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With over 30 million people either on furlough or laid off, business leaders are now faced with the task of deciding what to do now that businesses are allowed to reopen. On the one hand, there is concern that of a new wave of infection (soon or in the Fall when schools reopen and the weather turns cold again) could lead to a second wave of hospitalizations and a renewed need to “shut down” again. The thought of having to lay off employees and shut down again is enough to make some businesses pause. On the other hand, it is that very pause – a failure to get the workforce back to work… earning and spending — that could hinder the speedy economic recovery that would allow businesses to recover some what was lost in March, April and May.
The Leadership Conundrum
This is what could be called a Leadership Conundrum, a difficult or thorny question for which there is no obvious, right answer. Deciding what to do next requires great wisdom. For some big businesses, especially in the retail, hospitality and real estate sectors, economic fallout from the season of Covid has pushed them to the brink of failure. Without a healthy recovery, they may not survive. For small businesses that don’t have much overhead but also may not have much of a cushion to ride out the storm, a slow recovery from the crisis could also spell doom. In truth, every business wants, needs and hopes for a quick bounce-back from Recession to Growth. But it is the very hesitation of businesses to ‘rev the engines’ that might impede the very recovery so desperately needed.
Rehiring comes with risk. If every business rehired most every employee with roughly the same hours and salaries from before the pandemic, with perhaps some minor adjustments to help compensate for the loss, the unemployment rate would quickly drop to 4%. But there is no guarantee that employees would then resume spending and buying as they did before Covid. The “Covid Hangover” might cause many to hoard their pennies for a long while, both from fear of going out as well as from fear of the pain of a possible second shutdown. So rehired employees would not have enough work to keep them busy. And if there were a second wave, having to lay off a large number of employees again could have a serious economic, financial and emotional toll on everyone.
Not rehiring also has inherent risk. If every business only rehires a few of those laid off, that would leave an unemployment rate in the U.S. of about 8-10%. That level of unemployment would absolutely affect future spending by everyone, and likely have a deflationary effect on everything from salaries to real estate to consumer goods. The economy would continue to contract and the Recession would be prolonged. Businesses would fail. The ripple effect would be prolonged and pronounced.
Uneasy Lies the Head that Wears a Crown
In Act III, Scene I of William Shakespeare’s play King Henry IV, the character of King Henry IV says “Uneasy lies the head that wears a crown” to express how tough his duty of kingship is, and how difficult it is to take such a serious responsibility, which constantly worries him. Business leaders know the weight of such responsibility, especially in unprecedented times as these. Decisions made now affect the lives and livelihood of millions. For business leaders who truly care about their employees, the weight of the decisions they are making now weigh heavily… causing great anxiety and sleepless nights. Behind every person who is laid off permanently is a person – and perhaps a family – whose life is thrown into uncertainty and chaos. It means inflicting real financial pain. That is a heavy burden to carry. However, there are things that business leaders can do to help in this incredibly difficult decision.
How to Make Tough Leadership Decisions
1. Have a Process
It is key not to just jump to an answer, making decisions based on instinct, emotion or fear. Instead, when making hard business choices that affect people, it is important to have a pre-determined process that includes a set of criteria for making the decision. If there isn’t a pre-determined process already in place for such situations, craft one now. Seek wise counsel. Ask several people within and outside of the organization (mentors, other business leaders, advisors) to provide their feedback to develop the process. Document the process. The process should include a thorough analysis in which a lot of questions are asked. Why is this the right decision? Is there bias involved? Are there rules in place governing how the result was reached? Could the decision be explained in a rational way to an outsider? Claiming that it was just a consequence of Covid will not suffice if there is clear bias in who was let go and who was retained or rehired. The process can also include development of a list of the pros (good) and cons (bad) involved in each possible choice. This also helps work through the best outcome systematically, and documents the thought process. The same criteria should be used in making employment decisions.
2. Limit the Information Needed to Make a Decision
The more options to be considered in making a decision, the harder the decision is to make and the less satisfactory that choice will be. That is the paradox of choice.
To compensate for this, limit the options available and variables to consider in making the decision. Narrow the decision down to 2-3 options. For example, the choices could be to rehire all staff, rehire 50% staff and with the possibility of rehiring the rest within 120 days, or rehire just 25% of the staff and lay everyone else off permanently. Then decide on a limited number of variables that will affect the decision: how much work comes in during the next 30 days, the variety of skills the person has that make them flexible to do whatever is needed, and the long-term need of those skills to both the company and customers.
3. Quantify Options.
Business owners and leaders are used to making quantifiable decisions. They are usually looking at the ROI of every expense. That’s an important part of what they do. So, to make hard decisions a little easier, convert the task into quantifiable variables. For example, in choosing between two employees to rehire one, rate each based on a set of consistent criteria. Reliability. Flexibility. Skill set. Experience. Education. Value to the organization. Allocate points on a scale of 1-5 for each. The one with the most points is rehired. The other is let go. While this seems cold and impersonal, it is exactly the kind of unbiased, dispassionate assessment that should be used when making tough decisions.
4. Minimize Decision Fatigue.
Decision Fatigue – which sets in when a person has made too many successive decisions within one day – is a real and documented phenomena. Even small decisions, like choosing what to eat, wear or do, have a cumulative effect on the decision-making muscle. To reduce decision fatigue, spend less time on small-scale decisions and let others decide things that don’t have a big impact on the business. Make big decisions about rehiring vs. prolonged or permanent layoffs early in the day.
5. Step Out of the Situation.
To make the hardest decisions, it helps to step outside the situation altogether. That is easier to say than do. But try to imagine that the situation is happening at some other company. Pretend that it belongs to a friend or even a stranger, and the goal is to advise what he/she should do. Describe the situation aloud making everyone involved a total stranger. What advice would be given?
6. Don’t Procrastinate.
Entrepreneurs struggle with timely decision-making. It becomes a case of Parkinson’s law, in which the amount of time it takes to do a task swells to fill the amount of time allotted for it. The best approach is to decide on what is a reasonable amount of time to consider all the information – whether it is a day, week or month — and then make the decision within that time, even if taking a little longer won’t make a world of difference. Don’t take a ‘wait and see’ approach. Once the path is clear, make it happen.
7. Be Able to Explain the Decision
Some leaders feel they don’t ever need to explain the why behind how they run their business. That just is not so. Labor laws are meant to keep employers from discriminating or being biased in how they treat employees. If forced to explain a decision to the Department of Labor, EEOC or in a lawsuit, “I just thought that was the right way to go” isn’t going to cut it. It is important not just to have a process and document that process, it is important to be able to explain it as well.
In addition to being smart from a legal perspective, it also makes a big difference when explaining to affected people the how and why of any decision made. People who get to see behind the curtain are more likely to understand the reasons for the decision, and are less likely to be upset enough to file a complaint. They will also be better able to deal with the fallout of the decision if they at least have a sense of why. Of course, some will listen to the reasons given and might still be angry or disagree with the logic, or simply not believe the reasons touted. Messing with someone’s livelihood is sure to provoke an emotional response. Anyone who learns that some people were rehired while others weren’t is going to wonder “why not me?” Even when the decision-making process is completely rational, reasonable, and consistent, it may do much to ease the pain or suffering caused by the decision.
8. Be Fair
This should go without saying. But in today’s supercharged environment of economic pain and system injustice for minorities, it must be said. Be fair. Is the decision fair? Decisions that have the most potential to create problems down the road are those where people believe the decision-making was inherently unfair. If there is any whiff of bias in the process or a perception of unfairness, this can be highly damaging to the business from a legal, financial and management perspective. A perception of unfairness can be extremely damaging to morale. Companies that gain a reputation for bias will have trouble recruiting top-tier talent later.
To ensure decisions made are fair, ask an impartial outsider to review the decision before it is final. Keep in mind that unconscious bias is real and few people ever openly realize and admit that the decisions they are making are unfair or biased. An outside opinion helps look at situations from a different point of view.
Last but not least, think not only about the short-term repercussions of a decision but also the long term as well, and focus more on hopes for the future rather than fears. If the current decision is the wrong one – for example cutting back on staff permanently by 50% — how will this affect the business in two years, or five years? Will the medicine to cure the problem be worse than the alternative? Will downsizing substantially quash the ability to capitalize on unique opportunities that will almost certainly arise as other businesses fail? If being able to scale up at a moment’s notice is a unique selling proposition of the business, will losing that eliminate a key differentiator? Most bad decisions can be recovered from in the span of a year or two. If the decision ahead can inflict harm well past a year or two, think twice and move in the direction of hope and optimism.
Quote of the Week
“May your choices reflect your hopes, not your fears.” Nelson Mandela
© 2020, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.