Downsizing without tears

As global recession takes hold – fuelled by the terrorist
attacks in the US – three HR directors pass on the lessons they have learnt in
times of downsizing

Joanne Webster, vice-president, worldwide, HR, at California-based
software firm Clarent Corporation, had to cut her global workforce by 10 per
cent in May as a result of the downturn in the IT and telecoms sectors. Having
been in HR for 25 years she is no stranger to downsizing and determined not to
repeat the mistakes of past recessions

Clarent Corporation has had to make redundancies as part of a cost-cutting
exercise. 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 organisation
and, depending on how you conduct yourselves, HR will either gain or lose the
respect of its employees.

This time round we were determined not to make the same mistakes that many
corporations made in the last recession. For starters, we were more strategic.
HR worked with line managers to see which jobs could be eliminated without a
direct impact on productivity. We tried to balance business needs against
people. For example, as our hiring activity had slowed considerably, we
reassessed the need for recruiting staff in the HR department.

Second, we were conscientious and considerate both with employees who had to
go and with managers who had to deliver the message and enlisted the help of
outplacement consultancy Lee Hecht Harrison.

In the old days, we just gave managers a hit list of employees who were
going to face the axe and left them to it. This time, managers got some
training a few days before staff were notified about the workforce reduction
programme. They were shown how to deal with employees who might react in a
hostile manner, be in denial, or feel heartbroken or angry, without getting
caught in an emotional confrontation and to help them to start looking forward.

Before these one-to-one meetings, however, managers arranged a group meeting
in every location to inform all employees what was happening and why. One of
the most challenging aspects was notifying all our offices about the programme
simultaneously.

We wanted as little time lag as possible. Because we are global, it was
difficult to do that. Overseas managers were given a time and date for when
they should notify staff, which was different for each country. Those in the US
were notified in the morning and in Europe it was late afternoon. In Asia
Pacific – because of the huge time difference – employees were informed early
the following day.

By the end of that day everyone knew whether or not they had a job. Those
being made redundant had one-to-one meetings with their managers. As there were
still critical positions that needed to be filled, those being made redundant
had the opportunity to apply for those posts, and were notified within two days
if they had been successful. Those that weren’t were offered support services,
which was an improvement from my last experience, where people were merely
given a contact number, which many people didn’t bother to use.

Although there weren’t a lot of people being made redundant in Europe, I
decided to go there in person, as termination procedures are much more complex
than in the US. You need to know relevant employment laws, which vary from
country to country, and then determine the appropriate process. In the US, for
example, you can tell an employee that this is their last day because of the
"employment at will" concept. But in Europe it is far more
complicated, as a notice period and a severance package are often both
required. 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 in
the US, we still offered it, as I felt it was the right thing to do. An
employer who is making its employees redundant should feel a certain obligation
towards them.

In the past, we rarely talked to remaining staff either, which resulted in
low morale. This time, as well as talking to employees who had been selected
for downsizing, we spoke to those who were staying. We explained what had
happened, who was assuming more responsibility, and so on. In some locations
where there were no offices, such as in Europe, we had to do this over the
telephone.

We also did follow-up work with people whose jobs had been terminated, to
find out whether they used the services of the outplacement agencies. I think
it sent a message along the lines of, "We still care, even though you are
not with us anymore". After all, if the economy should turns around, we might
find ourselves in a position to rehire them – and former employees are more
likely to come back if they have been treated fairly. It also sends a positive
message to the people who stay.

For HR managers in a similar predicament, it is essential you convince the
board that outplacement is vital – it is a show of good faith. But if it is not
possible to buy the services of an outplacement agency, there are a couple of
things you can do to help those being made redundant. Is there a non-profiting
outplacement support organisation in your area? If so, you can get support for
employees for free or for very little money.

Networks, such as SHRM chapters or friends and colleagues within the
profession, are another cheap way of offering assistance. Find out whether they
have any openings at their firms and pass these details on to employees who
have lost their jobs at your firm. This is an inexpensive option and can be
invaluable to former staff.

In the first half of the 1990s, BT cut its workforce in half – from
200,000 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’s
reputation or destroying morale was a tall order by anyone’s standards. But for
BT, downsizing was a must if it was to survive fierce competition and fulfil
its ambition to become the world’s number one telecommunications company.

Redundancy comes in two guises – compulsory and voluntary. The voluntary route
seemed preferable, because we were not only spared the unenviable and awkward
task of drawing up hit lists, but also the insecurity, fear and injustices that
compulsory programmes engender.

When senior managers were targeted in the first phase of the downsizing
programme in 1990 – to reduce the layers of management from 13 to six – more
than 8,000 managers readily accepted the redundancy packages and early
retirement options on offer.

But by 1992 another 20,000 jobs had to go to make a real impact on the
business, so voluntary redundancy was offered to all BT employees. To our
relief, more than 46,000 employees expressed an interest. BT let 32,000 people
go that year, with 19,000 leaving on the same day. What made up many people’s
minds was the early-leaver bonus, which entitled those who left by the end of
July that year to an additional bonus of 25 per cent of salary – equivalent to
three 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 recognising
that most employees had spent most of their working lives at BT, we also
established a range of programmes with the help of outplacement and recruitment
agencies that allowed people to get a certain number of paid days’ work with
other companies.

Of course, all redundancy programmes, – regardless of whether they are
voluntary or not – have a negative impact on the survivors. Morale was
certainly low at the beginning of the programme. Staff were concerned that they
were going to be asked to volunteer to resign, so we had to implement several
initiatives that focused on the survivors, reassuring them that they had a role
to play by retraining and reskilling them.

The communications process, both external and internal, concerning the
restructuring also presented numerous challenges. We consulted with the unions
not only on creating satisfactory redundancy packages, but also on how best to
introduce the changes.

Dealing with the press, however, proved trickier. The papers continued to
print scathing headlines about BT sacking people, although no one was actually
sacked. But we rode through it because our employees knew the real story, and
our PR departments were well briefed on how to handle the press.

Although a voluntary redundancy programme has fewer negative repercussions
than the compulsory approach, it is not without its downside. The main
disadvantage was that the company ended up losing some key people. We tried to
overcome that by saying that anyone who did want to leave had to get the
permission of their line manager, as a safety net. But, unfortunately, there
were a few managers who felt pressured to meet headcount targets and therefore
may have let some valuable people slip through the net to the competition. But
that’s the price you pay for a totally voluntary programme.

With the wisdom of hindsight I would now highlight some of the key talent
that ought to be retained – a valuable lesson for HR directors in a similar
predicament.

Franchette Richards, former senior manager, HR at BBO, was charged
with laying off hundreds of employees, including herself, after the company
declared bankruptcy earlier this year

Like many people in the late 1990s, I left a very stable role at one of the
big five consultancies to venture into high tech. I joined Broadband Office
(BBO) as senior manager of HR – a role designed to support the business plan
which aimed to take worldwide headcount to 1,600-plus employees in the next 24
months.

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 investment
market, the source for additional funding, and the industry took a downward
turn. 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 shutting
down a business you so firmly believed in, laying off hundreds of colleagues
who had become "family" and dealing with the various issues that
arose, was eye-opening.

Although we were able to put together Q&As for employees and provide
letters for unemployment insurance purposes, there were other situations that
arose that we were not immune to – for example, the freezing of the company’s
bank accounts, which is standard practice by the courts when a company declares
bankruptcy. This, of course, can prevent a company paying out money owed to
employees in a timely manner until approved by the bankruptcy judge.

Another concern was healthcare benefits for released employees and their
families, as the US does not have a national healthcare system. The
vulnerability of a company’s ability to offer health benefits to employees
after it is declared bankrupt was probably the biggest shock to me.

Bankruptcy affects the ability to offer COBRA – a federally legislated programme
in the US for continuation of insurance coverage. In the States, companies are
required by law to offer insurance continuation for up to 18 months, but if the
company’s insurance plan is no longer in existence, COBRA cannot be offered. In
a close-down situation, then, it is uncertain how long the company will be able
to maintain and pay for the base policy, thus possibly leaving several hundred
employees and their families scrambling to get individual insurance policies in
a very short time. Everyone from the president to the receptionist was equally
impacted by this.

Since BBO was not sure about how much longer it could offer insurance, we
started strongly suggesting to employees that they look at other means of
obtaining individual insurance – which can take a couple of months.

Moreover, the multiplicity of issues around pension funds and retirement
plans were complex, and needed the assistance of outside counsel. Sorting out
401(k) issues (the US employer-sponsored private retirement savings scheme) is
hugely time-consuming, due to its complexity, the number of parties involved
and the regulatory laws surrounding its administration. As it is designed for
retirement savings, there are built-in aspects to slow and discourage
pre-retirement withdrawals. At BBO, this was no exception. It took immense
efforts and an inordinate amount of time to terminate the 401(k) plan so
employees could either roll-over or cash out their individual accounts. Funds
can be rendered inaccessible for several months, and it is important to
communicate this to employees.

The HR and legal issues that arise when bankruptcy law takes over are
complex, as the courts assume responsibility for closing the business. The HR
role, 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 an
expert. The complexities of US bankruptcy law, employment law and employee
benefits are areas where multiple parties and issues arise very quickly. We
took the advice of Rebecca Ermer, vice-president for HR at another high-tech
firm, who told us to "ensure the bankruptcy and HR attorneys are from the
same firm, as the workload would be significant".

Retrospectively, one positive thing that evolved from the lay-offs was the
development of a BBO alumni website by our laid-off employees. This ended up
being the unofficial communiqué for employees, since internal e-mail addresses
no longer worked. By word of mouth and e-mail, the majority of former employees
were able to log on and get access to the latest updates from the executives
and the bankruptcy courts. Today, former BBO employees are helping one another
to find jobs, and news continues to be posted as the bankruptcy proceedings
continue.

From a personal point of view, the most challenging aspect of this
experience was the deluge of e-mail and voicemail from several hundred staff
trying to get questions answered, paychecks or expense reports paid, 401(k)s
cashed out, and so on. When one issue came up, another issue pertaining to it
arose that needed further research before it could be resolved. Trying to
provide 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 deliver
answers 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 on
getting my own job search started, I was focused on helping our employees get
their issues resolved. Now that I’m looking for my next role, perhaps back in
international HR, I really don’t regret the hours I put in as I know I made a
difference for a lot of people. It was the right thing to do.

This article originally appeared in Personnel Today’s sister title Global
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