3 ways not to make redundancies

I’ll start by saying that, although sometimes you can tell what I’m talking to my clients about based on the contents of the weekly newsletter (and sometimes clients will message: “this is about us, isn’t it?”), nothing has prompted this one. It’s been sitting in my drafts for a long time, mainly because it’s a sensitive subject.

I was made redundant from my first agency; then I joined an agency that became a network in a PLC (and worked for other publicly limited companies too); and have worked for agencies in a wide range of sectors, some of which were not booming at the time. All of this is to say that I’m no stranger to the redundancy process: I’ve seen it done properly…and I’ve seen it done badly. This isn’t an article on whether you should make redundancies (which is something I talk about with clients when necessary); it’s about passing on lessons I’ve learned from 3 redundancy processes that I’ve seen first hand.

Lesson 1: it’s not personal

An agency had to make a handful of redundancies in order to cut costs so it could maximise its valuation. The agency owner had shortlisted candidates for redundancy and informed the management team. Several members of the management team disagreed with one selection: the team member selected was generally a strong performer but had been assigned to a doomed project which had, inevitably, gone south.

There was another person in the same team who was a much less consistent performer; was sometimes disruptive; and was paid considerably more; so the management team made the case to the owner that this employee should be made redundant instead. The owner decided to make both redundant.

The effect was that several members of the management team became disengaged during a time that the owner needed them on side, particularly as twice as much work needed to be picked up by the team now. These are the kinds of decisions that lead a team to burnout: nobody in agency management (or, really, the agency in general) should feel like that owner could take a dislike to someone in the team and get rid of them for personal reasons, leaving the managers to pick up the pieces.

It’s worth noting too that “making redundancies to maximise a valuation” wasn’t the thing that the team really had a problem with in this circumstance. The reasons for the cuts were fairly transparent and accepted at face value. Which leads us to…

Lesson 2: [Beckham meme]be honest[/Beckham meme]

I’m paraphrasing a passage in Peter Drucker’s 1967 book The Effective Executive: a decision is only effective if it meets all the success criteria needed to solve the problem.

Drucker recounts the story of the USA’s decision to invade Cuba in 1961, referred to as the “Bay of Pigs”, which had two incompatible success criteria. The invasion had to:

1. Result in the overthrow of Fidel Castro; and
2. Make sure the public believed that America was not involved in Cuba.

It was hugely unlikely that Castro could be removed without anyone knowing that the USA was involved.

I thought about this story recently when Trump gave his reasons for invading Venezuela; and I thought about this story some years ago as an agency was cutting its workforce.

The owner recognised the need for the agency to make redundancies, but did not want the staff to know that redundancies were being made - they were seemingly worried this would call their leadership into question. A decision was made to tell the team that a handful of employees were being let go due to poor performance.

The assumption was that the remaining team members would take this at face value; however, at least some of the redundant employees were considered strong performers by their peers (whether or not this was true is largely irrelevant: you’re not really able to share PDPs and PIPs and so on with the remaining team members, so you can’t prove them wrong). The success criteria was incompatible and the leadership was probably brought into question more than if the real reason had been disclosed.

The culture suffered, as staff began to believe that they might be terminated even if they were good at their jobs; the agency leadership came across as “cold”; and gossip, like “who’s next?”, became more common.

If we are honest about the decisive action we are taking, we can use this to reinforce a culture of fiscal responsibility, rather than a culture of fear, and have staff believe, usually correctly, that leadership is acting in the best interests of the business.

I think we’ve seen this over the last few years in multiple businesses (not just agencies) that have been making layoffs due to “productivity gains from AI”: either the remaining employees will believe this to be true and will be in less of a rush to adopt any more AI as it might cost them their jobs; or they will be picking up more work, with fewer staff around and no actually productive AI, and it’ll look like a cost cutting measure the leadership didn’t have the stones to be honest about.

Lesson 3: use your social capital

I wrote last week that one of the functions of LinkedIn is internal communication: you can avoid being a “social CEO” if you use other channels to fulfil your leadership responsibilities (whether that’s email; Slack; meetings; or something else).

The owner of an independent agency with a large workforce, spread across multiple offices in several countries, emailed the whole company only once in an entire year: to announce a redundancy process (without a follow up email to inform the team that the process had concluded). Because the owner wasn’t present on internal or external channels, most of the remaining staff didn’t really know them or, for the same reason, the agency they worked for. There were no reminders of what the agency stood for or what it was trying to achieve - these reminders should be incessant - or what kind of person the owner was. Employees worked for a pay cheque and leadership talks to them because they are legally obliged to do so.

If you have to make redundancies, you’re actively asking the remaining employees to work for you and for the agency. This is why, when you let go of the least productive staff, some of the most productive often leave of their own accord soon after; the redundancy process posed the question to all staff and the most equipped to get a new job answered in the negative. Think of an event like this (and there are many events that fall into the same category) as making a withdrawal from your bank of social capital; you’ll need to have made sufficient deposits into the account.

If you see a reduction in workforce on the horizon, there’s no better time to check how much social capital you have:

• Does every member of staff know where we’re going?
• Does every member of staff know me and the other leaders in the agency?
• Does my track record suggest that my employees will believe me when I tell them the truth of the situation?

If you don’t see redundancies coming, these are still questions it’s worth considering (and some are metrics worth measuring). The more deposits you make; the less likely it is that a withdrawal will cripple the business when it is necessary.