April 1, 2024

Three Reasons Why This Season of Layoffs May Destroy the Future of Work

Years ago, I worked as a lawyer for an acquired regional bank. To eliminate redundancies, the new general counsel laid off the lawyers he didn’t need. He posted a schedule with everyone’s name on it, parked himself in an empty office and met each lawyer at the appointed time. If they were fired, they walked out holding a folder. If they kept their job, they walked out empty handed. The rest of the department sat in the hall waiting to see how people emerged, keeping track and calculating odds. The process was cruel, public and unnecessary. And those of us who kept our jobs moved forward with high trepidation and low trust.

In those days, layoffs were used as a last resort: in mergers or extreme financial hardship. Today, they are ubiquitous. In 2023, U.S. layoffs were 98% higher than 2022. And 2024 is not far behind. January felt like open season on employees–especially in the tech sector–with the second highest January layoffs in the past 15 years.

The numbers are staggering, given that the wisdom of layoffs is questionable. Established research has associated downsizing with decreased profitability, especially in research-intensive, high growth and capital-light industries. And mass layoffs damage not only the health and finances of those laid off, but also the long-term vitality of their communities.

But recently there’s something even more sinister afoot. Instead of resisting them, companies with strong balance sheets are actively choosing layoffs–in significant numbers. Meta’s recent earnings report might be the most egregious example: their 25% increase in earnings last year was accompanied by a reduction of 22% (or 19,000) of their employees. And CEO Mark Zuckerberg collected $700 million in dividends. Whether the intention is to amplify earnings, or to earmark funds for AI or other non-human investments, the danger of manipulating headcount as a financial management tool has reverberating and irrevocable consequences. Here are three reasons why this dangerous practice risks destroying the future of work.

Disenfranchising Those Who Stay

One of the chronically ignored consequences of a mass layoff is the lasting effect on those who stay. But it’s more than just survivor’s guilt. When employees see their colleagues laid off, especially when those decisions are not perceived as fair, people lose trust and faith. High performers often leave, and remaining employees take toxic measures to protect themselves, including dominating air time and making themselves seem more knowledgeable than they are.

A well-publicized study from LeadershipIQ reports that 74% of layoff survivors report a decline in their own productivity, 81% report reduced customer service and 77% make more errors and mistakes. Other studies show significant declines in creativity during downsizing. As employees feel less effective in their roles, it’s no wonder that “rage-applying” for new jobs has become the new “quiet quitting.”

Undermining Trust And Eroding Corporate Culture

In corporate layoffs, the most significant casualty is trust. The Edelman Trust Barometer reports that, in 2023, personal anxiety overtook existential threats for share of worry: 89% of respondents feared job loss more than nuclear war. There’s no trust with an ax hanging over your head. After watching companies repeatedly binge hire and fire, workers find any assurance of job security disingenuous. Work becomes transactional as employees become leery of investing in relationships they constantly risk losing. Then comes the next casualty–the interpersonal connections that drive collaboration, inclusion and innovation.

In a time when teamwork is more important than ever before, repeated hits to trust-based relationships take a massive toll on performance and workplace culture. It’s impossible to build any kind of culture–let alone a positive one–in a revolving door. And that’s a problem because PwC’s 2023 Trust Survey found that workplace culture is the number one way for companies to build stakeholder trust. Vicious circle anyone? Here’s the thing: when trust is breached, it’s even harder to rebuild. And impossible to contain. Your choices spread like wildfire–person to person, social feed to social feed (#layoffs on TikTok has over 400 million views). A strong case to keep the employees and the trust you have.

Poisoning The Future Of Work

Although leaders are routinely coached to think about their personal legacies, organizational legacy should matter even more. The work we do and the investments we make today plant seeds for tomorrow’s growth. Through a short-term economic lens, layoffs may seem justified or financially prudent (even though hindsight proves they are not). But a workplace is not just an economy, it’s also an ecology. Through this wider lens, the disadvantage of mass layoffs becomes crystal clear. Workplaces are complex systems: interdependent environments that capitalize on invisible connections between people, ideas and expertise. Removing one or more elements has reverberating effects on the balance of the system, even if the impact is not immediately obvious. Eroding workplace trust, reducing productivity, disabling teams and losing star workers destroys the soil we need to grow a business for the future. When we salt the earth, nothing grows. In a world rife with uncertainty and rapid technological change, can we really afford to destroy the path forward?

The existential and reputational risk of headcount churn is immeasurable, literally and figuratively. Following a layoff, 70% of companies struggle with talent acquisition. After all, how many people will risk working for a company that repeatedly lays off large swaths of its workforce? And counting on the remaining employees to help is a lost cause: 77% of surviving employees lose faith in the company and stop being champions. At a time when hiring is harder than ever (there are 12.1 million open US jobs right now) and the future of work is still undefined, today’s layoff epidemic is sabotaging tomorrow's performance.

It’s unrealistic to think that layoffs are avoidable. Economic crises, mergers, and strategic pivots will always leave leaders navigating the balance between human talent, profits and the right path forward. But how you do this really matters. Treat employees with respect: longer lead times, transparency, reskilling programs, management pay cuts before job cuts, phased early retirement options. You can minimize the sting of layoffs if employees feel the process is fair and people are treated with honesty and dignity. But fairness is impossible when layoffs become a standard management tool, regular events driven by dollars rather than people. They leave your workforce beleaguered and guarded, wary of the next shoe to drop. Treating people as expendable is not a strategy, it’s a tragedy. When that happens, there's no going back.

First published in Forbes.com.

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