The right way to fire people (without shattering your reputation)

For months, companies in most sectors have been in a war for talent as they battle to hire from a scarce pool in a tight labor market. Now, faced with an economic slowdown, some of these businesses are having to make layoffs instead.

After a hiring spree during the pandemic, the technology industry is going through a firing spree as the share prices of some of the biggest household names come under pressure. Facebook owner Meta and Amazon have announced that they are letting more than 10,000 people go each, while Twitter’s new owner Elon Musk has already axed about half the social network’s 7,500-strong workforce in recent weeks.

The billionaire drew criticism for the brutality of the sackings, after announcing the layoffs through email — with some of the cutbacks made in error. How such leaders handle making redundancies will contribute to the long-term success of their companies.  

As inflation soars and the threat of recession increases, businesses in industries beyond Silicon Valley may be forced to make difficult decisions on costs, which could mean making layoffs to safeguard the wider organization. Managers should not shy away from making those tough calls, but is there a good way to fire people?

At the same time, as the economic outlook darkens and employees lose some of their newfound bargaining power, how should the departed handle the bad news and position themselves for success elsewhere.

A test of purpose and values 

For those companies doing the firing, the coming economic pain will test whether they can stay true to their purpose and values in the bad times as well as the good. Some businesses have already failed that test and are suffering reputational damage as a result.

Klarna, the Swedish fintech and online financial services firm, was said to have blindsided employees when it announced it would cut more than 700 staff earlier this year, some of them hired just weeks before. The company’s chief executive Sebastian Siemiatkowski came under further criticism when he shared a list of sacked employees on LinkedIn.

One of the most critical questions that firing organizations need to answer is why they are making redundancies. Whether it is because of a predicted drop in consumer spending, higher costs, or rising interest rates, this must be clearly communicated to employees in an authentic and honest way.

More than this, best practice includes carrying out exit surveys to check if the message is coming across. When I worked in HR at the Finnish paper group Stora Enso between 2010-16, we hired an external agency to interview 500 of the 2,000 people we let go in one of several rounds of redundancies. We presented the results to the entire organization, demonstrating a commitment to our values, which include always acting fairly.

Companies should also be able to justify why each employee has been let go on an individual level. That person may not agree with the rationale, but they will demand an answer to this important question, and they are entitled to one. Factors that go into such a decision may vary depending on local rules and regulations, but it might also have to do with the strategic direction of the company. For example, if you chose to focus more on a certain part of your business than the other, this might lead to a greater need of a certain set of skills, which this individual may not have.   

Going beyond severance pay 

In addition, companies should also empower and help employees to find another job. The firms that do this well go beyond paying only severance and offer career counselling to help people find long-term ways to secure their own livelihoods. That can include helping staff to improve their CV and put themselves in the best position to find gainful employment elsewhere.

More than anything, though, staff must feel respected throughout the redundancy process. While subjective, it is the way each interaction is handled – from the CEO making the public announcement, to the line manager discussing the difficult decision with the employee, to how HR departments handle the logistics of it all – makes the difference to how people feel about the company they are leaving. As this oftentimes happens in a rush, while also being a sensitive process that no one likes to go through, it requires well-articulated principles, a clear process, and training for those involved to enable them to do it well.   

Badly handled job cuts can come back to haunt businesses. Social media has increased digital transparency and made it easier for people to call out bad corporate practices. The era when bosses can behave terribly, and people don’t know about it, is over. Twitter’s employees expressed their dissent on the company’s own social media platform, while Klarna’s aired their grievances with journalists, prompting a slew of negative headlines. Other firms can learn from these mistakes.

The benefits of decency 

At the same time, companies that uphold decency when firing staff stand to gain, particularly when the time comes to rehire and invest in driving future growth. Consider the mass layoffs announced by airlines and the hospitality industry during the COVID-19 pandemic and the struggle these businesses have faced in attracting people back to industries renowned for long hours, relatively low pay, and often poor conditions.

Professionalism, fairness, and compassion can be a competitive advantage. Those virtues also send the right signals to those who stay on, ensuring that engagement levels in the workforce do not drop. Surprise job losses, especially those handled poorly, have a negative effect on not just the departed but those left behind, who may experience “survivor’s guilt”. This erodes the sense of shared sacrifice that bonds teams together and creates the impression that people are dispensable.

Companies looking at big workforce culls can learn lessons from other sectors, notably the management consulting industry. Consulting is notorious for letting people go gently and maintaining good relationships with their alumni, a recognition that these are the firm’s future clients. McKinsey alone counts dozens of Fortune 500 CEOs among its former employees.    

One business that has been hailed as managing layoffs well is Ericsson, the Swedish telecoms equipment maker. The company reduced its global workforce from 107,000 to 47,000 between 2001 and 2005, but it offered an extensive support program, with several options for those in Sweden.

Redundant employees could choose to spend all their working hours finding a new job with professional help while receiving their full regular salary – or take early retirement or severance pay. By the end of 2005, almost 80% of those employees who opted for the support scheme had found new jobs within 12 months.

Advice for employees: Never stop learning

But for employees, the work must start before they are laid off. They must take responsibility for their own professional development, and never stop learning new skills and competencies – think of it like putting an insurance policy in place in case of an accident.

This will strengthen the security of their current employment, but also position them for success when finding new work elsewhere. It is important not to become complacent, nor overly loyal. As Narayana Murthy, the founder of Indian tech giant Infosys, reportedly said: “Love your job but never fall in love with your company.” The crux of the quote is that when difficult decisions need to be taken, that love is not worth a dime.