“Sales revenue had dropped by 40% over the past four months. Our reserves are running low. Outstanding debts is running high – what is the Credit Control Department doing?” Azman’s head is spinning as he scanned through the financial report submitted by his Financial Controller. “Some people have to be axed if this continued…” this thought has started to pop up two months ago when the telltale signs of the worst recession ever occurred hit him.

Is layoff the best option to save the company?

Even though many considered layoffs should be the last resort but in actual situation, the board of directors may not think so. At the end of the day, everyone wants to protect their own interests. But, the middle management or hired CEO can make a difference in influencing the stakeholders such as the board and shareholders. In the Harvard Business Review, March 2009 issue, there was a case study being done to determine the best strategy for a company that is in such a dilemma. Some interesting insights were offered and the following are some that we believe are sensible ideas:-

• Get employees to be involved – When Jurgen Dorman was the CEO of ABB, he reach out personally to half a million people around the globe (including the families of employees). He wrote to every worker and related the out-and-out truth: that if we did not turn the ship around together, we’d all be out of jobs. He said he had kept them posted. He made it clear that layoffs were the last, worst option, but that if they were to save themselves, every single one of them would have to come up with ideas for cutting costs. Ideas came and after two years they’d saved $1 billion – and had saved the company too.

• Middle management to demonstrate the kind of behavior that correlates with the times – no one should be going to private dining rooms, no business class flying and etc. Managers need to model humility at every possible turn. It is sad that some companies such as AIG’s executives do not see the need to change with times. It was reported that AIG that had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history, had taken $170 billion in federal bailout funds was announcing over the last weekend that it was bound contractually to pay out tens of millions in executive bonuses. President Obama put it aptly: “All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules.”

• If layoffs are inevitable, the company must avoid stretching out the process over weeks and months. The longer the uncertainty drags on, the more morale will suffer. Managers especially need to resist the temptation to bad-mouth the people they fire – doing so enrages the retained employees and demeans those who are let go.

• The last-in, first-out is a better option than first-in, first-out even though the latter may prove to get rid of “deadwood” or “semi-retired” staff. The termination costs are lower for less-tenured employees. Moreover, they are often younger and will have an easier time changing careers.