Reduction in Force - Where's Your Focus?

My daughter’s wedding was last November. As I took in the success of the event I reflected on the 12 months prior we spent in planning and finally execution. The costs associated with the whole thing rippled through my mind. While I was thrilled to give her the wedding of her dreams I was also pleased to have her “off the payroll”. Although many have told me they’re never fully “off the payroll”-- let’s call it long-term severance.

What’s the correlation? Well, when owners & operators look at their firm’s performance and determine if your expense base is straining your ability to succeed; the parallels become clear.
During a RIF, there are four things to think about that can impact your business.

• Those That Depart
• Those That Remain
• Those That Will Come
• Your Brand

FACING A REDUCTION IN FORCE 
While my current focus is the alternative asset management world, the challenges of balancing a firm’s income with a proportionate expense base is universal. It’s been a difficult two years for many funds. It’s caused them to take another look at their drawdowns as investors think twice about leaving assets in the fund. If there’s a combination of drawdowns and redemptions a fund is left with the very difficult dilemma of cutting expenses. The first place and often the obvious place for reducing expenses are staff; which is typically the largest expense category and the easiest target. It’s an extremely difficult decision and well should be. The staff joined because they believed in the Founder or firm or the Fund’s reputation that created an implied assumption of loyalty that has been generated both ways.
The conundrum is if you reduce your workforce can you continue to operate in a way that allows you to run your firm without judgment errors; the best talent; or the checks and balances needed on the operational side to ensure compliance and accuracy. The first group looked at is the lower paid staff. The assumption is they’re expendable and the work they do is not as critical or can be outsourced. The truth is, eliminating a large amount of these positions rarely makes the dent that’s required. There are many that think about this very strategically but for some who may not have the luxury of time or having someone to guide them, here are some thoughts for you to consider. 

• Underperforming Employees: Look first at the employees (all of them) whose performance has been below expectations or their contribution has been minimal.  I guarantee everyone knows who’s not performing because others are doing their work. Not only will you make your organization more effective but your employees will also respect you despite having made this difficult decision.
• Real Estate as an Expense: Look at any satellite offices you opened either because you wanted to make someone happy by agreeing to establish an office near their home or you thought it would be a good idea to have a presence in a particular region or city no matter how small it is. The only caution with this is if your small satellite office is in a different country (particularly in South America and Asia). Closing an office in those regions is seen more as a disinterest in continuing to do business than it is a cost cutting measure. Learn about the cultural expectations and norms in foreign countries before you make a move that makes perfect sense in the US.
• Understand the Cultural Divide: Similarly, if you’re going to let go employees in another country your law firm will tell you what is required by the law but not necessarily what is expected culturally when you lay someone off. Find out what the cultural expectation is in handling the separation of an employee. It can be much more involved than what the law requires and it’s hard to un-ring the bell once it’s been rung.
• Protect your Brand: Your firm’s reputation is important. How you treat your departing employees will resonate with future employees that might contemplate employment with you. A negative reputation will cost you money. You’ll have to pay up to get people to work for you or you’ll miss out on the best talent because they can choose where they want to work. Your departing employees will either say good things about the firm or bad. You should prefer they say good because what they say has repercussions externally as well as internally.
• Lead with Empathy: One of the primary reasons for treating departing employees as well as you can is more for the employees remaining than the employees departing. If you treat your departing employees poorly or badly your remaining employees will begin to question the value proposition of remaining and worst, whether they can trust the firm to not treat them similarly. There are a number of low or no-cost things you can do to support departing employees.
• Create Transparency: Communication is key. Letting employees know directly, especially if your firm is small and you know everyone, speaks volumes about your leadership. This will only benefit you in the long run. As difficult as it is to be the messenger, the closer the first message comes from the top the better. Especially because you’re going to be asking a lot more from the employees remaining. You want them to believe in whom they’re working for.

So for those of you that thought your personal life was separated from your business life think again. My daughter and her new husband left very happy, my unmarried daughter has faith that her wedding will be just as wonderful; so trust and my brand are intact. Lastly, my guests will spread the word that the next wedding will be worth attending.

Those that depart, those that remain, those that will come and your brand; holding these four components equally important will make an extremely difficult event as successful as it can be.