Layoff – The Boardroom Story

Layoff – The Boardroom Story

We are all aware of various ways by which an employer and an employee can terminate the contract of employment. Just to clarify for all readers that the “letter of appointment” and “contract of employment” are the same. In both, an employer and an employee agrees to come together on certain mutually acceptable terms and conditions. The contract of employment can be terminated by employer for various reasons such as non-performance, misbehavior, theft, misrepresentation, layoff and etc. An employee can also terminate the contract of employment for diverse reasons. Although, in many western countries, such as US and Canada, it is mandatory to specify in the contract of employment, if the employment is “at will” or not but in many other companies, “at will employment” is implied. This employment at will relationship exists regardless of any other written statements or policies contained in the Handbook or any other Company documents or any verbal statement to the contrary. In the doctrine of “at will employment”, the Company does not offer tenured or guaranteed employment. Either the Company or the employee can terminate the employment relationship at any time, with or without cause, with or without notice (we will discuss about this doctrine in one of our future write-up). In this article, we will discuss in detail the inside story of layoffs.

Let’s first understand the terminology:

As defined by various dictionaries and institutions, Layoff is,

The act of laying-off an employee or a work force - wordnetweb.princeton.edu/perl/webwn

The temporary suspension or permanent termination of employment of an employee or (more commonly) a group of employees for business reasons, such as the decision that certain positions are no longer necessary or a business slow-down or interruption in work. - en.wikipedia.org/wiki/Layoff

A dismissal of employees from their jobs because of tightened budgetary constraints or work shortage (not due to poor performance or misconduct); In football, a ball that has been rolled in front of another player for them to kick - en.wiktionary.org/wiki/layoff

Separation from a permanent position because of lack of work, or lack of funds; a layoff shall also include any reduction in hours of employment or assignment to a class or grade lower than that in which the employee has probationary or permanent status, voluntarily consented to by the employee. - www.tusd.org/PersonnelCommission/Publications/ClassifiedEmployeeHandbook/Chapter1/tabid/344/Default.aspx

Wikipedia has further explained that the term "layoff" originally meant a temporary interruption in work (and usually pay). The term became a euphemism for permanent termination of employment and now usually means that, requiring the addition of "temporary" to refer to the original meaning. Many other euphemisms have been coined for "(permanent) layoff", including "downsizing", "excess reduction", "rightsizing", "de-layering", "smart-sizing", "redeployment", "workforce reduction", "workforce optimization", "simplification", "force shaping", and "reduction in force" (also called "RIF", especially in the government employment sector).

…and thereafter they lived happily

There are many stake-holders of the revenues generated by a company, such as investors, shareholders, and government officials (Income Tax, Sales Tax, Service Tax, Wealth Tax and etc). Another major cost center is the business operations, cost that is mandatory to run the business smoothly (rental, deprecation, production cost, distribution cost transportation cost, and etc). Most of these costs cannot be compromised with. And then there is employee cost (compensation, benefits, welfare, perks, bonuses, and etc). Once the revenue money is distributed under various heads, company drives the profit. For a business or organization to sustain, it is important to make profits. This is the idealistic situation when year after year; the company manages to run smoothly and also keep its stakeholders satisfied. A small problem or a hiccup here and there is proficiently managed without inversely affecting the flow and ensuring smooth sail for company ship. Everybody enjoys and celebrates; after all they have contributed to make it a success.

…and then the ship of the company hits an iceberg

Suddenly the inflow of money into the company begins to get delayed, shrink and then marginalized. As the company goes through all these stages, it becomes apparent that the company is not keeping good health and something needs to be done. Before we proceed further, we need to touch upon a few relevant concepts and theories.

CEO as a bridge between Board of Directors and Operations: - CEO is appointed by the Board of Directors and, therefore, is accountable and answerable to the Board and Investors. It is the money of shareholders and investors that facilitates the smooth running of the Business Empire and hence, it is one of the core job responsibilities of the CEO to protect their vested interests. That is why, on the one hand CEO shares the credit of the success of business with all the employees, vendors and business partners but at the time of crisis, he/she accepts the responsibility to ensure the survival and sustainability of the business. Hence the phrase, “I am the Captain of the ship”.

Types of Information: - All the information that circulates at the workplace is not meant for everybody. Information can be classified as – Generic, For Your Information Only and Classified / Confidential or Sensitive Information. The last type of information is not meant for everybody and gets filtered at various levels.

Role of the Company Management: - People who run the company affairs and operations (C-Level Executives and Senior Managers) are entrusted with a responsibility of not creating panic in the market, industry and within the company. Creating panic affects the company inversely. It gives advantage to competitors, brings down the share-value and keeps the prospective investors away. Being hopeful is a general nature of mankind. And therefore, even at the time of crisis, just like any team of hopeful people, company management also feels that they will be able to manage everything and things will improve with time.

At the time of crisis or then when business begins to run in the south, cost cutting becomes apparent and necessary (money saved is money earned) but employees are not the first one to go out. No management wants to do that but rather; they want their employees to manage their houses and families. At the same time, they expect their employees to be supportive and to understand the gravity of the situation and yet, not to create panic. The first few things to go are bonuses, perks, and benefits. And the next thing to go is employees. Among the employees, the first one to be churned out is non-performers, followed by people in “specialist” roles, support functional executives and senior but new managers. And if the company still couldn’t survive then it is the last one to go. Either it becomes bankrupt or gets taken-over / borrowed by a bigger player at a scrap rate.

Transparency in the System: People may be curious to know that if the management of the company was aware of the inevitable then why they were not transparent or honest about it and shared the information with its employees? And my question to them is, “how could that have helped the company to survive”? What you would have done had you been aware of the situation or the health of the company or had access to the inside information? I think that the only thing that you would have done is to search and secure a good job for yourself; intentionally or unintentionally help in creating panic among employees and also in the market and that would have resulted in top performers to leave (a bunch of people that the company could have retained at any cost); drop in share-value of the company and a hostile bid to take-over. If in normal circumstances, the company that would have taken 9-12 months to sink (and who knows if in that time span, they could have managed a turnover and revive the fortunes of the company) would have sunk in 2-3 months.

Conclusion:

This article is an attempt to share glimpses of “Classified Information” and the inside story of Board Room that goes around whenever a company hits an iceberg and begins to sink. We have also made an attempt to discuss about various stakeholders of the company. Under normal circumstances and even during crisis, for as long as it is possible, every company likes to retain its employees, particularly its top-performers. The captain of the ship loves to share the growth, prosperity and profitability of the company and won’t mind giving you the credit of its success but whenever the company is in crisis or its very existence is on the verge of sinking then he has no other option but to take control and do everything possible in hand to keep it floating.

At the time of crisis - economic, political or financial, what you would you have done had you been the CEO or investor or Senior Manager of such company??? What would have been your strategies to revive its fortunes and save 100’s of jobs? Your thoughts and feedback is important for us and help us to improve the quality of our content.

Kindly share your views.

Take very good care of yourself.

Composed by: Sanjeev Himachali

LinkedIn Profile: http://www.linkedin.com/in/sanjeevhimachali

Emails: sanjeev.himachali@gmail.com; ss_himachali@yahoo.com

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