Who is Responsible for Layoffs?
Douglas J Utberg, MBA
Value Creator | Disruptive Change Agent | People-First Leader
At the time of this writing, there are multiple companies announcing layoffs.
Of course, times of layoffs are always difficult since the result is hundreds to thousands of people having their lives disrupted.
The problem is that most of the people who get laid off don't necessarily do bad work. In many cases, they have done exceptional work.
However, the result is the same ... people no longer have a source of employment.
The natural question this raises for me is who bears responsibility for the act of doing layoffs.
Who Is Impacted by Layoffs?
The answer to this question is pretty straightforward ... the people impacted are the ones who no longer have a job.
Not only are they impacted, but their families are impacted as well.
In most cases, the people who get laid off are the people who are involved in the operations of the company. (Sometimes called the 'worker bees')
This is not exclusively the case, as many layoffs also involve management since executive salaries are typically a significant multiple of entry-level compensation.
However, there are very few situations where the quantity of management layoffs exceeds the quantity of operational layoffs.
Who Makes the Decision to do Layoffs?
The answer to this question is also straightforward. The people who decide about layoffs are the people responsible for running the company.
But here's the rub ...
It is extremely rare for company executives to reduce costs by reducing their own ranks, so the resulting impact typically falls on the lower-level employees of the company.
From one perspective, this makes sense as there are far more people at the working level of the company than there are in management.
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However, there is another perspective to consider ....
Who Got The Business to the Point Where Layoffs Were Necessary?
The critical factor to consider when it comes to layoffs is who makes the strategic decisions about how to manage and grow the company. In most cases, these decisions are made by senior management.
And here is where we have the rub ... when senior management makes decisions that steer the company to a place where layoffs are needed, they are not the ones who are typically impacted. (Even when executives are terminated, large severance packages or 'golden parachutes' are frequently awarded.)
Because of this, I feel that senior management bears a level of responsibility that current corporate governance models are not equipped to address.
The people running a company bear responsibility for setting the strategic direction and fostering a culture of execution so that the enterprise remains competitive through the inevitable economic cycles.
This stands in contrast to the recent trend of CEOs and executives borrowing money to finance share buybacks that inflate the price of the company stock by reducing the supply of shares in circulation.
This tactic is very effective in making stock grants and stock options more valuable, but it makes the company very vulnerable to an economic downturn since there are now additional interest expenses that need to be paid.
Final Thoughts
Earlier in my life, I was an ardent believer that the purpose of corporate leadership was to maximize returns for shareholders. I have now come to believe that this framework only holds true if you are measuring value on an infinite time horizon.
In the event that the time horizon of evaluation gets shortened, maximizing shareholder wealth will result in decisions that are destructive to the long-term viability of the enterprise.
My personal view is that prudent strategic management of a corporation is the art of creating resilience to prevent the need for layoffs in the first place. To accomplish this, most companies will be best served to aim for a significant, but not dominant market presence in multiple adjacent product and service areas that are correlated to different parts of the economic cycles.
In this way, resources can be flexed between segments of the business during economic cycles so that the institutional knowledge of the company is not lost because of short-term decisions to cut the cost structure.
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