Lay-offs are the worst of the bleak options facing recession-hit companies

Some groups are becoming more creative, offering short-time working rather than redundancies observes Andrew Hill in the FT

From the videotapes to the workplace hugs, much of Broadcast News, the 1987 satire on media, looks old-fashioned. But when I watched the film again recently, as an escape from pandemic-provoked gloom, the scene where the network announces a round of redundancies seemed raw and relevant. 

“If there’s anything I can do,” says the network director, relieved at how a veteran newsman has accepted the news of his forced early retirement. “Well, I certainly hope you die soon,” responds the departing colleague. 

Similar scenes are playing out at companies around the world. Marks and Spencer, the retailer, Melrose, which owns venerable manufacturer GKN, New York-based Macy’s department store, and European aircraft-maker Airbus have all announced potential cuts in recent weeks. Manufacturing trade group Make UK has warned of a “jobs bloodbath”. Newsrooms have been particularly hard hit. 

One added twist is that some of today’s lay-off conversations with unlucky staff will take place by video link rather than in person — easier for nervous managers, but crueller for the people they are laying off. 

Another, more positive, development is that companies are becoming more creative as they brace for recession, turning to short-time working rather than lay-offs. As governments remove subsidies, what was a simple decision to hold staff in reserve, rather than fire them, will become more complicated. But avoiding permanent cuts makes sense, according to David Cote, former chief executive of Honeywell. The sheer cost of severance — in time, money and administrative hassle — mounts up. Often you have to hire the staff back to meet demand as the economy recovers. 

“If someone told you that it would take you six months to build a factory, six months to recover your investment, you’ll get a return for six months, and then you’ll shut it down, you’d never go for it because it would be ridiculous,” he writes in his new book Winning Now, Winning Later. “Yet somehow leaders think it makes sense to do the same with people.” 

Honeywell’s reliance on furlough — combined with its commitment to customers, sustained long-term investment, and attention to supplier relations — helped it bounce back.  

Research also backs up the hunch on which Mr Cote acted 12 years ago. A 2011 OECD review of 19 countries’ experience of short-time working confirmed such schemes preserved permanent workers’ jobs beyond recession. In a recent article for Harvard Business Review, Sandra Sucher and Shalene Gupta applaud US companies such as Tesla and Marriott for using furlough to soften the blow of this crisis. Such schemes let companies “maintain connections with their employees, cut costs while still providing employee benefits, and create a path to a seamless recovery”. 

Yet defending the decision in 2008 was one of the toughest points of Mr Cote’s tenure as Honeywell’s boss. 

Management, employees and investors were not “trained” to accept short-time working as a solution, he told me. Laws differed from country to country, and even state to state. In regions where furlough was put to a vote, support varied in line with the enthusiasm of managers for the measure. Elsewhere, while workers backed short-time working publicly, as Honeywell pushed through successive rounds of furlough, Mr Cote received private notes from staff urging him to “lay off 10 per cent of our people and have done with it”. As one FT reader commented when we asked recently about individuals’ experience of furlough: “Loneliness, anxiety, depression and guilt are hourly occurrences.” 

“All recessions are different,” Mr Cote says, “but they all feel miserable.” He remains convinced, though, that irreversible job cuts would have undermined Honeywell’s ability to respond to an economic upturn, ultimately harming staff, investors and customers.  

Jamie Dimon, chief executive of JPMorgan Chase, has declared that “this is not a normal recession”. Mr Cote suggests, rather, that 80 per cent of the actions companies take to respond to recession are common across downturns, whether triggered by oil crises, inflation, terror attacks or mortgage mis-selling. To managers, he offers this advice: don’t panic; think independently; keep investing for the long term; communicate; and “whatever you do, let people know you’re sacrificing too”. 

Some things, though, don’t change. “This is a brutal lay-off,” remarks Jack Nicholson’s smug anchorman, visiting the newsroom in Broadcast News, supposedly in solidarity with his colleagues. “You can make it a little less brutal by knocking a million dollars or so off your salary,” says his boss, before rapidly backtracking in the face of the trademark Nicholson glare. 

The magical thinking that misleads managers

A handy guide to sorcery and superstitions in modern leadership

ANDREW HILL in the FT

It has been a while since a UK company was accused of sorcery. 

Congratulations, then, to evolutionary biologist Sally Le Page for triggering just such a charge last week. She blogged her astonishment that many of the country’s biggest water companies had blithely admitted to using dowsing rods to help locate pipes and leaks. Another scientist has dismissed the technique as witchcraft. 

The water suppliers themselves have been rowing back fast. Some engineers were part-time diviners, apparently, but the real hard work of leak detection was backed by drones, robots and lots and lots of science. 

I say let us allow the water industry’s warlocks to indulge their medieval pastimes. After all, there are plenty of examples of modern management and leadership based on superstition, credulity and blind faith. Here are just a few: 

Numerology. In China, mumbo-jumbo about feng shui and ominous or propitious flotation dates, trading symbols and stock codes often influences how supposedly sophisticated companies arrange their affairs. Elements of Alibaba’s 2014 listing appeared to revolve around the “lucky” number eight, for example. 

But before western chief executives scoff, they should consider how much they are still in thrall to the cult described in Alex Berenson’s 2003book The Number — the quarterly earnings consensus they conspire with analysts and investors to hit, or better still, to beat. Regular evidence — recently, for instance, from Campbell Soup (a miss), and Home Depot (a “beat”) — suggests the cult is thriving. 

Indeed, the availability and crunchability of Big Data have broadened disciples of the number. They now include company bosses who worship near-term, data-driven answers, rather than holding out for better, if messier, longer-term solutions that take account of human intuition. 

As the veteran management thinker Charles Handy pointed out in a rousing closing address to the recent Drucker Forum, “if the organisation were purely digitised . . . it would be a very dreary place, a prison for the human soul”. 

Leaps of faith. Any chief executive who has ever announced a corporate vision without a clear idea of the kinds of steps needed to achieve the goal is at least partly guilty of magical thinking. 

Richard Rumelt wrote in Good Strategy/Bad Strategy about the dangerous delusion that aiming for success can lead to success: “I would not care to fly in an aircraft designed by people who focused only on an image of a flying aeroplane and never considered modes of failure.” 

Throw a coin and make a wish. Modern companies still close their eyes to evidence suggesting bonuses are at best a blunt incentive, and chuck cash at staff in the hope that it will help them reach their heart’s desire. At least wishing wells swallow the donation with no adverse consequence, other than the loss of your penny. Unfettered bonus culture, as the worst excesses of the financial crisis suggest, can backfire in unexpected ways. 

Chants and mantras. Slavishly applied governance codes and regulations help box-ticking compliance staff and board members sleep easy, by absolving them of the need to make difficult judgments. Meaningless mission statements give executives a mantra to recite as cover for not actually putting their values into practice. 

Human sacrifice. Restructurings and lay-offs are the modern ritual for appeasing the gods (but without the benefits of bringing the community together for a bit of a celebration). 

Hero worship. For all the modish talk of flat hierarchies and distributed leadership, chief executives still become the central figures in a myth that is largely of their own creation. 

The most dangerous part of this self-delusion is that they believe success was achieved entirely through their “skill, preparation and tenacity”, as described by Jim Collins and Morten Hansen in Great by Choice. 

The researchers found successful leaders could generate a greater “return on luck” by being more disciplined at exploiting opportunities and riding bad luck to make themselves stronger. But they pointed out there was a fine line between the best leaders and those who put their organisations at risk through an exaggerated and dangerous belief in their own powers. Such leaders had a tendency to make these sorts of assertions: “Luck played no role in my success — I’m just really good.” 

Here is where humble deference to unpredictable and poorly understood outside forces would be healthy. If nothing else, over-confident leaders should be reminded that their destiny is sometimes out of their hands.