Downsizing without tears

first_imgAs global recession takes hold – fuelled by the terroristattacks in the US – three HR directors pass on the lessons they have learnt intimes of downsizing Joanne Webster, vice-president, worldwide, HR, at California-basedsoftware firm Clarent Corporation, had to cut her global workforce by 10 percent in May as a result of the downturn in the IT and telecoms sectors. Havingbeen in HR for 25 years she is no stranger to downsizing and determined not torepeat the mistakes of past recessions Clarent Corporation has had to make redundancies as part of a cost-cuttingexercise. We have had to let go of around 100 people across 24 countries. It is at such times that HR has the highest visibility in an organisationand, depending on how you conduct yourselves, HR will either gain or lose therespect of its employees. This time round we were determined not to make the same mistakes that manycorporations made in the last recession. For starters, we were more strategic.HR worked with line managers to see which jobs could be eliminated without adirect impact on productivity. We tried to balance business needs againstpeople. For example, as our hiring activity had slowed considerably, wereassessed the need for recruiting staff in the HR department. Second, we were conscientious and considerate both with employees who had togo and with managers who had to deliver the message and enlisted the help ofoutplacement consultancy Lee Hecht Harrison. In the old days, we just gave managers a hit list of employees who weregoing to face the axe and left them to it. This time, managers got sometraining a few days before staff were notified about the workforce reductionprogramme. They were shown how to deal with employees who might react in ahostile manner, be in denial, or feel heartbroken or angry, without gettingcaught in an emotional confrontation and to help them to start looking forward.Before these one-to-one meetings, however, managers arranged a group meetingin every location to inform all employees what was happening and why. One ofthe most challenging aspects was notifying all our offices about the programmesimultaneously. We wanted as little time lag as possible. Because we are global, it wasdifficult to do that. Overseas managers were given a time and date for whenthey should notify staff, which was different for each country. Those in the USwere notified in the morning and in Europe it was late afternoon. In AsiaPacific – because of the huge time difference – employees were informed earlythe following day. By the end of that day everyone knew whether or not they had a job. Thosebeing made redundant had one-to-one meetings with their managers. As there werestill critical positions that needed to be filled, those being made redundanthad the opportunity to apply for those posts, and were notified within two daysif they had been successful. Those that weren’t were offered support services,which was an improvement from my last experience, where people were merelygiven a contact number, which many people didn’t bother to use. Although there weren’t a lot of people being made redundant in Europe, Idecided to go there in person, as termination procedures are much more complexthan in the US. You need to know relevant employment laws, which vary fromcountry to country, and then determine the appropriate process. In the US, forexample, you can tell an employee that this is their last day because of the”employment at will” concept. But in Europe it is far morecomplicated, as a notice period and a severance package are often bothrequired. The law varies from country to country – In the UK, for example,clear employment contracts must stipulate terms and conditions of employment,including terms of redundancy. That said, although a notice period and severance package is not required inthe US, we still offered it, as I felt it was the right thing to do. Anemployer who is making its employees redundant should feel a certain obligationtowards them. In the past, we rarely talked to remaining staff either, which resulted inlow morale. This time, as well as talking to employees who had been selectedfor downsizing, we spoke to those who were staying. We explained what hadhappened, who was assuming more responsibility, and so on. In some locationswhere there were no offices, such as in Europe, we had to do this over thetelephone. We also did follow-up work with people whose jobs had been terminated, tofind out whether they used the services of the outplacement agencies. I thinkit sent a message along the lines of, “We still care, even though you arenot with us anymore”. After all, if the economy should turns around, we mightfind ourselves in a position to rehire them – and former employees are morelikely to come back if they have been treated fairly. It also sends a positivemessage to the people who stay. For HR managers in a similar predicament, it is essential you convince theboard that outplacement is vital – it is a show of good faith. But if it is notpossible to buy the services of an outplacement agency, there are a couple ofthings you can do to help those being made redundant. Is there a non-profitingoutplacement support organisation in your area? If so, you can get support foremployees for free or for very little money. Networks, such as SHRM chapters or friends and colleagues within theprofession, are another cheap way of offering assistance. Find out whether theyhave any openings at their firms and pass these details on to employees whohave lost their jobs at your firm. This is an inexpensive option and can beinvaluable to former staff. In the first half of the 1990s, BT cut its workforce in half – from200,000 to 100,000 – without having to resort to compulsory redundancy.Personnel director John Steele outlines the challenges he faced Slashing BT’s workforce in half, without seriously damaging the company’sreputation or destroying morale was a tall order by anyone’s standards. But forBT, downsizing was a must if it was to survive fierce competition and fulfilits ambition to become the world’s number one telecommunications company. Redundancy comes in two guises – compulsory and voluntary. The voluntary routeseemed preferable, because we were not only spared the unenviable and awkwardtask of drawing up hit lists, but also the insecurity, fear and injustices thatcompulsory programmes engender. When senior managers were targeted in the first phase of the downsizingprogramme in 1990 – to reduce the layers of management from 13 to six – morethan 8,000 managers readily accepted the redundancy packages and earlyretirement options on offer. But by 1992 another 20,000 jobs had to go to make a real impact on thebusiness, so voluntary redundancy was offered to all BT employees. To ourrelief, more than 46,000 employees expressed an interest. BT let 32,000 peoplego that year, with 19,000 leaving on the same day. What made up many people’sminds was the early-leaver bonus, which entitled those who left by the end ofJuly that year to an additional bonus of 25 per cent of salary – equivalent tothree months’ pay. On top of the financial package, BT offered various self-help packages –from basic careers advice to how to set up your own business. And recognisingthat most employees had spent most of their working lives at BT, we alsoestablished a range of programmes with the help of outplacement and recruitmentagencies that allowed people to get a certain number of paid days’ work withother companies. Of course, all redundancy programmes, – regardless of whether they arevoluntary or not – have a negative impact on the survivors. Morale wascertainly low at the beginning of the programme. Staff were concerned that theywere going to be asked to volunteer to resign, so we had to implement severalinitiatives that focused on the survivors, reassuring them that they had a roleto play by retraining and reskilling them. The communications process, both external and internal, concerning therestructuring also presented numerous challenges. We consulted with the unionsnot only on creating satisfactory redundancy packages, but also on how best tointroduce the changes. Dealing with the press, however, proved trickier. The papers continued toprint scathing headlines about BT sacking people, although no one was actuallysacked. But we rode through it because our employees knew the real story, andour PR departments were well briefed on how to handle the press. Although a voluntary redundancy programme has fewer negative repercussionsthan the compulsory approach, it is not without its downside. The maindisadvantage was that the company ended up losing some key people. We tried toovercome that by saying that anyone who did want to leave had to get thepermission of their line manager, as a safety net. But, unfortunately, therewere a few managers who felt pressured to meet headcount targets and thereforemay have let some valuable people slip through the net to the competition. Butthat’s the price you pay for a totally voluntary programme. With the wisdom of hindsight I would now highlight some of the key talentthat ought to be retained – a valuable lesson for HR directors in a similarpredicament. Franchette Richards, former senior manager, HR at BBO, was chargedwith laying off hundreds of employees, including herself, after the companydeclared bankruptcy earlier this year Like many people in the late 1990s, I left a very stable role at one of thebig five consultancies to venture into high tech. I joined Broadband Office(BBO) as senior manager of HR – a role designed to support the business planwhich aimed to take worldwide headcount to 1,600-plus employees in the next 24months. But a year on, as for many other dot-coms, things started to deteriorate.The overall market correction in the US had basically dried up the investmentmarket, the source for additional funding, and the industry took a downwardturn. Although BBO’s business plan was never designed for failure,circumstances ultimately dictated the company’s shutdown at very short notice.By May 2001 the company had filed bankruptcy and laid off all its staff. As the last remaining HR professional at BBO, the experience of shuttingdown a business you so firmly believed in, laying off hundreds of colleagueswho had become “family” and dealing with the various issues thatarose, was eye-opening. Although we were able to put together Q&As for employees and provideletters for unemployment insurance purposes, there were other situations thatarose that we were not immune to – for example, the freezing of the company’sbank accounts, which is standard practice by the courts when a company declaresbankruptcy. This, of course, can prevent a company paying out money owed toemployees in a timely manner until approved by the bankruptcy judge. Another concern was healthcare benefits for released employees and theirfamilies, as the US does not have a national healthcare system. Thevulnerability of a company’s ability to offer health benefits to employeesafter it is declared bankrupt was probably the biggest shock to me. Bankruptcy affects the ability to offer COBRA – a federally legislated programmein the US for continuation of insurance coverage. In the States, companies arerequired by law to offer insurance continuation for up to 18 months, but if thecompany’s insurance plan is no longer in existence, COBRA cannot be offered. Ina close-down situation, then, it is uncertain how long the company will be ableto maintain and pay for the base policy, thus possibly leaving several hundredemployees and their families scrambling to get individual insurance policies ina very short time. Everyone from the president to the receptionist was equallyimpacted by this. Since BBO was not sure about how much longer it could offer insurance, westarted strongly suggesting to employees that they look at other means ofobtaining individual insurance – which can take a couple of months. Moreover, the multiplicity of issues around pension funds and retirementplans were complex, and needed the assistance of outside counsel. Sorting out401(k) issues (the US employer-sponsored private retirement savings scheme) ishugely time-consuming, due to its complexity, the number of parties involvedand the regulatory laws surrounding its administration. As it is designed forretirement savings, there are built-in aspects to slow and discouragepre-retirement withdrawals. At BBO, this was no exception. It took immenseefforts and an inordinate amount of time to terminate the 401(k) plan soemployees could either roll-over or cash out their individual accounts. Fundscan be rendered inaccessible for several months, and it is important tocommunicate this to employees. The HR and legal issues that arise when bankruptcy law takes over arecomplex, as the courts assume responsibility for closing the business. The HRrole, rather than diminishing, becomes more central to the operation. This”winding down” time is still as demanding, if not more than before. Unfortunately, when a company files for bankruptcy protection in the US,there is not a “giant book of knowledge” one can read to become anexpert. The complexities of US bankruptcy law, employment law and employeebenefits are areas where multiple parties and issues arise very quickly. Wetook the advice of Rebecca Ermer, vice-president for HR at another high-techfirm, who told us to “ensure the bankruptcy and HR attorneys are from thesame firm, as the workload would be significant”. Retrospectively, one positive thing that evolved from the lay-offs was thedevelopment of a BBO alumni website by our laid-off employees. This ended upbeing the unofficial communiqué for employees, since internal e-mail addressesno longer worked. By word of mouth and e-mail, the majority of former employeeswere able to log on and get access to the latest updates from the executivesand the bankruptcy courts. Today, former BBO employees are helping one anotherto find jobs, and news continues to be posted as the bankruptcy proceedingscontinue. From a personal point of view, the most challenging aspect of thisexperience was the deluge of e-mail and voicemail from several hundred stafftrying to get questions answered, paychecks or expense reports paid, 401(k)scashed out, and so on. When one issue came up, another issue pertaining to itarose that needed further research before it could be resolved. Trying toprovide support for close to 400 people in multiple time zones was daunting.The 12 to 14-plus hour days I was keeping, plus the inability to deliveranswers to every query were arduous. It was especially tough because I knew that I, as well as the employees,were going to end up on the job market. Although I knew I should concentrate ongetting my own job search started, I was focused on helping our employees gettheir issues resolved. Now that I’m looking for my next role, perhaps back ininternational HR, I really don’t regret the hours I put in as I know I made adifference for a lot of people. It was the right thing to do. This article originally appeared in Personnel Today’s sister title GlobalHR. To subscribe call 01444 445566 or visit www.reedbusiness.com Related posts:No related photos. Downsizing without tearsOn 2 Oct 2001 in Personnel Today Previous Article Next Article Comments are closed. last_img read more