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How to downsize your company with care and compassion

Economic uncertainty has taken root in the UK and globally, with mass layoffs one of its most troubling consequences. Last month came the news that nearly 15,000 British retail jobs have been cut since January, following constant news updates of big tech companies thinning their workforce.

While employee departure is a natural part of business, letting employees go remains among the most challenging aspects of a leader's job, from a business, practical and human perspective.

It’s vital to understand the psychology of those affected, the broader organisational impact, and proper people practices.

A well-managed, considerate approach can allow departing employees to transition to the next stage and provide support for remaining employees, ultimately minimising disruption to businesses.

More on dealing with redundancies: 

HR lessons from Twitter and Meta layoffs

What should HR know about mass redundancies?

HR needs to prepare for further sackings in 2023

Redundancies and pay freezes on cards for 2023

The challenges posed by large-scale downsizing

Although a business’s approach will vary depending on circumstance, the leadership required and principles that underpin it remain the same. Laying off employees requires leadership behaviour based on emotional intelligence, compassion and integrity.

Executives come under a huge amount of pressure and scrutiny when they carry out large-scale layoffs. There is concern about departing individuals, the remaining team and impact on the brand. Even if part of a larger effort within a business, it’s a time when a leader’s qualities will be carefully and closely judged.


How leaders should carry out layoffs

Layoffs, whether individual or large-scale, are highly personal for the departing individual and those who remain. Compassion and care are the hallmarks of a good leader and are key to inspiring trust and confidence in your people. People choose to follow leaders.

Care and consideration at an early stage can avoid unnecessary legal challenges, operational disruption, and brand damage. In a nutshell, business leaders should:

  • Understand local legal requirements and seek advice from your legal team
  • Be aware of cultural sensitivities around employment in different countries and seek advice from your chief people officer or HR leader
  • Address the impact on all groups: employees being laid off, remaining employees, local community, shareholders/stakeholders
  • Understand the impact on operations (such as the supply chain) and brand, and plan approaches to minimise this
  • Articulate the business case and acknowledge accountability, while being cautious of how much to share about business
  • Be prepared for different emotional reactions; expect the unexpected
  • Manage the impact on a leader’s own emotions and energy by carving out space and doing meaningful activities outside work
  • Allow for a grieving period then refocus employees on the vision, mission, key strengths of the organisation and their role in its future

An empathetic approach is vital

It is important leaders remind departing employees that termination is a business decision. While people will inevitably take it personally, you need to focus on reinforcing the idea that the decision did not come about because of some character deficit on their part.

A 2020 report from the American Psychological Association cites a broad range of studies showing the negative impacts of job loss and unemployment on mental health.

The risks are most pronounced for individuals with limited resources, for whom job loss will immediately threaten their ability to support themselves. However, even those who retain relative financial stability can suffer from mental health issues due to the lack of routine, purpose, and social engagement through employment.


Consistency is key

There should be a general level of consistency when executives carry out discussions about severance, whether the person is dismissed due to gross misconduct or not being suited to their role. Maintaining a professional demeanour, being clear and direct, and offering a tailored level of support is appropriate is vital.


Tackling survivors’ guilt following a downsize

A poorly judged approach to downsizing or terminations will have negative impacts on the employee experience and can result in survivors’ guilt, with a study by Leadership IQ finding almost three quarters of remaining staff reporting a decline in productivity following a downsize.

Remaining employees will appreciate transparency in explaining the reasons for workforce reduction, but there are often details business leaders prefer to keep private for business reasons. A good leader walks a considered line between being honest and oversharing.

In large-scale terminations, it’s important to give employees space to vent and process their emotions about losing colleagues, how work will be completed, project concerns and other issues.

While terminations can be traumatic, it’s also critical to remind employees that better times lie ahead. Once the grieving process is at a reasonable point, leaders should harness this opportunity to stress the vision and mission of the business, what needs to be done, and the underlying strengths of the organisation.

Then encouraging workers to recognise that no company can function without its workforce, and the future success of the business lies in their hands will also give staff the motivation to move forward.


The bottom line

Downsizing is an unpleasant but inevitable and necessary part of business. Businesses will always need to make dramatic changes to their workforces when financial realities demand it, and doing this is a critical test of leadership.

A considered and thoughtful approach in terms of project management, leadership, and an ability to keep showing up when things are at their most difficult, is crucial for everyone affected.

Managing layoffs with courage, care and compassion as well as efficiently and with one eye on the future is a sure sign of an effective leader. No successful company has lasted for generations without weathering tough times, and the ability of a leader to keep moving through challenges is a decisive factor.

Kevin Keegan is partner at Boyden UK & Ireland