The axe of retrenchment

RETRENCHMENT. Layoffs. Downsizing. Rightsizing.

The language varies, but the outcome is consistently brutal: the termination of employment for strategic, not performance-related reasons. While boards and management focus on operational efficiency and financial optimisation, the human toll of restructuring constitutes a profound and frequently ignored crisis – one carrying significant long-term costs for individuals, organisations and economies alike.

Retrenchment is a double-edged sword, inflicting deep psychological wounds on those receiving the news and those tasked with delivering it.

For the retrenched, a layoff is more than a loss of income. It is a rupture in identity, security and purpose. Psychologists liken the experience to bereavement, triggering a similar grieving process. This is especially acute in cultures that conflate personal worth with professional standing. For companies that have promoted an ideology of the “work family”, the experience can be particularly stinging for those impacted by it.

Emotional fallout

Even when layoffs are anticipated, the initial shock gives way to a torrent of potent emotions: anger, anxiety and a profound sense of shame. A study in the Academy of Management Journal linked layoffs to markedly worse mental health, including rises in depression, anxiety and substance abuse. The stress is physiological too: Chronic uncertainty elevates cortisol levels, disrupts sleep and weakens the immune system.

Long-term impacts can be grave. Research from Harvard and Stanford universities found that job displacement is associated with a 15 to 20 per cent increase in mortality over 20 years, attributed to stress-related health decline and loss of employer-provided healthcare.

When I was retrenched from a technology firm in my mid-40s, the sudden loss of generous family medical coverage was a stark reminder of the fragility of corporate-provided safety nets. However, that experience had a silver lining, acting as a catalyst for me to secure health insurance not tied to any employment. I am grateful for that (rude) wake-up call at a relatively young age, when I was still healthy enough to purchase a policy with no age-related or chronic illness loading on the premiums.

Beyond the individual, layoffs fray social bonds. Work provides structure, community and a sense of shared mission. Its removal often leads to isolation. A 2023 American Psychological Association report noted that prolonged unemployment heightens the risk of loneliness, which is linked to higher incidence of heart disease, stroke and dementia.

Some firms offer outplacement services, including a temporary office space for retrenched individuals to use – a well-intentioned but superficial gesture that does little to address the essence of the transition. In my view, the cost of providing this service would be better served through some psychological or career support instead. 

Survivor’s guilt, broken trust

The trauma of retrenchment also extends to those remaining employed in the restructured entity. These “survivors” frequently experience guilt – relief at keeping their jobs mixed with unease over departed colleagues – and anxiety about their own future. More significantly, their trust in the corporate leadership evaporates.

A Gartner survey after the 2022-2023 tech layoffs revealed trust in executives among remaining employees hit a historic low. In such an environment, caution replaces creativity. Those who remain become risk-averse and disengaged.

Innovation and collaboration – precisely what companies need to recover from restructuring exercises – are early casualties. The unspoken main concern of those who dodged the retrenchment “bullet” is: What is there to prevent a repeated exercise in the name of strategy or financial savings?

Burden of the executor

If being laid off is akin to a sudden amputation, being the one wielding the axe also carries a cost – a corrosion in mental and psychological well-being. Managers and human resources (HR) staff charged with delivering redundancies are often cast as unfeeling villains. In truth, many are reluctant actors in a painful drama but their distress is routinely overlooked altogether. I know, as I had two occasions in my career when I had to wield the axe, the size of which was unilaterally dictated by management located in a country and culture far away from the work backyard where the layoffs were mandated.

Executors of retrenchment exercises must suppress empathy to perform a distasteful duty. This conflict between personal ethics and professional obligation breeds stress, burnout and what psychologists term “moral injury” – the distress following actions that violate one’s moral code. For managers who value fairness, terminating loyal, capable team members can instil a lasting sense of betrayal. They may also experience a form of PTSD – post-traumatic stress disorder – long afterwards.

Managers who carry out layoffs report higher levels of stress, insomnia and alcohol use, according to a study in the Journal of Applied Psychology. Many internalise the trauma of those let go. Afterwards, they must manage a team marked by broken morale and depleted trust, while grappling with their own guilt: an unenviable “lose-lose” situation.

Social isolation compounds the burden. These managers often cannot grieve openly with colleagues for fear of seeming weak or complicit. Instead, they may become emblems of corporate coldness, ostracised by former and current peers, and colleagues.

Early in my legal career, I assisted a client’s HR team in executing layoffs at a bank’s foreign exchange trading desk. The protocol was clinical: Employees had their access cards deactivated during a break. On returning, they were escorted to a meeting room to receive their retrenchment notice. The bank’s rationale for this approach – preventing disgruntled employees from making reckless trades – was logically sound and financially prudent, but the experience laid bare the dehumanising mechanics of modern restructuring exercises.

A more human-centric approach

Mitigating this retrenchment crisis requires more than generous severance or outplacement services. In the recent layoffs of Agoda staff, we have also been reminded of the need for companies to be fair in their use of legal terms governing departing workers.

Retrenchment demands a holistic approach that acknowledges the psychological impact.

Support for departing colleagues should include therapeutic or coaching resources specialising in transition, not just recruitment help. Employee assistance programmes should be extended months beyond the termination. Alumni networks and support groups can also be established to combat loneliness and enable professional networking and reintegration into the workforce. The fact that retrenched individuals received handsome monetary compensation should not exempt them from these non-financial but equally important support through this difficult transition.

Leaders must practise radical transparency: communicating openly about the reasons for the cuts, the company’s direction post-restructuring, and – where possible – providing assurance against further layoffs – at least in the foreseeable future. Rebuilding trust requires empathetic and consistent action. Leaders should re-engage teams with clear short-term goals and celebrate small wins to restore a sense of agency and belonging.

Explicit support is also essential for the executors. They should be acknowledged for undertaking a difficult duty – not just its efficient execution. Training in compassionate communication, access to psychological support and debriefing sessions with coaches or HR can help process moral injury. Safe forums to share experiences could reduce isolation and guilt.

Retrenchment is an inescapable feature of modern business. But its human cost need not be inevitable. By expanding the conversation from pure economics to include psychological well-being, enlightened companies can navigate these challenging transitions with greater humanity and ensure a higher probability of successfully rebuilding their business and reinvigorating their talent – those that remain and the future ones they hope to attract.

The goal cannot be to avoid pain, but to lessen its severity, build resilience and begin the process of healing – for all. Put simply, the long-term health, success and viability of any organisation post-retrenchment  depends on this.

The writer is the group general counsel and chief sustainability officer of Jardine Cycle & Carriage, a member of the Jardine Matheson Group. He serves on various commercial boards including Mindset Singapore and the Global Guiding Council of the US mental health charity, One Mind At Work.