Fewer of You Will Be Listening To Someone Else

Written by Sean Murphy. Posted in 2 Open for Business Stage, skmurphy

I worked at Monolithic Memories from 1984 until 1988, in 1985 Irwin Federman, who was CEO at the time announced that the company was informally banning meetings on Fridays. It seemed reasonable to me and I thought it would probably make us more productive. A few weeks later he announced that the company was going to four day work weeks as a way to prevent layoffs at a time when the semiconductor industry was in a serious recession. Forgive me if you’ve heard this story before, I recounted it in “Two CEO Speeches I still remember” in June of last year. I still remember his closing remarks after a low key talk encouraging us to work together and follow a short list of actions to help cut costs and improve our profitability.

“And I hope that you all act on this, because if you don’t, fewer of you will be listening to someone else next year at this time.”

I have been reflecting on the lack of four day work weeks and other creative responses to the recession. And how few CEO’s seem to be making sacrifices to keep their workers employed. For some background Peter Capelli’s Jan-5-2009 article “Alternatives to Layoffs” makes for useful reading, here are some key excerpts but read the whole thing:

The idea that there are alternative ways of handling the need to cut costs without laying off individual workers is actually a very old story. In fact, up until the mid-1980s, the idea that an employer would dismiss workers permanently — that they were not expected to come back after business picked up — was so rare that the Bureau of Labor Statistics did not even keep track of such cuts. [...]

It was in this period that more creative alternatives to layoffs flourished. The most prominent of these alternative approaches was wage cuts, often negotiated by unions under the guise of concessions to existing union contracts, but the goal was always to reduce permanent job losses.

The range of other alternatives was impressive — reduced hours of work (and pay), job sharing where the same job would be split into two part-time positions, cutting back on outsourced work and the use of vendors to make work for regular employees whose normal tasks were no longer needed, etc. [...]

The best example of a significant company that is pursuing real alternatives to layoffs is FedEx, where they are cutting wages to reduce costs. What is particularly important about the cuts at FedEx is that the cuts are even bigger for executives: 10 percent for executive pay, five percent for everyone else. (Fed Ex also announced for the first time that it will not be advertising in the Super Bowl, another very public effort to save money.)

Why are so few companies pursuing any alternatives to layoffs? Why has the interest in these alternatives declined so much over time? It isn’t because the alternatives don’t save money: A five-percent salary cut saves much more money than a five-percent layoff because there are no severance payments; the legal liability and associated costs are much less; and the savings come instantly without the agonizing administrative process of figuring out who has to go and getting them out in a dignified manner, etc.

Morale might actually improve through a collective effort to save jobs, certainly as opposed to the morale-killing effects of layoffs and, of course, the ability to ramp up when business improves is dramatically accelerated.

It comes down to how long you think this recession will last and what you want your startup to be known for.

I am not advocating holding on to poor performers: I have had to fire many people over the years as a manager, it’s never easy and it’s never pleasant. But having to lay people off is much much worse. When I look back on places where I enjoyed the work and learned the most, it was when times were tough but we got creative and persevered.

As entrepreneurs we have to hold ourselves accountable for keeping the our team intact now so that we are better prepared when the economy comes back. And remember these times as you start to hire again, because that’s when you will plant the seeds for future troubles if you are not careful.

Update Jan-29: Venture Hacks juxtaposes this quote from Barry Diller with their link to this post.

“The idea of a company that’s earning money, not losing money, that’s not, let’s say ‘industrially endangered,’ to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one’s counting is really a horrible act when you think about it on every level. First of all, it’s certainly not necessary. It’s doing it at the worst time. It’s throwing people out to a larger, what is inevitably a larger unemployment heap for frankly no good reason.”

Update Jan-30: I just read Ron Wilson’s “Why the Layoffs If We’re Still Profitable?” from Tue-Jan-27, he makes some interesting suggestions:

The most important thing is to understand your company’s cash-flow scenarios and its alternatives. [...] Sufficient bridge funding to keep cash flow above zero may be an insurmountable obstacle for a little fabless semi company, but a small risk for the huge system OEMs to whom the company is important. In fact from the system OEM’s point of view, ensuring survival for the supplier of a key component in a promising new product may be a very good short-term investment in their own cash flow. And in some cases, you can build a similar scenario for key suppliers: they may be richer, and have an interest in your survival much larger than the cost of ensuring it.

Now is the time for lateral thinking, not for reflexive conservatism. But lateral thinking means unprecedented sharing of information between engineering, financial, and corporate management. And it means resisting that reflex to pull back when the unknown yawns before us.

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Comments (5)

  • Harry Gries

    |

    Hi Sean,

    I agree with you and disagree with you.

    I agree that these alternative methods of dealing with cost controls are much better than layoffs in general. In fact, taking an example like cutting salary by X% or cutting hours, these methods can be fined tuned as the business improves and objective targets can be set for these (e.g. if we hit out numbers this quarter, we\’ll all go from 4 day weeks to 9 work days every 2 weeks, etc.).

    However, I disagree that there has been a lack of creativity recently. Perhaps it\’s not like the times that you describe, but compared to the last 20 years, there are more examples of cut wages and cut hours than I can recall. It may not be enough, but there are some execs thinking creatively and also taking cuts along with the troops.

    Harry

    Reply

  • Ross Hill

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    I forget the company, but I read on twitter today that an agency in Melbourne is moving to a 4 day week instead of layoffs – neat idea regardless of the market timing :)

    Reply

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