Brutally honest or just brutal?
First Published by: Michelle Weston, CEO of the Good Business Initiative, April 2020
Updated: December 2020
Redundancies are reportedly rising at their fastest rate since 2009 in the UK14 and will no doubt continue to be a necessary corporate action for some. Still, it may be seductive in this crisis to kid ourselves that for some of the tough decisions we make on employee cuts, the end will justify the means. I wonder if some leaders, perhaps in response to their anxiety and the pressure to protect shareholder value, have the idea that they can temporarily dispense with their long-held individual principles or the evidence of growing consumer and employee ethical choice.
Research indicates that post redundancies, the business case for this type of action may not ultimately pay off. There is a long-term detrimental effect of redundancies on ‘surviving’ employees that can, in turn, lead to an erosion of the anticipated financial benefits of downsizing. Arguably, large scale actions by corporates can also potentially be a catalyst for further trouble in the future in the context of a declining customer and investor base and an intact employee brand.
The pandemic has shone a light onto the ugly reality of some of our most recognisable brands. Whilst the moral arguments for considering people over profits and the rhetoric of ‘good business’ has increased during the pandemic, there may be a gap between the narrative and the reality.
In September this year, Oxfam offered a critical analysis of the behaviour of corporations across the globe, isolating over 100 examples from more than 400 companies of what they believe to be an ongoing focus on profits over people13. Such examples include “continued shareholder payouts and executive compensation programmes despite receiving government bailouts and laying off workers, failing to ensure employee safety and prevent labour violations” and instances of companies “profiting from government relief programs lacking merit or eligibility.”13. In the U.K, a CIPD survey this year indicated that despite the majority of employers citing themselves as ‘worried’ about how well their staff can balance remote working with parenting, more than half were nonetheless encouraging parents to make up their full contractual hours at home4. This type of home/work pressure is a clear juxtaposition with employer concerns and is particularly hard on working parents.
We are in the midst of a global catastrophe that has affected everyone to some degree. Consumers, employees and investors have arguably been heading down the ‘ethical’ path for several years now, but it seems that this shared pandemic experience has brought ethical choice even closer to home. Companies that have prioritised their employees by, for example, implementing safe working conditions and reliable pay for those who need it most will likely reap the benefits in the future. It will be interesting to see if brand loyalty will save those companies that have demonstrated that their priority is still, despite the context, financial gain over everything else. There are, of course, organisations that have reacted with integrity and, at least on the face of it, have demonstrated an approach that seems far more transparent, fair and compassionate5. These include taking positive actions such as suspended redundancies, extended paid leave, support for mental health or topped up furlough pay.
But what about those companies that are facing the kind of financial disruption that means they cannot avoid making tough decisions on pay and benefits?
Research tells us perhaps what experienced HR professionals have always known – that whilst downsizing may be a necessity, this won’t automatically increase the performance benefits for the company6. Following a period of lay-offs, ‘survivor’ employees’ feelings of relief at keeping their jobs fall away and are replaced by stress and anxiety. Often referred to as ‘Survivor Syndrome’7, retained employees may feel a host of negative perceptions. These can include feelings that measures were unfair8, that there is an ongoing threat and that ‘they may be next’, or that they cannot trust leadership. Survivor Syndrome can lead to reduced collaboration, decreased job performance and have a detrimental impact on creativity9
and communication long term10. Most crucially, though, it can lead to an increased turnover of remaining employees.
The strong relationship between redundancies and voluntary turnover rates in the aftermath of a redundancy programme is, if anything, deeply ironic. Without a careful implementation of good H.R. and leadership practices, studies indicate that voluntary turnover rates can almost double8. The high associated costs of recruitment and understaffing undermine the financial benefits of downsizing materially. In other words, the intended savings from the redundancy programme can be rendered negligible.
However, there are measures that may work to mediate the negative impact of corporate actions. Whilst the research has focused primarily on the effects of restructures and lay-offs, they also apply to actions that negatively impact on pay, benefits, or the working environment.
Who’s calling the Shots?
When employees perceive themselves as having a significant degree of ‘organisational control’, the negative impact of downsizing will have less of an effect on their commitment to the company. There are two ways that organisational psychologists have typically conceptualised employee control.
The first concept is ‘self-determination.’ This is the extent to which an individual feels that their behaviour is determined by themselves rather than say, coerced. Do employees feel that they have a strong influence over their work? If so, then they may perceive themselves to have a high degree of organisational control.
However, a more crucial role is played by the second concept which has been found to significantly impact organisational commitment even further. This is the extent to which individuals feel that they can influence decisions made in the organisation. If they feel that they are ‘listened’ to and that outcomes rely on their professional input, then they will perceive themselves to have a high level of organisational control.
It is easy to see then here how truthful and transparent consultation and collaboration during this period is far more critical than we would perhaps initially consider.
Fair and Square?
Those surviving employees will typically make an assessment about whether they feel that the processes and decisions were ‘just’. This calculation will include an evaluation of whether the communication was compassionate and transparent and if associated procedures such as grievance protocols were available. The organisation’s willingness to be ‘fair’ in this way will have personal implications for surviving employees in the long term – particularly whether they feel that personal advancement, pay and benefits will be made available for themselves in the future.
Typically, leaders consider being ‘fair’11 in their decisions as a ‘nice to have’ – i.e., not of any crucial importance to their organisation. However, studies have shown that when managers are fair in how they operate, this can impact the bottom line for a range of reasons, including increased innovation and strategic support.
Built to Stay?
We should keep in mind during this time that how committed an individual is to an organisation can be a material factor in how well it will eventually rebound, and thus how well the organisation recovers post-crisis. Factors like retirement plans, on-site childcare, flexible working, and paid sabbaticals can strengthen the organisational commitment of employees.
Whilst the career development of employees is probably not at the top of the list for organisations during this time, giving the nod to their staff’s futures does have the potential to moderate the adverse effects of negative corporate actions8. A realistic context of this includes progression opportunities, the ability for employees to assess their skills, and formal succession planning. These could take the form of education, development training and job rotations.
Nancy Koehn, a Harvard Business School professor, gives some insights into how a crisis can create leaders12. It takes a crisis for leaders to have the opportunity to overcome hardship and to develop the behaviours to lead others. Sometimes we may forget, but we do know how important it is to treat people with fairness and transparency, especially when it is most difficult to do just that. We also know that beyond it being the right thing to do, this type of leadership will mean that we will hold on to people when this crisis is finally over.
** this article has been updated and was originally published in HRD on 21st April
CEO of the Good Business Initiative
1 – Lott-Lavigna, R. (April, 2020). This Spreadsheet Calls Out Companies Screwing Workers Over Coronavirus. [online] Available at: https://www.vice.com/en/article/5dmaak/this
2 – GOV.UK. (September, 2020). Official figures show that the furlough scheme has worked: saving jobs and helping more than half of employees back to work already. [online] Available at: https://www.gov.uk/government/news/official-figures-show-that-the-furlough-scheme-has-worked-saving-jobs-and-helping-more-than-half-of-employees-back-to-work-already
3 – Marszalek, D. (April, 2020). How Companies Treat Employees During Crisis Will Make Or Break Their Reputations. [online] Available at: https://www.provokemedia.com/latest/article/how-companies-treat-employees-during-crisis-will-make-or-break-their-reputations
4 – Baska, M. (April, 2020). Key and home workers struggling with childcare, poll reveals. [online] People Management. Available at: https://www.peoplemanagement.co.uk/news/articles/key-and-home-workers-struggling-with-childcare
5 – Kohll, A. (April, 2020). How One Company Is Taking Care Of Employees During COVID-19. [online] Forbes. Available at: https://www.forbes.com/sites/alankohll/2020/04/06/how-one-company-is-taking-care-of-employees-during-covid-19/#76c207ac488d
6 – Vermeulen, F. (2009). The Tricky Truth About Downsizing. [online] Harvard Business Review. Available at: https://hbr.org/2009/04/the-tricky-truth-about-downsiz
7 – Brockner, J., Spreitzer, G., Mishra, A., Hochwarter, W., Pepper, L. & Weinberg, J. (2004). Perceived Control as an Antidote to the Negative Effects of Layoffs on Survivors’ Oragnisational Commitment and Job Performance. [online] Administrative Science Quarterly. Available at: https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/4598/perceived%20control.pdf
8 – Trevor, C.O. and Nyberg, A.J. (2008). Keeping Your Headcount When All About You Are Losing Theirs: Downsizing, Voluntary Turnover Rates, and The Moderating Role of HR Practices. Academy of Management Journal, 51(2), pp.259–276.
9 – Amabile, T.M. and Conti, R. (1999). CHANGES IN THE WORK ENVIRONMENT FOR CREATIVITY DURING DOWNSIZING. Academy of Management Journal, [online] 42(6), pp.630–640. Available at: https://dash.harvard.edu/bitstream/handle/1/37940231/Downsizing-changes-in-the-work-environment-for-creativity-Amabile-Conti-1999.pdf?sequence=1&isAllowed=y
10 – Nyberg, A.J. and Trevor, C.O. (2009). After Layoffs, Help Survivors Be More Effective. [online] Harvard Business Review. Available at: https://hbr.org/2009/06/after-layoffs-help-survivors-be-more-effective
11 – Brocker, J. (2006). Why It’s So Hard to Be Fair. [online] Available at: https://hbr.org/2006/03/why-its-so-hard-to-be-fair
12 – Koehn, N. (2020). Real Leaders Are Forged in Crisis. [online] Harvard Business Review. Available at: https://hbr.org/2020/04/real-leaders-are-forged-in-crisis
13 – Corbett, T. and Ratcliff, A., 2020. Pandemic Profits For Companies Soar By Billions More As Poorest Pay Price | Oxfam International. [online] Oxfam International. Available at: <https://www.oxfam.org/en/press-releases/pandemic-profits-companies-soar-billions-more-poorest-pay-price> [Accessed 18 November 2020].
14 – Corbett, T. and Ratcliff, A., 2020. Pandemic Profits For Companies Soar By Billions More As Poorest Pay Price | Oxfam International. [online] Oxfam International. Available at: <https://www.oxfam.org/en/press-releases/pandemic-profits-companies-soar-billions-more-poorest-pay-price> [Accessed 18 November 2020].