The unintended consequences of mass lay-offs

This is an audio transcript of the Working It podcast episode: ‘The unintended consequences of mass lay-offs’

Sandra Sucher
The premise of work, the psychological contract is more or less that if I do my work well, I get to keep my job. What a lay-off does is it severs that trust. That psychological contract will be capped and it’s not just like a speculation. People have seen that it’s not being kept. So that immediately is an assault on the individual’s trust in the organisation.

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Isabel Berwick
Hello and welcome to Working It from the Financial Times with me, Isabel Berwick. Lay-offs — every week, there’s news of more of them. And this past week it was Meta’s turn. Ten thousand jobs are being axed at the social media giant over the coming months and it’s the second major round of cuts in just four months. Sandra Sucher, who you heard at the beginning of the show, is a professor of management practice at Harvard Business School. She’s researched how mass lay-offs affects so-called survivors, that’s the staff left in place after a cu-ll of their colleagues. And in this episode, I’m asking what happens to those survivors and what happens to a company’s culture after a mass lay-off? We’ll hear more from Sandra a little later. But first, here’s the FT’s management editor, Anjli Raval. She recently wrote a piece about the unintended consequences of lay-offs.

Anjli Raval
So much of what people tend to talk about around lay-offs is the cost savings. And yes, there might be a big number attached to it. But what we forget is that there are lots of people who are left behind. And I think the perception may be that they should be grateful for their jobs. They’re the ones that were saved and they are in a much better place than some of the people that have been fired. The chances are, you’re probably not going to be as creative as you were before. You’re not going to trust your managers as much as you did before. You’re not going to go above and beyond for your company because all these announcements have shown that hard work doesn’t necessarily guarantee you a job. And so you’re just gonna keep your head down and sort of see how things go. And more often than not, actually, what you find is that the number of voluntary exits does increase.

Isabel Berwick
Right. So there is evidence that compulsory exits actually lead to a kind of exodus of the remaining staff.

Anjli Raval
Some academics have found that downsizing a workforce by just 1 per cent can lead to a 31 per cent increase in voluntary staff turnover over the next year, which is quite staggering.

Isabel Berwick
That is staggering, wow. I mean, I can totally see how that happens, because if your corporate culture has been upended, your colleagues have left. There was one particularly arresting example I remember from your writing, which is that there was a group of, I think, 15 colleagues, a big tech company working on a project. Can you tell us what happened there?

Anjli Raval
Yeah. And this was just a scenario where overnight 12 of those people were fired. So they were all on this Slack chat trying to resolve a bug in a system. And so, 12 people get fired and the people left behind are sort of wondering, well, do you try to create a new chat to resolve this problem or do we just quietly sort of slink away? And that’s essentially what they ended up doing. You know, the other thing with people left behind, you forget that they have to pick up the work as well, right, from the people that have been fired. So it does breed a lot of resentment and they’re having to work in far more trying circumstances.

Isabel Berwick
I guess what all of this says to me is that, as you say, your employer is not your family. And I think, for a lot of big sort of paternalistic employers, staff get lulled into that feeling. And especially if you’re working long hours, you’re being well paid, you’re in a team you like, these are very familial traits. We are tribal. We like to be with people like us. So I mean that, the devastation of this, I think, is quite extraordinary.

Anjli Raval
I think what gets lost with, you know, when you look at all these company perks — the free lunches, the hoodies, the water bottles and all of that — is that fundamentally this is not your family, right? And so, there has to be a sense of respect for one another, respect in the organisation. And chances are, you may not be working there forever. But it’s hard to think like that when you’re really enjoying your work. You want to stay at an organisation and you think that you’re being valued.

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Isabel Berwick
So what Anjli is really referring to there is the contract of trust between employers and staff and how that might be damaged after a big round of lay-offs. Sandra Sucher of Harvard Business School, who we heard at the start of the show, is an expert in these sorts of issues. She’s co-author of The Power of Trust: How Companies Build It, Lose It, Regain It. So I asked Sandra how so-called survivors typically react when a large number of their colleagues have been let go.

Sandra Sucher
What happens usually in the aftermath, immediate aftermath of the lay-off, is that you have two groups that are trying to figure out what to do. One is the group that’s been let go and the other people are the ones who are left behind. And they have a tonne of questions that have to be answered and they’re practical questions. It’s things like, person who I understand has just been laid off, who’s doing real work, who’s gonna pick up that work and how much of that’s gonna fall on me? Their primary question is, who was chosen and why, and am I next? And so, if you could imagine walking into kind of a wind tunnel where all of a sudden everything is being blown around you and people are trying to figure out what is happening here. That’s a lot of what it looks like inside a lay-off. The other way it can look is a stunned silence. It’s the kind of quiet that happens as people are just trying to absorb something that’s really a psychological, emotional and for many of them, fears about a financial shock. And so they just get stopped dead in their tracks.

Isabel Berwick
And so, when does the idea of trust or lack of it start to show up? Is that later?

Sandra Sucher
No, that’s immediate (laughter). So, I’d like to say it comes later but you have to understand that the premise of work, the psychological contract, is more or less that if I do my work well, I get to keep my job. If I’m not doing my work well, performance management takes over and get that.

But what a lay-off does is involuntary termination for economic reasons is it severs that trust. That psychological contract will be capped. And it’s not just like a speculation. People have seen that it’s not being kept. And so that immediately is an assault on the individual’s trust in the organisation and raises all kinds of questions about was this necessary? What was the reasoning that went into it? Why did this have to happen at the scale that it happened? Why did it have to happen the way that it happened?

And all of those questions are questions about the competence of an organisation, which is one dimension of which people are trusting. Another is just on their motives. Whose interests are they taking into account when they did that? Are they just concerned about the bottom line? Do they care anything about the people who are working there literally an hour ago? They worry about how people were treated because they see a window into how they themselves are going to be treated if conditions persist.

And the last thing that they think about — these are all the kind of four dimensions of which people trust — is just the impact that this has had on their life and in particular on their colleagues’ lives. People don’t duck for cover. They worry about the people they were sitting next to just yesterday or just an hour ago, and it’s impossible. You wouldn’t want them to work in an organisation where they didn’t care. And we do all kinds of things to promote caring communities and connections. And so you can imagine what happens. That’s like putting a knife through the centre of that and saying that we’re just gonna be willing to destroy that thing that we’ve been building so carefully over time.

Isabel Berwick
Is there any way for leaders to preserve trust staff have in them and what sort of communication should they employ? Do they seem fake if they cry or seem upset by it? What’s the best tactic, do you think?

Sandra Sucher
So there was a remarkably awful example of a CEO who put a post on LinkedIn of him crying because he’d done a lay-off and he was excoriated for that. People said, why are we supposed to feel sorry for you? What about the people you just let go? It was appalling, honestly. So there are three things that people wanna hear in the aftermath of a lay-off, and this is communication that people should be making. They should be saying, we tried to do the best and here’s the reason why we felt we had to do what we did. We take your work and everybody else’s work seriously. We have a good path going forward and there’s a role for you. And so this is a time — it’s quite tempting and I myself would participate in my executive career in lay-offs — to run for cover yourself. You’re embarrassed that you’ve done this. You know what you’ve done to the people in your organisation if you’re close enough to them. But this is a time to be out and about and opening discussion with people so that you can show that you understand that they’re reasonably concerned and that you’re trying to put your life on the line to let them know that you’re kind of being with them through this. So this is a time for senior-level management to communicating, first-line supervisor communicating. One should be milling about, trying to help people make sense of what just happened.

Isabel Berwick
It doesn’t seem like rocket science, but do you think many leaders actually do that?

Sandra Sucher
Oh very few.

Isabel Berwick
(Laughter) It doesn’t surprise me, sadly. Is it because of our human aversion to conflict?

Sandra Sucher
That’s part of it — there’s remorse. In moral reasoning, there’s something called a moral residue. And that’s when someone faces that kind of a right versus right challenge. I feel like I have to let people go for the good of the company, but I know that I’m not treating them well. Those are two rights. It’s good to treat people well, it’s good to try to do things on behalf of the company. And in the face of that kind of a conflict, people always feel regret and remorse for the step that they couldn’t take. So I would love to not have to have people laid off or I wish our conditions were better and I didn’t have to do that. That remorse, that sort of wishing things could be different, that’s just part of the terrain here. And it’s architecturally part of the terrain because you can’t do both of those things at the same time. Protect everyone and do what you feel you need to do to protect your company economically.

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Isabel Berwick
As Sandra says, mass lay-offs can break the bonds of trust between employer and staff. But how far should you trust your future to your employer in the first place? Well, I asked Jonathan Black about that. He’s the FT’s career specialist and director of the Oxford University Careers Service. What sort of advice does he give to people in organisations that are having slow lay-offs and months of dragging uncertainty?

Jonathan Black
I think there are two things about protecting yourself. The main one is to understand yourself and understand your strengths. And in a way, the Kübler-Ross change curve can be quite helpful because at some point, whether it’s a sudden group where a lot of you are laid off or you individually, there is a shock that’s coming. And one way to prepare yourself and protect yourself, you can reduce the impact by thinking about it in advance. If this were to happen, what would I do? The sun will keep coming up in the morning. The world keeps turning. But you’ve got to get over that shock. And one way to do that, of course, then, is to understand who you are and what your skills are and prepare your CV looking forwards rather than what you’ve done.

Isabel Berwick
I’ve heard this phrase “career cushioning” as a way of protecting yourself against lay-off or job change. Have you heard that phrase?

Jonathan Black
One way to cushion it is people who have portfolio lives and maybe have three or four roles, if they lose one of them, it’s not such a shock as losing one out of one. Maybe that’s a way to cushion it, but I think the cushion is around yourself, understanding your own strengths.

Isabel Berwick
Suppose that an amount of self-awareness comes into play here and that actually if you’ve had a corporate career, you don’t actually have to think that hard about yourself in a wider context. You’re on train tracks, essentially. So this is a real wake-up call for a lot of people, I would imagine.

Jonathan Black
Yes. And hence you get this terrible shock that you wake up the next morning, the Tuesday morning after the lay-off. You have no job and you might have no idea because as you say, if you’ve been in a corporate role for many years on a train track, you haven’t had to think about it and now you suddenly do. You’ve also got the shock and sometimes embarrassment of having to tell your friends and family that this has happened. So again, I think the advice there is not to be ashamed. This is quite a common thing and most people you meet will have been through this once or more in their lifetime.

Isabel Berwick
Yes.

Jonathan Black
So it’s not such a terrible thing to have happen.

Isabel Berwick
And for those left behind, is survivor guilt a real thing? Have you observed that?

Jonathan Black
I think those left behind should also be thinking, do I? Do I trust this vision of the future that’s been painted? I think over the last few years, some organisations, especially during the pandemic, did a lot of fast hiring and will be going through a normal downsizing. That doesn’t mean the end of the organisation. It’s just part of the life cycle of organisations that they will come. So if I were left behind, I think some advice would be, would you apply for your job if it were available and you were outside? Would you have trust in this organisation as it is now and the vision that they’ve painted of the future? Unless people change and organisations change.

Isabel Berwick
And there’s also a part here where it could be an opportunity to advance up the career ladder. You know, lots of people have left. You’re still there. I guess there’s a piece here for some people to make real change and advancement in their careers.

Jonathan Black
Yes, indeed. And I think we had a question on this in Dear Jonathan a few years ago about if you know there’s a lay-off coming and let’s say it’s six months away, do you throw yourself into it or do you immediately start putting the parachute on to jump out? And I think it’s a bit of both. You can see opportunities and if you throw yourself into it on the sort of management side about helping make the transition, then you might be seen as somebody to keep as the organisation moves into new growth. It can be hard to do if you think you’re worried about it, but on the other hand, what’s the alternative? You’ll be looking for a new job and putting in some bets with the current one.

Isabel Berwick
To end on a sort of more optimistic note, is there a world in which these lay-offs and you’re left behind could be an unintended consequence that actually launches your career? It sounds brutal, but for some people, this might be a great thing.

Jonathan Black
Absolutely. But I’m optimistic by nature. And I think once you come over the curve and you get over the shock of it happening, it’s actually a great opportunity to sit down with a blank sheet of paper and say, I’ve got nothing to lose now. I think it should be seen once you’re over the emotional shock, it should be seen as an opportunity to really start with tabula rasa and say, what could I do? What is that? There are plenty of jobs out there in the world. Let’s go and see what we could do that’s new.

Isabel Berwick
I guess that goes for people who’ve been left behind. I think a lot of those people will probably leave in quite short order, won’t they? So they might reappraise their lives even though they haven’t lost their jobs.

Jonathan Black
The logical extension of that, Isabel, is to say you should be doing that all the time. Don’t wait to be pushed. Sometimes some of us all need a push, but sometimes you can jump.

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Isabel Berwick
It’s been interesting in this week’s episode to think of the unintended consequences of mass lay-offs. We don’t often talk about the people left behind, but as we’ve heard, the effect on them is really profound. Productivity goes down, people leave. And most importantly, trust is broken. And when you lose trust in your employer, that’s really hard for leaders to regain. So I’ve been really heartened to hear about some ways that people can communicate, can keep things going after a mass lay-off. But psychologically, this is a profound thing for the people affected on both sides, the laid-off and the survivors. And there’s no quick solution to this. The most extraordinary statistics, I think, that come out of this week is the idea that a third of your staff might leave in the years following a big lay-off. That’s huge. That’s gonna have a massive impact. And I hope that anybody thinking about cuts, you know, in a very short-term way will keep that in mind when they think about the profound effect it might have on their corporate culture and indeed their productivity and profitability. So if this is a subject you’re keen to hear more about, we did a Working It episode just before this one asking if there’s an, inverted commas, “good way” of sacking people en masse. You’ll find it wherever you get your podcasts.

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Thanks to Jonathan Black, Anjli Raval and Sandra Sucher for this episode. If you’re enjoying the podcast, we’d really appreciate it if you left us a rating and review on Apple Podcasts. And please do get in touch. We want to hear from you. And we’re at workingit@ft.com. Or I’m Isabel Berwick on LinkedIn. If you’re an FT subscriber, please sign up for our Working It newsletter. We’ve got the best workplace and management stories from across the FT. Sign up at FT.com/newsletters. This episode of Working It was produced by Manuela Saragosa and Audrey Tinline with mix from Breen Turner. Thanks for listening.