Companies Don’t Need to Lay People Off to Survive
How one CEO saved his 12,000-person company without a single layoff
When the financial crisis hit in 2008, Bob Chapman was faced with an impossible choice: lay off thousands of his workers, or go out of business. A few years prior, Barry-Wehmiller — a 125-year-old St. Louis-based manufacturing technology company — had publicly committed to “measure success by how they touch the lives of people.” Determined to not break that promise, Chapman came up with a third, seemingly impossible, option that would allow his company to survive the recession without laying off any of his 12,000-plus employees. By finding creative ways to avoid letting people go, his business emerged on other side of the recession stronger, with a workforce not only intact, but energized.
Today, Barry-Wehmiller is a $3 billion privately held company that finds itself staring down the barrel of another recession. Fortunately, it’s in the business of building equipment for essential manufacturing industries like paper processing and packaging (think toilet tissue and Amazon boxes). So while the pandemic might not pose an immediate threat, CEO Chapman is already gearing up for another downturn, contemplating the proactive cost-saving measures he can take to retain his thousands of employees. Chapman spoke with Marker about how to avoid layoffs at all costs.
— As told to Kaushik Viswanath
As business leaders today find themselves faced with the very real and immediate question of their company’s survival, they are quick to resort to layoffs so they can conserve cash and soldier through the current economic crisis without having to shut down altogether.
But while it’s easy to calculate how much money you’ll save the company, what’s impossible to calculate is the loss of skill from your company, the loss of your investment in those people. You can’t calculate the impact it has on the people who are let go, or even on the people who remain at your company.
I empathize with the leaders who are weighing layoffs right now. While my company is in no immediate danger at the moment, when the manufacturing sector went into decline during the last crisis and companies across the industry began to downsize, I felt pressured to do the same.
I remember going into a meeting with Barry-Wehmiller’s board in January 2009, at the height of the financial crisis, and being advised to start making layoffs to bring our costs in line. At the time, I assured my board that we were well-positioned to weather the storm. We had a backlog of orders and prospects that could sustain us for several months to come.
I cut my own salary from $875,000 to $10,500, which had been my starting salary as an accountant in 1968.
But six weeks after that meeting, when one of our largest customers put a $20 million order on hold, I realized that the recession was going to hit us a lot sooner and harder than I had expected. As other deferments and cancellations began to roll in, our revenues began to evaporate, and I was faced with the prospect of laying off thousands of our team members so our more than hundred-year-old company could survive.
Laying off people would not only destroy the culture we had worked so hard to build, it would also be brutal to let them go into an environment where there were no other jobs to be found. But the fact was that we simply couldn’t afford to continue paying everyone. I asked myself what a family would do when faced with such a crisis. Every member of the family would sacrifice a little so no one person would have to suffer a lot.
In this spirit of shared sacrifice, we decided to take a number of measures to avoid layoffs. We suspended executive bonuses and our 401(k) match, and cut travel and other discretionary spending. We put in place a generous voluntary early retirement program for employees close to retirement. I cut my own salary from $875,000 to $10,500, which had been my starting salary as an accountant in 1968. Finally, we asked every employee to take four weeks of unpaid time off, at a time of their choosing.
The reaction to this from our employees was one of overwhelming joy. They had been nervous about the prospect of layoffs for months, and now felt safe. Having discretion over how they could use their four weeks of unpaid leave allowed them to use it as a currency to help each other out. People traded their weeks off so that those who were worse off wouldn’t have to take as much of a hit. Even though giving them control over how and when they took their weeks off was an operational challenge, the boost it gave to morale and team spirit was incredible.
Management is about using others for your success; leadership is about stewarding the lives entrusted to you.
We could have achieved the same financial result if we had simply cut salaries across the board, but it didn’t feel right to ask people to work the same amount for less pay. What we offered was a trade: your time in exchange for a loss of pay.
The result of all these measures was that we came out of the recession incredibly strong. We were in a position to take full advantage of the expansion as soon as it began: 2010 ended up being the best year of our company’s history, followed by year after year of record performance.
We live in a culture where most people feel that their company does not care about them; where people would forego a salary hike if they could fire their boss. Prior to the current crisis, we had the lowest unemployment rate in 50 years, but some of the highest levels of anxiety and depression. Although people had jobs, they didn’t feel valued. One of the things I’ve learned in my 45 years leading a company is that while management is about using others for your success, leadership is about stewarding the lives entrusted to you.
The responsibility of a business leader is to design a business model resilient enough to withstand the shocks of the economy and protect the people in their company. You need to think of your people not as employees fulfilling functions, but as each one being somebody’s child who has been placed in your care.
Letting go of people should never be a leader’s first choice or an easy choice to make.
All that said, I understand that the current situation is unprecedented. Today’s crisis is not like the one we faced in 2008–09. For businesses in industries like entertainment and hospitality, many of whom have seen their revenues shrink to a tenth of what they were before, there may simply be no way to avoid letting people go. Right now, thanks to a huge intervention from the federal government, businesses and individuals have access to aid that they didn’t have before. And while these government programs might help reduce the burden of dealing with our predicament, every leader needs to approach it in the spirit of shared sacrifice.
Letting go of people should never be a leader’s first choice or an easy choice to make. Layoffs have to be an absolute last resort, and much as we did in 2009, there are several ways in which businesses can cut costs before they have to cut their people loose.
One of my senior board members likes to explain it this way. Imagine you’re on a DC-3 propeller plane flying west. As you approach the Rocky Mountains, the pilot tells you that you’re losing altitude, and the plane needs to lose weight quickly. When faced with the reality of crashing into the mountains, there are several things you’d find yourself willing to let go of before you even consider the possibility of pushing people out of the plane.