3 Reasons You Should Double Down On Leadership Development After Layoffs

The last six months have seen major pullbacks from most companies - hiring freezes, budget cuts, and waves of layoffs from Microsoft, Google, Meta, Salesforce, Twitter, and scores of others. If the last week is any indication, these pullbacks will continue.

Following layoffs, companies typically cut spending on leadership development and employee support as a way to reduce spending. On the surface, it makes sense that if you’re reducing your workforce, you wouldn’t have capacity to spend on developing remaining employees. Closer examination, however, shows this to be a devastating mistake.

Research shows that investing in leadership development and support is even more critical after layoffs. Cutting investments in development during a pullback is like sending leaders into the jungle without a machete. You're asking them to navigate a dangerous environment without giving them tools they need to survive. 

The consequences of bad leadership decisions following a layoff can persist for many years. Most likely, we’ll transition to a recovery period before the end of 2023 and your ability to ride the updraft will depend largely on how the leaders in your company navigate this challenging period.

Unless your leaders have the skills to navigate a reduction in force successfully, you’re in for a tough recovery.

Here are three research-backed reasons you should be increasing your spend on leadership development and support right now:

1. The performance of layoff “survivors” drops significantly.
   If you’ve chosen to layoff part of your workforce, be aware that the negative effects to your organization are detrimental and long-lasting. One study found that survivors of a layoff reported 41% lower job satisfaction, 36% decrease in loyalty, and a whopping 20% reduction in performance. Survivors experience guilt, fear of additional layoffs, and the added stress of having to take on more responsibilities. To keep engagement and performance high, leaders need to provide additional mentorship, offer emotional support, and role model resilience for their teams. At the same time, leaders are facing their own guilt and stress. Their command of core people skills must be high to mitigate these huge drops in organizational effectiveness. Investing in one-on-one coaching, resilience skills training, and management support for your leaders during this period of challenge will pay off exponentially during recovery.
   

2. Leaders need different skills following layoffs
   One major study from the UK shows that the leadership skills needed following a reduction in force are not the same as the ones needed in better times. In addition to the skills mentioned above, leaders have to understand how to motivate employees, increase collaboration across business units, and find creative ways to do more with less. Senior leaders may not have tapped crisis management skills in years, and newer leaders may never have needed to use them. Left to fend for themselves, it can take months for leaders to master or re-master these critical skills. By the time they do, it is often too late and the damage has been done. By investing now in skills training, coaching, and peer support structures for your leaders, you can ensure that they operate at the top of their capacity and position your organization to recover quickly.
   

3. Reputation matters for future performance
   Since the pandemic, we’ve seen dramatic shifts in the priorities of workers. No longer content with transactional work relationships, many workers weigh a company’s investments in community and care even more heavily than salary. The way that you treat your employees during a layoff will be remembered and used as a data point for future hires. A number of studies have examined the decisions made by leaders during layoffs and the impact those decisions have had on their performance during recovery and beyond. One study that explored the relationship between layoffs and firm reputation found a significantly negative impact that persisted into the year following layoffs. There is some indication that companies who chose to keep workers and instead reduce overall pay fared better during the pandemic than those who chose layoffs, although more research is needed to evaluate long-term impact.

Whether or not you choose to layoff part of your workforce, investing in your people during challenging times pays off in terms of long-term profit and market share.