Laying people off can be necessary in downturn, but layoffs are costly in terms of morale, severance pay, and, perhaps most important, having qualified people in place to take advantage of a recovery. In research on ESOPs, Fidan Kurtulus and Doug Kruse found that ESOP companies have more stable employment patterns—they hire more slowly but also lay people off more slowly. Starting in 2002, the Employee Ownership Foundation has provided grant funding to allow the General Social Survey to identify employee-owners. The resulting data shows that employee-owners are one-third to one-fifth as likely to be laid off as those not working for employee ownership companies. Part of this is that ESOP companies perform better, but part is also likely a greater value placed on retaining people in tough times.
Some companies, such as Hypertherm, have had no-layoff policies for decades. When there is not enough paid work to do, employees may be reassigned to other tasks, like maintaining or improving facilities, or getting trained in new skills. Companies can do that if they have sufficient reserves and are willing to risk them, but other companies may either not have these reserves or be too concerned that the business will not come back. Planning ahead to anticipate downturns may allow a board and management to decide what amount of reserves can be spent on these purposes.
Company leaders are often reluctant to tell employees that business is declining. They may worry about morale or people looking for other jobs, and tend instead to gloss over problems as long as they can—until they can’t. That is not a good approach in an employee-owned company. Employees won’t feel like they are being treated like owners—or even as responsible adults.
A far better approach is for companies to be more open about financials all along. That includes when things go downhill. Let people know what is happening and why. Explain that you would prefer not to do layoffs, but they might be necessary. Meanwhile, tell employees you are looking for ways to cut costs and would like ideas from them.
One way to do this is to send out a survey. To prod people’s ideas, you can list all the areas that could be cut and, where appropriate, what the total costs
are. Things you might ask employees to consider include:
You can no doubt add more to this list. By seeing how many people are willing to do what, you can get an idea of what might work. That does not mean you won’t have to go beyond this—you very well may. But employees will value the chance to have a say.
The best way to deal with a downturn is to get out of it quickly. By letting employees know what is going on and identify the cuts they can live with, you enhance your credibility, but to really take advantage of being employee owned, get people involved in developing new business opportunities.
One way to think about this is to identify what writer Steven Johnson calls the “adjacent possible.” These are the ideas that focus on the projects and opportunities you are not pursuing that you have the resources to do or can develop quickly, that your competitors are already not fully occupying, and that can turn a profit. That is always something you want to be doing, but success can bring complacency, and downturns sharpen focus.
Ideally, you will form teams with representatives from all areas of the operations—sales, production, HR, research and development, engineering, quality control, marketing, and finance (as applicable)—to brainstorm ideas. Leadership can seed these teams with ideas of their own, but the teams should have the ability and expectation to come up with new ones. Part of that may be going to customers to ask what else they need doing, not just from you but anyone in your field. Have the teams come up with a list of a few top ideas, then have all the teams come together to pick the top priorities. Company leadership can now step in to review these and see which ones can be pursued.
Once ideas are chosen, teams can designate roles and duties, create scoresheets, identify team leaders, and see if any of these opportunities make sense. The process is not much different than what corporate leaders always should be doing—it just opens that up to more people. It’s highly likely at least a few good ideas will come up.