all, in good times and bad, treat employees and customers with the respect they deserve.

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