Job offers

Preventive dismissals and rescinded job offers destroy a company from the inside

Times of economic crisis call for drastic measures. Any good leader knows this, and any good leader knows that these measures will be painful and will inevitably impact the long-term future of the company.

But there is a limit. The preventive “adjustment” of a workforce and the cancellation of job offers exceed this limit.

I understand. Millions of dollars of overspending on pandemic recovery. Projections too optimistic. Short tracks. Angry investors. Inflation. Supply Chain. I understand everything.

I’m not here to judge. I’ve been on both sides of this issue, for over two decades leading and advising startups and tech companies. So I’m just here to tell you what’s likely to happen in the long run, based on my experience.

Downsizing is (mostly) an accepted corrective measure

The truth about layoffs – and it’s a truth that employers rely on – is that employees will generally understand and accept why they are being fired. In fact, they almost always attack it as a necessary broken rung on the career ladder.

A step back. Two steps forward.

But in my experience, that’s only true when the company is facing a do-or-die crossroads – in other words, when layoffs are about to throw a few employees overboard for save the rest. It’s an unfortunate scenario. Nobody wants it. But people understand it.

However, if these employees obtain any sense that the layoffs were preventative, preventative, or unnecessary in any way, this understanding immediately flips 180 degrees to a sense of betrayal.

Good communication is essential in difficult times

Good leaders communicate transparently in a crisis: “Things are good! Things are good. Things are getting worse. We’re letting people go.”

In some cases, they give an overly optimistic twist to this communication: “Things are good! Things are always good! Things are bad. We’re letting people go.”

It’s an unfortunate leadership choice, but one that can be forgiven.

The worst kind of communication requires only one small but incredibly disastrous change: “Things are good! We’re letting people go. Things are always good!”

I know why this happens. This is because there is a constituency outside of the workforce – investors, customers, partners, etc. – who needs to ensure that everything will be fine and that the leadership is in control, especially in times of crisis.

But for the workforce – all the workforce, not just those who have been laid off – it translates to “say one thing and do another”.

And that’s exactly what they themselves will do in the future.

Here’s what they’ll say: They’ll accept whatever package the company offers because the company pulled the rug out from under them, and they’ll accept whatever they get.

Here’s what they will do: they will proactively destroy the company and its reputation whenever they can, without provocation. And they will do it with shocking honesty and lack of emotion.

That’s how I saw him play

The company will develop a reputation for pulling the launch cord before it was needed. This is the worst blow a company can take when it comes to employee retention. Once leadership loses trust at this level, it doesn’t get it back.

I’ve seen companies forced to pay a premium on future wages as a form of insurance against being fired “for no reason”. I’ve also seen companies struggle to hire top talent without a guaranteed contract.

But in the worst case scenario, I’ve seen companies lose up to 50% of their remaining Workforce. This happens because their loyalty has been shaken to zero. And if a series of preventive layoffs occurs when “all is well”, the next series can occur at any random future time.

Most of these remaining employees will not tell the company their intentions or concerns, they will simply start a job search and jump into any life raft.

And this is the most crushing blow. A company’s talent is only at its most productive when it is fully integrated into the relationship between it and its employer. When the employer establishes that trust, it puts a dent in that productivity that, in my experience, never recovers.

Plus, none of this will happen in direct sunlight. Everything will happen off the company’s radar, which makes it almost impossible to counter.

Layoffs for economic reasons should only be a last resort to save the company. And I can’t stress this enough: job offers, once made, should always be honored. Full stop. Painful decisions are always necessary in business, they are only part of leadership. But leaders must always ensure that they are not sacrificing the future for short-term fortification.

In addition to my role as a C-level executive at a VC-backed startup, I’m working on a side project called Teaching Startup that provides answers and advice from experts like me and others at a fraction of the cost of a traditional adviser. Here is a free trial without any conditions.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.