Ashok Panikkar, Director, Meta-Culture Consulting

Delivering bad news is never easy. Firing a team member is difficult and exhausting enough, but retrenching thousands can unleash large forces that can cripple managements, cost companies money and goodwill, and result in bad press.

If the layoffs are required because the company’s very survival is at stake, it is easier to be honest about the circumstances and the options available. If, on the other hand, you are slashing jobs because of lower-than-expected earnings and to keep Wall Street or Dalal Street happy, communication is only your immediate problem; you also risk a loss of trust, and a decline in morale, attrition and productivity.

A job is more than just a pay check; it is how most of us define our selves. Yet, companies often communicate layoffs through impersonal memos or by suddenly changing access codes, thereby adding insult to injury.

Sometimes employees hear about it from the HR executive, or suspect things are amiss when colleagues avoid them or when they are left out of key meetings. Some first read of mass layoffs in their organisations in the papers or see it on the evening news. The worst story I heard was of a man who was given the news on the phone by the office cab driver who didn’t show up to pick him up as usual.

Bad things do happen to good companies. Unfortunately, the absence of trust in

When decisions that affect thousands are taken by panels composed of senior management and are communicated by executive fiat, resentment builds

their own employees and a culture of secrecy surround many a corporation’s decision to retrench. Even the euphemisms ‘restructuring’ or ‘downsizing’ are cold and clinical, and can seem manipulative.

When decisions that affect thousands are taken by select committees composed of senior management and these decisions are communicated down by executive fiat, resentment builds and employees suspect that their interests have been compromised. Employees are impacted twice, first by the substantive losses (in income), and then by their sense of disempowerment and helplessness to effect decisions that are vital to their survival. This is especially true when job losses are tied to layoffs that have little to do with performance.

The recent Jet Airways’ layoff fiasco is an example of how things should not happen. In a complex political environment still reeling from the effects of over five decades of socialism, Indian businesses need to have a more sophisticated way of dealing with economic downturns—US-style mass layoffs will just not work.

To avoid strikes and prevent interference by opportunistic political groups, or damage to the morale of the remaining employees, companies must change the way they perceive employees. They must endeavour to minimise resistance by building critical consensus on vital decisions. To this end, companies must move away from a paternalistic culture that treats its workforce as helpless ‘wards’ or a materialistic culture that treats them as ‘manpower resources’.

Companies should see their employees as vital stakeholders who can add value to deliberations that affect the fate of their company. When employees are not treated as important stakeholders, they are more likely to become antagonistic self-interest groups that are only concerned with protecting their narrow goals.

Companies must create a collaborative culture where employees are empowered to bring their creativity and ideas to the table. Organisational communication should be open and healthy, and consensus-building methodologies and mature dispute-resolution mechanisms should be institutionalised.

Before making potentially contentious decisions such as those involving cost-cutting, it is useful to ensure that well-defined processes are in place. There are two stages in the decision making process that are crucial.

Throughout the planning and implementation stages of a cost cutting exercise, the top management should:

• Engage senior mangers and department heads in the consultation process.

• Avoid surprises and not keep employees/employee representatives in the dark; instead, they should keep them apprised of the situation.

• Invite joint deliberation and solicit suggestions to resolve the crisis (such as voluntary reductions in time or pay cuts). Avoid presenting the problem as one that the management has already solved (layoffs).

• Through collaboration, if not consensus, take decisions that factor in the interests of the different stakeholders.

After a decision has been made, the communication to the outside world and the larger community of workers has to be handled with firmness, transparency and candour.

• The notification meeting with the entire staff, including fired employees, should be well planned. These meetings should be efficient, respectful, and facilitated with skill and compassion.

• News conferences and news releases should be given only after talking with the staff. The staff should not read about it first in the media.

• The media should not hear about layoffs in the organisation through the grapevine.

• Relevant governmental agencies should be notified of the action taken as required.

• Customers, suppliers and community leaders (if not already a part of the consultations) should be notified.

If a company deals with economic downturns, business mistakes and, even scandal, through transparency and sensitivity, it builds credibility and trust.

Consider the case of Malden Mills of Massachusetts, US. Twice they were close to shutting down and facing massive layoffs. First, in 1981, Malden Mills filed for bankruptcy, but instead of shutting down, the CEO, Aaron Feuerstein invested in developing new products and re-opened the mill. As a result, Malden Mills came out of the bankruptcy stronger than ever. Then, on December 11, 1995, a fire burned Malden Mills to the ground and 3,000 people thought that they would be out of work permanently.

In an age when CEOs are celebrated for slashing costs, downsizing, moving plants to low-wage countries and focussing on quarterly results, Aaron Feuerstein did the unthinkable: he spent millions keeping all 3,000 employees on the payroll with full benefits for three months. Instead of treating his workers as an expense, he treated them as an asset, and invested millions in them.

Management gurus talk about the need to balance the needs of all stakeholders: employees, customers, shareholders, vendors, community and so on. Unfortunately, companies often tend to see the shareholder as the only stakeholder that counts. Investing in his employees paid off for Aaron Feuerstein. "Before the fire, that plant produced 130,000 yards a week," Feuerstein said. "A few weeks after the fire (in temporary plants set up in old warehouses), it was up to 230,000 yards."

Jobs define who we are, sustain communities and keep cities alive. Retrenchments have repercussions far beyond the impact on individual employees. To create healthy companies, avoid employee revolt or preempt the interference of outside actors. It is necessary to not only communicate the decision (to retrench) sensitively, but also to make the decision-making transparent. Employees must feel that they have a voice in the whole process. Think about it: wouldn’t you rather have your employees on your side during a crisis than have them striking outside the gates?