Communications Effective communications are vital to the success of the divestiture. Employees should be kept informed about the status of negotia- tions and any other information that management can legally and prudently share. Top management can accomplish this through bulletin board announcements, memos, “town hall” or “all-hands” meetings, as well as electronic media. Questions should be antici- pated and provisions made to answer them on an ongoing basis. First-line supervision can be an effective ally in rumor control. If there is a labor union in the facility, the union’s local leadership must be informed about the pending sale. The timing of this no- tice may vary. In some instances, management may decide to in- form the union as soon as the decision to sell is made. In other instances, the seller may keep negotiations secret until the buyer’s representatives are visiting, and it becomes obvious that something is pending. In either situation, the union must be given a reason- able amount of time in which to enter negotiations with the seller over issues such as the pension plan, health benefits, and vacation and holiday pay. Depending on the labor-management relation- ship, notification can be helpful in stopping rumors. Ultimately, the buyer will place a value on the facility and its employees, who represent the intellectual capital of the firm. While this analysis and evaluation will not constitute a guarantee of con- tinuing employment, employees need to be encouraged to main- tain a high level of productivity, demonstrating their commitment and value to the buyer. Facility Closings Facility closings, traumatic to a variety of stakeholders, are an in- creasingly common fact of business life. The term plant closings applies to more than the traditional industrial manufacturing op- eration. The “plant” could be a distribution center, a sales office, a hospital, or any number of facilities that are deemed to be no longer economically viable at the location. The closing could be relocation to another city, state, or country. In general, the impact on stakeholders is virtually the same. HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 251 TEAMFLY Team-Fly ® 252 RESIZING THE ORGANIZATION Community Issues Depending on the size of the closing entity relative to the popula- tion of the community, civic officials fear the impact on tax assess- ments, local unemployment, and the reputation of the city as a place to locate or expand a business. In an attempt to minimize this impact, management should cooperate with the community by holding job fairs and inviting interested potential employers to interview affected workers. In addition, advertisements can be placed in newspapers in select communities listing the types of job categories being cut. Federal funds may be available in coopera- tion with the state unemployment service for interview training, re- training for different job skills, and similar services that will assist displaced employees. Ultimately, a goal should be to lessen the im- pact on the community. Labor Unions Typically, incumbent unions are not entitled to negotiate the de- cision to close a facility. Nevertheless, they have a legitimate right to enter into negotiations with management over the effects of the closing decision. The company frequently is faced with demands for severance pay, health insurance extension, transfer rights, reemployment assistance, and other issues. This requirement to negotiate with the union is an illustration of the economic inter- ests of another stakeholder and the need for management to an- ticipate and plan for this eventuality. Management Issues From the time the closing is announced until the last employee leaves, management is confronted with a variety of challenges. Op- erations must continue on some scale, customer needs must be sat- isfied, and key employees must be retained. The typical response is to award stay bonuses to a select group of managers and sever- ance pay and other inducements to production employees who agree to remain until they are no longer needed. Timing An important issue is to determine when the closing will actually occur. I was involved in the closing of an avocado packinghouse. The employees were informed of the closing date and made their individual plans accordingly. Management had timed the last day based on the end of the avocado harvesting season. Unfortunately, the avocados to be packed that season were still on the trees, and it was difficult to estimate how many green avocados remained among the thick green leaves on the trees. The result was that the crop exceeded estimates. The final day for packing subsequently had to be revised several times. Rather than seeing these changes in a positive manner (since the paychecks would continue longer than anticipated), the employees were uniformly displeased. They wanted to get on with their “post-avocado” lives. This story illus- trates the difficult role for management to correctly anticipate the needs of stakeholders and structure the best outcomes under the circumstances. Employees Whereas the selection of those to be terminated in a complete fa- cility closing is different than it is with a mass layoff, the sequence of who goes first versus who stays longer can present another major problem for management. Anger among the affected employees is not uncommon. Employees may react negatively toward perceived favoritism in the sequence of departures. Although sabotage is rare, employees can think of other ways to get back at management. In one case, a group of disgruntled employees caught in a downsizing set up a Web site to name and criticize individual members of man- agement, encouraging other employees to vent their feelings about what was perceived to be uncaring treatment by management. Media Media attention often follows the closing notice, and often it is not very friendly. Obviously, management must be prepared to tell its story of why the closing was necessary and what efforts it is putting HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 253 254 RESIZING THE ORGANIZATION forth to help employees and the community recover. Lack of care- ful planning can portray management as uncaring. From the time the closure is announced until it is completed, management has the responsibility to communicate its story hon- estly to the various stakeholders. While this communication effort may take different forms for various stakeholders, the goal is to ob- tain as favorable an audience as possible. Such an effort will allay fear of the unknown for employees and seek their cooperation in maintaining production until the closure is brought to an orderly conclusion. If conducted properly, this communication effort may gain a sympathetic, or at least a neutral, hearing among other in- terested groups. Once again, preparation is the key. In one instance, a two-hundred-employee plant in a city of sev- eral hundred thousand residents was slated to be closed by a firm headquartered in another state. As the human resource executive who announced the closing was leaving the plant for his return flight, he was surprised when confronted by a microphone, a re- porter, and a rolling television camera. His assumption that the closing of a relatively small plant in a large city would go unnoticed obviously was wrong. This story illustrates the need to anticipate and plan for stakeholder reactions to a negative event. Sound advice about disseminating negative news, such as a plant closing, is contained in the following Los Angeles Times article (Vaughn, 2001): The public’s first impression of how your company handles misfor- tunes will be long lasting, said Michael Kempner, chief executive of the MWW Group, a New Jersey based crisis communications and public relations firm. “As you learn and verify information, have your spokesperson disseminate it quickly. You’re battling rumors that spread with lightning speed on the Internet, and you’re up against 24-hour news cable channels. Respond straightforwardly and factually. As the public relations adage goes, ‘Tell the truth, tell it all, tell it fast.’ The public perceives techno babble, legalese and euphemistic spins for what they are: avoidance strategies” [p. W1]. Mass Layoffs The general understanding of the term mass layoff is that a large number of employees are going to lose their jobs, typically all at the same time. Clarification of terms is appropriate here. A layoff implies a temporary cessation of employment with an expectation of recall, as with seasonal employment or cyclical business periods. The classic example is with unionized employees whose recall rights are spelled out in detail. Technically, the resizing that results in the termination of employees is not a layoff. Typically, when an organization resizes, there is no expectation of reemployment; hence, the emphasis is on such matters as severance pay and out- placement assistance. Instead of a layoff, the action taken when an organization resizes is a termination of employment. Resized em- ployees are not being fired, as is so often reported in the press. An employee is considered fired when there is some level of wrong- doing or lack of performance. This is not the case with a mass re- duction in force. Consequently, resizing is not a layoff or a firing; resizing results when a group of employees lose their employment. To the affected employees, the terminology that management uses makes little difference. The action can be called a restructur- ing, downsizing, delayering, right-sizing, or any of the other terms frequently used to describe this situation. Whatever word is used, they have lost their position and need to find another one. The press has reported numerous stories of how not to inform employees that their positions are being eliminated. A classic ex- ample occurred in one large company when employees were noti- fied to report for a meeting in either Conference Room A or Conference Room B. Those who entered Room A were told that their jobs were eliminated and to pack their personal belongings immediately. Those in Room B were informed that they were not terminated. This message was followed by a pep rally atmosphere and then an admonition to return to work. Moreover, there was an obvious security presence since computer access was frozen for those departing employees. Not too surprisingly, the company ex- perienced a wide range of operational problems soon after. Even a respected consulting firm can run into difficulties in carrying out a reduction. Murray (2001) stated that “some of the 400 PricewaterhouseCoopers LLP consultants who received pink slips in January [2001] had posted complaints on Internet message boards about a lack of communication from partners, their short notice, and the indignity of being escorted out of the building the same day.” Other companies have resorted to e-mail to deliver the HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 255 256 RESIZING THE ORGANIZATION bad news. The same article cites Amazon.com as having chosen this method when telecommuters could not attend a meeting where the job cuts were announced. How to Resize While there are differences among a plant closing, a divestiture, and a mass layoff and their effect on stakeholders, it is useful to consider the commonality among them. Each action will cause (1) uncertainty and fear of the unknown among employees, (2) a de- sire for current, factual information among all stakeholders, (3) managerial awareness of and consideration for all individual stake- holder concerns, and (4) appropriate assistance in making the tran- sition. A wise management team will recognize these issues and attempt to accommodate all stakeholders in the planning process and the execution of its plans. There is a better way to deliver such a sensitive and important message as job loss than that noted in the Wall Street Journal article. In the following sections, we examine the how to implement a re- sizing from the time the decision is made to resize to well after em- ployees have been notified. Planning for the Resizing As is often is the case, resizing should start with planning. If oper- ational considerations allow it, two months is not an unusual time frame to prepare for a significant downsizing. Typically, upper-level management determines the extent of the reduction. Most often it is expressed as a percentage of the workforce, an absolute num- ber (for example, two hundred employees will have to go), or the amount of dollars that need to be cut from the payroll. This figure forms the basis to start the planning process. If at all possible, man- agement should avoid serial terminations (small cutbacks spaced weeks or months apart) rather than one large downsizing that is well thought out. With repeated job cuts, morale suffers, and em- ployees fear that cutbacks will become a way of life within the or- ganization. There is an old aerospace joke that an optimist is someone who brings his lunch to work on Friday. Clearly, serial ter- minations are a situation to be avoided through careful planning. Management needs to develop a statement outlining why this course of action is necessary and what outcomes may result. The rationale for the downsizing is communicated to employees who are leaving and those who are staying, to the press, to customers, to the investment community, and to other stakeholders. Decisions have to be made about which geographical locations will be affected, what functional departments will be downsized or spared, and to what extent. In addition to human resources, the CEO or unit head, along with his or her direct reports, are involved in making these strategic decisions. This task is not an easy one. The overriding consideration must be the ability of the organiza- tion to move forward after the reductions have been completed. Will the reductions be in overhead expense only, or will line de- partments be reduced? At what organizational levels will the cuts take place? Will across-the-board cuts be mandated, or will they be selective? It is critical to remember that the goal of any downsizing activity is not simply to cut expenses but to make the organization more competitive in the marketplace. A plan needs to focus on what the organization will look like and how it will operate after the downsizing occurs. Criteria for Selecting Which Jobs to Eliminate With these questions answered, management next needs to deter- mine the criteria for selecting which jobs will be eliminated. Depending in part on the corporate culture, the criteria used fre- quently are a combination of job performance evaluations, the type of work remaining to be performed, and seniority. These fac- tors need to be as objective as possible in order to protect the or- ganization from legal and governmental challenges. Employees leaving and remaining must perceive that management was fair when determining which employees will be let go and which ones will stay. Job Performance Job performance implies that the organization has fairly, objectively, and systematically evaluated the contributions of employees and se- lected those individuals for dismissal who are least effective. Recent articles have addressed the pros and cons of classifying employees HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 257 258 RESIZING THE ORGANIZATION into A, B, C or similar groupings based on their job performance (Greenwald, 2001; Shirouzu & White, 2001). At the time of reduc- tions, the C’s would be the first to be considered for termination. Ranking employees in dissimilar positions, even within the same department, is an extremely difficult task. Furthermore, the ratings given on an employee’s annual performance appraisal form can vary greatly across employees depending on the leniency or harshness of the supervisor providing the ratings. Nevertheless, a large number of companies appear to use such an approach when selecting employees to terminate. Work Remaining Another selection factor is the work remaining to be performed. Companies shift focus and may move from manufacturing hard- ware to software, for example. In this instance, some employees hired previously with hardware capabilities may not be interested in or able to develop software skills. Assuming they had been of- fered the requisite training, these employees would be vulnerable in a layoff situation since they would not be capable of performing the work remaining. Seniority Aside from employees covered by union contracts where seniority is the primary determinate of layoff selection, length of service often is a factor in downsizing. While some managers may question why employees who have worked the longest are entitled to stay while less senior employees are terminated, employees generally regard seniority as a fair selection factor. Overall, it appears that seniority is used as a tie-breaker in some companies, a major de- terminant in other companies, and completely ignored in others. Generally, juries are not sympathetic toward organizations that ter- minate older, longer-service employees while continuing to employ younger and more recently hired employees. Refining the List Once a tentative list of employees slated for termination has been developed, it needs to be refined with demographic data. Typically, age, race, sex, tenure, departments affected, and any other special data that could cause a legal challenge are collected. Additional information, such as whether the selected employee has a worker’s compensation claim, is subject to the Americans with Disabilities Act, or has an employment contract, also needs to be collected. Management has an obligation to determine whether these special circumstances are grounds for removal from the list of those slated for termination. Human resource staff should carefully review this list. Are favorite employees of certain managers being kept even though they meet the criteria for termination? Is selection being used as an excuse for not managing employees? Are protected classes of employees on the list more frequently than the majority employees? In other words, is there an adverse impact against pro- tected classes of employees? The next step is a review by legal counsel who specializes in employment law. It is not uncommon for the initial names of em- ployees selected for termination to be changed prior to the ter- mination date. There are many reasons for these last-minute additions and subtractions, but they require legal review to protect the organization from a potential lawsuit. Timing Once the final list has cleared the scrutiny, it is time to select the termination day. The utmost sensitivity is required. I know of situ- ations where December 23 was chosen as the date because the company wanted to “get it over with” before the end of the year. Why would an organization terminate employees immediately be- fore a holiday season? Reasons I have been given range from (1) no budget for them in the new year, (2) it is a “loss year” anyway, so take the layoff costs in the down year to start off afresh next year, and (3) it was a last-minute edict from top management. Other ex- ecutives have asserted that there is no good time for a layoff. Con- sequently, if the company waited until January to terminate, those employees affected might have run up big holiday expenses. Ob- viously, these reasons by management ignore the negative impact that preholiday terminations have on those employees separated and those remaining. It is a short-run solution to a problem that may engender long-term negative consequences in terms of em- ployee loyalty, commitment, turnover, and productivity. Some more HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 259 260 RESIZING THE ORGANIZATION enlightened corporations have a policy that there will be no re- duction in force between early November and the start of the new year. There also are other religious and special holidays to consider before selection of the date. What day of the week to terminate employees is best? Some or- ganizations favor a Friday, but that leaves those terminated with no support and a weekend to develop anger and despair. Selecting Monday creates an apprehensive weekend for managers who must deliver a difficult message. In addition, there may be developments over the weekend within the firm or the nation that could have an effect on selecting Monday. This leaves Tuesday through Thursday as the most likely days of the week to give notice. The actual day chosen will depend on operational considerations and issues such as whether a four-day workweek is common in the organization. There is a further refinement to timing. What time of the day is best? The hour selected should have the least impact on the nor- mal operations of the organization. If employees are in different time zones, the time selected to start the process should be coor- dinated. Employees working evening shifts are usually notified as soon as they start work because they may have heard the bad news from day shift friends. Media Communications Prior to the announcement, it is important to appoint a spokesper- son to be responsible for media contact. All communication ex- ternal to the company should be through this person. Rumors spread with lightning speed on the Internet, so it is important to get the company’s story out quickly and factually. This point pre- supposes a press release by the downsizing company. If the com- pany is publicly held, actions taken that could affect the share price must be considered. The best advice is to tell the truth, tell it all, and tell it fast. The same advice applies to internal communication with employees. If the organization is publicly held and the resizing is of sig- nificant proportion, it must be announced. Privately held firms do not have to make such a disclosure, but the reaction of banks or other financial institutions could be of equal importance in terms of existing lines of credit, loan covenants, and their ongoing rela- tionship with the downsizing company. . and the indignity of being escorted out of the building the same day.” Other companies have resorted to e-mail to deliver the HOW TO IMPLEMENT ORGANIZATIONAL RESIZING 255 256 RESIZING THE ORGANIZATION bad. Team-Fly ® 252 RESIZING THE ORGANIZATION Community Issues Depending on the size of the closing entity relative to the popula- tion of the community, civic officials fear the impact on tax assess- ments,. IMPLEMENT ORGANIZATIONAL RESIZING 259 260 RESIZING THE ORGANIZATION enlightened corporations have a policy that there will be no re- duction in force between early November and the start of the new year.