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Board guidance in retrenchments

Retrenchments, at any time, are difficult moments in a company’s journey that warrant in-depth consideration at the board level. As the pandemic takes its toll on businesses, retrenchments across the different sectors have surged in recent months. 

While retrenchments are operational actions under the purview of management, it is important that boards ensure they are done right, as they impact long-term organisational health and their future success. Boards should guide companies to focus on the broader picture, as well as monitor and evaluate the impact of laying off employees.

Preserving the company’s DNA

Companies need to take a balanced view in their retrenchment efforts – exercising judicious downsizing to allow for business continuity and yet retaining a sufficient talent pool to support the projected business upturn when the economic situation recovers. Poorly-managed downsizing can lead to loss of industry expertise and institutional memory, and a negative impact on the morale and motivation of the remaining employees. When the economy recovers and employment opportunities open up, these employees may leave.  

A company’s candour in articulating to employees the difficult business realities that necessitate retrenchment goes a long way in building up trust and goodwill. Take, for instance, the retrenchment of 360 employees by Grab in June. Company CEO and co-founder Anthony Tan addressed the layoffs in a group-wide townhall meeting and detailed how the affected staff would be supported. Explaining the reasons for the cuts, he extended a public apology to the staff and backed it up with a generous severance package.

A fair retrenchment package, communicated with respect to the affected individuals and delivered with empathy, is a basic requirement. Company leaders can highlight the impact that retrenchments have on affected employees and their families, particularly for long-serving employees who have dedicated much of their working lives to the company. 

Management can also be encouraged to go beyond the bare legal requirements and offer additional support, like outplacement counselling, retraining or job referrals. Salesforce.com set an example by providing its affected employees a 60-day “grace period” to apply for new jobs within the company. Those unsuccessful in finding an alternative internal opportunity receive severance compensation and benefits for six months. 

Treating individuals with dignity, empathy and compassion, especially in a retrenchment exercise, should be part and parcel of a company’s culture and DNA. 

Focusing on the survivors

How retrenched employees are treated will be closely watched by the employees that remain. Companies must pay attention to the well-being of those left carrying the load. Faced with uncertainty, these individuals are often in a fragile emotional state, and have to be actively engaged to maintain their focus and energy. Left unattended, this can lead to a lack of trust, resentment or diminished productivity. 
In some respects, retrenchment may actually hit the “survivors” harder, as many grapple with an increased anxiety of “when will it be my turn”. Or, they may harbour resentment for having to do the work of those who have been retrenched.

There are often no easy answers to these questions. Frequent and clear communication can help address anxieties and build up motivation. Initiating dialogues through employee townhalls, small group meetings or one-on-one mentoring with line managers can ease the transition. Companies should not fall into the trap of remaining silent and allowing doubt to fester and erode employee commitment and loyalty.

At the recent Singapore Institute of Directors' annual conference, delegates were polled on various steps taken by their companies to support employees through the pandemic. Measures taken include mental well-being support, childcare support, financial support to set up work-from-home arrangements, and provision of care packages containing masks, hand sanitisers and vitamins to keep employees physically well and in a positive frame of mind. Such efforts make employees feel appreciated and supported by their companies during this difficult time. 

Equally important is for boards to emphasise the need to focus on the mental well-being of its employees and management team. Companies should consider implementing mental health support alongside safety and physical health support. In so doing, a work culture for mental health support and resilience is established which positions the company well, as it moves to embrace the continuing challenges.

Building for the future

One powerful lesson of Covid-19 is the interconnectivity of the business ecosystem. The pandemic has highlighted the need for collaboration in resolving challenges. Businesses that find success in the new normal are those which work with partners, suppliers and ancillary industries to prosper collectively, thereby creating a healthy, sustainable ecosystem.

Boards will need to inspire management to think about how best to build better business relationships and position their company for growth post-Covid-19. Instead of just adding back jobs that have been retrenched when the economy rebounds, this collaborative approach enables companies to leverage the collective resources of partnerships and alliances, thus doing more with less. 

Boards play a key role in challenging and encouraging their companies to focus on the strategic long-term objectives even as their energies are concentrated on fighting the present day fires of Covid-19. Drawing on their past experience, boards can contribute in guiding companies through this pandemic disruption to emerge transformed and ready to thrive in the post-pandemic era.

The writer is a member of the Advocacy and Research Committee of the Singapore Institute of Directors.
 

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