Employee layoffs can harm brand and reputation – and how to mitigate the impacts
05 May 2009
A difficult task an increasing number of senior executives, managers and communicators have had to undertake in recent months is to consider whether it is necessary to layoff staff. With ongoing viability at stake and in some cases an imminent threat of business failure, the number of redundancies has been rising. Tough for the managers, sure, but even tougher for those on the receiving end.
Across Asia, I’ve noticed in the past six months some companies have handled this toughest of situations with transparency, dignity and compassion while others have been in denial, tried to “spin” the news as something positive or just attempted to gloss it over. Worst of all, I have read newspaper reports quoting senior executives saying the dismissals are no big deal at all. “That’s nothing … this is really a storm in a tea cup,” said one when asked about the number of layoffs at his company.
Based on engagements in this area I have undertaken during this recession, it seems that multinational corporations are more open when handling layoffs than local companies (though of course there are some exceptions). They are more willing to consider new approaches, willing to spend time preparing and consider the impact in a holistic manner, rather than focusing solely on the bottom line. They want best practice from developed (or heavily unionised) markets not only in their handling of this difficult exercise but also in all of their HR and employee activities: treating employees as people, not just another headcount or unit of productivity. These employers know that not only their people are watching and making notes for the future (ie when the economy improves and job options elsewhere improve) but so are a large number and wide array of stakeholders, including customers.
That’s something for executives in Asia to ponder as we all focus on working our way out of this mess. Let’s hope the cycle has hit the bottom, the need for further layoffs is dissipating and better times return soon.
An article I wrote for Marketing magazine and published this month is below. It deals with communications externally and internally when handling layoffs, outlines a number of considerations and shares some advice we often provide to clients facing this situation:
“These are tough times. With revenues declining and the need to manage margins, companies are having to deal with some of the toughest issues they will ever face – including restructurings and employee layoffs.
Many corporations are rightly focused on managing the negative impacts of downsizing internally. With heavy hearts, they want to make the cuts in a way that ensures the organisation’s ongoing viability, have mimal impact on processes and manage the harm to morale. Managers also focus on the way forward.
As a result, many managers and communicators in Asia have been caught unawares by the level of external scrutiny of workforce reductions particularly by media during what the International Monetary Fund has called the Great Recession.
It’s important to understand why there has been so much scrutiny, recognise that treatment of employees is a vital driver for corporate reputation and realise effective communications externally will mitigate the risks and downside.
As the economic downturn has strengthened its grip since last September, media have been seeking to bring to life in real terms the stories behind the statistics – the human price now being paid for the excessive borrowing, fat bonuses and regulatory shortcomings. Remember that media’s business is to not only inform but also sell itself as a product by attracting readers and viewers – its marketing function is primarily achieved by tapping into fears and desires.
A simple but powerful story is being told by media – innocent victims are losing employment and jobs are in jeopardy. Corporations, particularly those from the financial sector at the heart of this maelstrom, are the villains of the piece. Fear is not the only driver here, there is also a strong need from the community, individuals and businesses to better understand the forces that have been unleashed by the financial meltdown.
Companies need to recognise their reputation and brands still stand as valuable assets which require protection. An important element of reputation in the eyes of stakeholders, and particularly consumers or customers as well as investors, is how a company treats its employees. The relationship with employment practices has been well by numerous corporate reputation models including Fortune magazine’s Most Admired Companies rankings.
There is evidence that layoffs have a negative effect on companies’ reputations. It can also harm share prices, given the average shareholder reaction to a layoff announcement is reportedly slightly negative. Shareholders examine closely the actions of management to gain insights into the performance and outlook of a business.
Accordingly, it is vital during a layoff or restructuring for communications to be part of the planning process and for the function to have a seat at the table of decision makers and advisers. Communicators need to work closely during this difficult period with HR, legal, operations and management – while advising the CEO.
One of the most important considerations during a layoff is to integrate internal and external communications. Too many companies have conducted terminations of staff without considering how the news of layoffs will be perceived externally. Employees – particularly those who have lost their jobs – will tell friends, business associates and competitors. Some will even release information into public channels such as online forums, chat rooms and BBS boards on the Internet. Prudent communicators and managers always factor in the possibility that the bad news will be reported to the media and plan accordingly.
Some considerations for planning communications at the time of restructurings include:
- Being the first to break your own difficult news can provide greater control in terms of setting the agenda and getting out the company’s messages
- Explain clearly to internal and external parties why the decision is being made and how it will impact the business
- Be human. Recognise the difficulties for those who are being laid off as well as for the company in making the decision
- If providing extra benefits or outplacement assistance to staff in finding new employment then communicate that clearly
- Communicate openly and frequently with all external stakeholders, not just media. Inform business partners, update regulators, brief politicians, etc. Parties which are well informed by the company will keep an open mind
- Remain disciplined in communications. Stick to core messages focusing on why, how many, what impact and how the business is planning for recovery
- Treat all employees, including those who are losing jobs, with dignity and care”