How to Properly Lay Off People During an Acquisition

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Welcome to M A Science where leading M and A practitioners share lessons learned from their experience. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our free newsletter where we share highlights from our interviews and invitations to events as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M&A Science. Joining me today is Evelyn Dela Cruz, Head of North America Administrative Operations at Spencer Stewart. Spencer Stewart is one of the preeminent global leadership advisory firms. Today we're going to talk about how to properly lay off people during an acquisition. Evelyn, how are you doing today?

I'm doing great. Thanks so much for having me. How are you doing?

I'm doing well. Thanks for coming to hang out.

Excellent.

Excited to learn about this topic because it doesn't get discussed very much. But before we get into it, can we kick off a little bit about your background to give some relevancy to our topic today?

I have been involved in the HR space, both consulting and as a direct practitioner for more than 30 years. We'll stop there, but I've spent a lot of time in a variety of different organizations involved in integration work in M and A. Very deeply involved in the technology sector but not necessarily in technology companies. So yes, technology companies, but also supporting technology within financial services and other types of sectors. So a deep background in tech as well. Right now at Spencer Stewart, I do something wildly different where I actually lead our administrative function in support of the operation of client and candidate services that Spencer Stewart provides to all of our clients and candidates. It's been a wild, fun ride. And one of my big highlights is the time I spend doing mergers and integrations.

You've been involved with some layoffs?

Oh, yeah. I've done a ton of layoff work throughout my career, unfortunately, as I think many of my peers would echo both within market downturns as well as within integrations and within company downturns. I worked for a major retailer that shed employees over and over again along the way. But there's some universal truths to how you handle layoffs. But they're particularly important in the merger and acquisition space to make sure that you're setting yourself up for success as you move forward out of any layoff, regardless of the reason for it.

What were the size of layoffs that.

You'Ve had experience with directly in a merger integration situation? I would say the largest. And remember, unfortunately, this one goes back about 21 years now. The largest direction layoff I've been involved in with a merger and integration, I believe was somewhere between 500 and 1,000 people, more on the 500 end. And that was bluntly the shedding of a lot of administrative personnel. Behind the scenes, where there was duplication, it was two professional services organizations coming together. And so it was really heavily in some of the leadership, not direct leadership, but the behind the scenes operational leadership. And a little bit in the practices, but only where there was serious duplication. So it's really more the guts underneath it, so to speak. But in terms of massive layoffs, with my favor retailer, we were doing at times three to 4,000 at a crack. So pretty massive. And that makes them logistically really difficult, even in the best of times.

Starting with the utmost basics, why do employees get laid off during an acquisition?

I think the first and primary reason is when you merge and integrate, do you need both? Fundamentally, do you need both? And where do you need both? So if you're bringing together two organizations, does. Does that leave you with too many people in accounting? Does it leave you with too many people in hr? Does it leave you with too many people in it? So how many people do you really need to run the guts of the company? It can also mean that you are spinning off or shutting down parts of the operation that are no longer relevant or somehow getting subsumed and so you have too many people in sales for a particular organization, that's not going to be your primary avenue anymore, or too many people in manufacturing because you're going to combine a manufacturing plant. And in some cases you're simply shutting down a unit for whatever reason. It really does become very deal specific. But it's often in that underlying layer where you see the primary duplications that drive the first look at layoffs.

Main big drivers, duplicate roles, cost synergies. And then a part of the strategy is cutting down some of the operations. Hey, we bought this technology or something of that sort, but we didn't really anticipate on utilizing their salesforce.

Exactly. I haven't been directly involved in some of these deals, but you've seen this sometimes in the merger of pharmaceutical organizations where it's your point of the salesforce. Are we going to combine the products into one sales force? Are we going to continue to have as many SalesPeople as the two organizations had previously? And sometimes it's a mix of both. Right? Maybe there's area coverage that's better in one organization, geographic area coverage that's better in one organization than another. So maybe one organization has everybody in Illinois and the other organization has everybody in Indiana. And wow, that still makes sense. But where they're all in Chicago. No, it doesn't. The first blush is usually that duplication.

How early is this planned? Is this, hey, we have an idea we're going to do these layoffs or do we actually have a headcount before we get an LOI sign?

I've seen it across the board. It really depends on the strategy of the acquisition. That's where I want to back up to is no matter what it is that you're thinking about doing, whether it's day one planning or it's layoff planning, you have to understand what the strategy of the deal is. Why are we doing this deal? What are we hoping to get out of this deal from that then drives all of the decisions about who should be the leader of the new unit. Do we need a second HR staff or more HR staff than we had in the original company? Do we want to let them be standalone? So maybe we don't need to do more than a handful of layoffs or no layoffs. Are we buying the IP and not the people? So we're really actually going to lay off almost everybody. And that all comes back to the strategy of the deal. And so one of the key things that I find from a merger perspective, integration perspective, that is True. Whether you're looking at layoffs or any other aspect of the deals, if the acquiring company does not truly have a solid grasp on what it is they are trying to achieve and how they intend to achieve it. So why are they doing this deal? Then none of the other decisions will pass out correctly, including whether you need to do layoffs or not.

Okay, so really have that clear definition of why?

Absolutely. Whether it's stockholders and publicly traded or whether it's equity partners in privately held deserve that. Why are we doing. Why are we spending this money? What is it we think we're going to achieve out of this? What is that goal? Now, here are the six things we're going to do to get there. To me, it's no different than any other business goal. This is the goal. How are we going to get there now?

Are we framing that specifically to communication with the business leaders or everybody?

Everybody. Let's move along on the thread a little bit about layoffs. Part of layoffs is communication, both communications and the individuals that we're laying off. And I know we'll probably talk more about that communication to everybody, including senior leadership. This is the plan. This is why we're doing this, which is likely to be far more in depth than what you might share with the rest of the organization. But ultimately, you still have to communicate to the remaining members of the organization, why did we do what we did? Why did we buy this other entity? What are we hoping to get out of it? And what are the things you're going to see as it goes along? As I'm sure you can imagine and have probably heard from other HR practitioners, whether it's an M and a deal or anytime the minute the word layoff gets into the water in a corporate environment, everybody goes into a panic that they're going to be impacted. They don't understand what's happening. They don't know what's going on. They don't know why it's going on. They don't know if their department's going to be impacted. They don't know if they personally are going to be impacted. And so that body of communication all the way from senior leadership, the board of directors, all the way through the teams who are remaining becomes really critical. Because at some point you've got to get them all comfortable with what's the forward plan. And yes, you're a part of it just as much as you need to treat the people who are exiting with dignity and respect.

You're right. It's like the big bomb Drop. I don't know what else is a bigger disruptive news. Maybe the company shutting down, but.

Right. Which is really a form of a layoff too.

Yeah, exactly.

That's one of the things that when you hear like a retailer go through and talk about store closing, yes, the communities are reverberating about not being able to shop in a particular location. But what really reverberates first is how many jobs, how many jobs are we losing? Community, the company, how many jobs? Yeah, it's one of the biggest bombs that you can drop in any organization. And certainly, I think in most deals there's an expectation that there will be some. Whether that's the reality of the deal or not, I think most outside in view is that there's going to be some. So it's not until you communicate, yes, and here's why, and we've done and you're okay, or no, let's come to the side. You're not, you're a part of it, or you know what? We're not doing layoffs. And this is why. This is why it's so important to keep everybody that's involved. It all comes to me. It all comes back to communication.

How do we properly lay off people during an acquisition?

I think to me, the primary is dignity and respect. It's a tough circumstance. Even when somebody thinks they see it coming, it is difficult. Again, the first thing goes back to what's the business plan? Why are we doing this? Why do we need to lay these individuals off? Because you're going to need that. You're going to need that information in your back pocket because that's going to help you craft the communication to the individuals. It's also going to help you, as we just mentioned, craft the communication more broadly, including to the press. And like I said, there's likely a few different versions of that. At levels of detail, what you tell the board of directors or the senior leadership team is often very different than what you tell a group of 50 rank and file. Let's use a retail store for an example, or warehouse. What you tell the warehouse staff is likely different than what you tell the board of directors. It should be the same theme, but it's probably in much more detail at the board of directors level. So that's first. What's the message? Why are we doing this? What are we hoping to achieve? What was the goal of the deal and what is the necessary reason that we have too many people in whatever aspect that it is. Once you've got that, then the next piece Is so how are we going to treat this group financially? Do we have a severance program already in place? Whether it's the target company or the acquiring company, which one are we going to use? Are we going to do something in between? Because one thing is if you do it close enough to the time of the deal, you can actually incorporate those costs into the deal. And our finance guys always like that. The other is simply, what are we going to give them? And different companies have very different severance practices. And so sometimes you have to rationalize that. And again, are you going to be the acquiring company? Are you going to be the target company? Or are you going to be something in the middle? Are you going to be particularly generous because you want the goodwill around it from the remaining individuals? The challenge with getting really nice about your severance packages to get goodwill is that then the remaining people may expect that is now your ongoing severance package. So you gotta be a little careful there. What precedent or expectations are you setting? And then it comes down to how do you execute this? How do you actually do this thing? We've all heard in the press, the giant Zoom call, layoffs, different things like that. Nope, I get that in today's remote world and Covid, not everybody's as comfortable traveling. And if you do have a large group of people to get to in multiple destinations, that can be really difficult. There is no substitute for one on one. If it needs to be on Zoom, it's still one on one. Or maybe there's HR in there with you to help with the details. But I believe that we owe the individuals the respect of having that as a private conversation. I would love to say do it in person, but I'm cognizant that the world keeps shifting and in person sometimes is really hard to do for a variety of different reasons. Like I said, not the least of which is the last two and a half years with all of us sitting in our home offices. So I don't have an aversion to it, but it needs to be one on one and it needs to be respectful and it needs to allow for that individual to process. And I believe that's true whether it's inside of a deal or not. To have that moment where you don't feel like you're being rubber stamped down a production line as you move through the steps of it, where you have the chance to absorb the information, to ask questions, to be given your own personal information about what your severance package is and how your things are going to be treated. Many Companies have different, for example, different outplacement benefits at different levels of the organization. So your benefits may truly be unique to you or at least within your layer of the organization. And you deserve to have those explained to you. You deserve to have the chance to ask those questions and you deserve to be able to do that in private. I have had to do some non deal layoffs where for lack of a better word, we did have to get a little production oriented. That was that three to 4,000. And what we did is we took the big giant meeting room in our office complex and we built an awful lot of curtained carrels. We had the meetings happening with the managers back in conference rooms out in site and then people went to this central room to meet with one of a member of large HR staff to get the details of their actual plan. So they had that moment in private with their own manager to get the news, but then they had to go to a more central location to get the details of what their exact package was. I hated it. Every member of the HR team hated that particular event. But it was the only way we could process three to 4,000 people in one day.

You had to do it in one.

Day and we had to do it in one day. Yep, we had to get everything done in one day. The faster the better. Honestly, I don't believe in drawing layoffs out over multiple days if possible because everybody else who hasn't been talked to yet goes home at night and can't sleep because they're afraid to come in the next day because they're afraid they're going to get it. So the faster you can clock through them and get the message out, yes, we did this and yes, we're done that we are done in this cycle, we're done in this court. Whatever it is, whatever you feel comfortable saying, we're done with. And different organizations will want to frame that differently. The faster you can tell the remaining employees that they are remaining and that they won't be impacted, the better you are, the better off. So yeah, unfortunately, sometimes it means getting through an awful lot in one day. And that comes back to you might have to do one on one zooms because you've got people in too many locations, you can't get to all those locations at once. What I will tell you is even when we did that production style thing, you still sat in a quiet space with one HR person and you were not sitting there with 10 other people being told what your package was. It was you and an HR person. It was just we had to get everybody together to be able to move people through quickly.

So the manager didn't even interact with them.

Now the manager started it up in a conference room on the floors and then everybody came down to the central HR zone. How we did it. So yeah, they had two separate individual conversations, one with their manager and one with somebody from hr.

I want to make sure I got these steps right. Number one was dignity and respect. The mindset mantra. Start there. The second is this is where we get into the messaging, the why, what are we trying to achieve, the goal, the reason for the layoff. The third one was around really figuring out what are we offering the severances, I guess the process, how we're going to go about it. And then the fourth was delivering the news. And this is where you mentioned doing the one on one so you can allow people to ask questions. Keep it a little more intimate in that regard. That process you mentioned, usually the manager would initially break the news and then HR kind of lays out more of the details in the process. Can you give me examples? I'm curious about the messaging part because that's, I feel like the critical. And I'm wondering if you just have, you don't have to like name specific companies but just the general basis of how do you communicate it and get a sense of that level of detail that you've describing.

So let me preface by saying one of the companies that I worked for doing a lot of deals at that point in time. So I can't speak for deals they did after I left the organization. But at that point in time most of the deals were done in a fairly standalone bolt on way and most of the deals were done without doing layoffs at the time of the acquisition. You might see a leader leave by choice. So the CEO, the entrepreneur is selling their business and they are exiting by choice or exit stating they're going to exit within six months by choice. You sometimes see that with serial entrepreneurs, but we didn't do an awful lot of direct front end layoffs in that particular organization. If I go back to the professional services organization, it was made very clear from the get go that there were going to be overlaps and that we were going to be looking for those synergies and that we should expect that there will be some layoffs either where we had too many people in a function, say HR or finance, or too many people in a practice to support what we perceived would be the level of business that we could support. It was a really interesting deal though because what we were actually buying were the people, and their connections was professional services. So we had to be super careful with that one about triggering turnover, because otherwise your purchase just walked out the door. Literally. You were buying the people in that particular case. And so that was the one. We laid off about 500 people. And there was a really careful process before that as we were going through final diligence on the deal and all of the how are we going to integrate this to really say who stays, who goes? And now, clearly, we didn't communicate at that level to everyone. Yes, we sat down and we looked at this entire department and we looked at this person. And of course, you're never going to go into that level of detail, but we were very clear that said, look, as we put these two organizations together, we're going to find some places where we don't need as many functional staff as we have or where we're overstaffed for the particular marketplace that we're in. And we're going to do our best to treat those people fairly and well. And then we're going to move forward. We're going to do it right before the actual merger closes, and then we're going to move forward as one team. And so that was our messaging. We're going to comb through it before we're going to figure it out, and then we're going to go forward together. It was actually really difficult to get through because neither team could use their tools they had built because we were looking at a merged team, and neither tool was ready to see the merged team. So there's a ton of manual to do it that way. If we had waited three months until everybody was merged into one system, it certainly would have been a lot easier on the HR staff to actually get it done and done well. But the decision was made to make sure that it was done before the deal closed. So, again, that's one model. And we were able to be very clear about what the intent was. Where it gets murkier is when a company is not clear. So I did one deal when I was in consulting for M and A. The acquiring company basically took the position that said we don't care how we treat people because we don't care if they all quit. Okay, but if you don't need that many people, why don't you just lay them off? Why make their lives so difficult and leave them without any benefits? For force them essentially into wanting to leave your organization? How is that positive for anyone? How is that positive for the people who've been with Your organization. How is that positive for your reputation externally as an employer? We all want to be an employer of choice. We all want to be able to attract great talent. And so they were running a de facto layoff simply by taking away benefits, treating people poorly. It was a nightmare. It was not what we advised. In fact, it was very counter to what we advised. But that's how they did it. And ultimately we're able to reduce their staff simply by attrition. It's a model. I don't recommend it.

What would drive somebody to do that? Is it, hey, I just don't want to do that in general or have that process of doing a layoff? Or is it, I'm going to save some money by driving people out on their own?

I think that was more it, honestly. I do think from a pure cost perspective, in the short term it was far more cost effective. They were paying lower benefits out to this group of people after the merger closed and then they weren't paying any severance. But it's an ugly way to do business and it will leave you quite a reputation in your industry and make it really hard for you to hire staff leader.

When you give the example, the good example of messaging and you explain the rationale for doing the layoffs and you said you'll take care of the people, how much detail do you get into when you do say you're going to take care of the people? Are you talking about services then?

Or the easiest way to handle that one is if you honor the severance program of one organization or the other because then you can just point to we're going to use our standard severance. When the professional services organization was coming together, we did the layoffs pre close. So whichever side you were on, you got the severance package of your existing organization. Both organizations had healthy severance packages at that point in time. And so we were, and they were basically public. If you really wanted to go find out what our severance program was because we did the same thing with everybody was X number of weeks of pay for years of service plus, you know, benefits for that duration. It was pretty clear cut. So those were really easy to communicate because we could say they're going to get our standard severance. That makes it a really, really easy message, a very non contentious message about what are they going to get? Because they're going to get what they would have gotten under any other circumstances, not the merger that's driving what their severance is. That's our business practice. We're going to treat Them like we always. So that becomes a really easy communication. It's when you start to craft new ones, something different, something additional, that you have to be really careful because again, you don't want to set a precedent that somehow somebody, two years later when you do a layoff for completely different reasons, that you treated them differently. Why don't I get that? My recommendation for ease is to use whatever you have. The complication is if you don't have one, if you don't have a standard severance, then you can't fall back on. We're using our standard severance. It may be a good time to.

Implement one when you start thinking about those options that you offer. Severance is commonly talked about and there's obviously variations of a severance. Are there other options that you're considering?

When I talk about severance, I think of it as the entire package. Typically, severance will include some form of pay, whether it's a lump sum payment or a salary continuation. Some of more so in the older firms and some of the international firms, you'll see it as salary continuation where literally you're still getting a paycheck every pay period for X period of time. Think of that a little bit more like garden leave, how Garden league kind of runs. It's not the typical. But there are still some organizations that do that. But so I think of severance as the dollar value you're going to get. So salary replacement, the medical, dental, typical life benefits that you're going to have continuation on. And that can many organizations do that for the duration of your weeks of severance pay? Some do it for a fixed period of time. That could be one way to sweeten the pot temporarily is to say normally our severance program would be for the weeks of payout that you get. But in this particular instance we're going to do a minimum of six months for everybody or something like that for health and dental, et cetera. And then the other is what are we doing with any stock that you might have? Are we going to auto vest you in some portion of that? Are you going to lose it all? What's the plan there? For that I would turn to the stock program and hopefully it's written into the stock program already because there's enough governance around those programs that you really don't want to be veering too far out. So hopefully you've pre thought that if you're running an RSU program or an older option program, but there's something in there. Many of them will simply say you lose it, but what does it say? And then the final piece is outplacement and other types of services. And again, that's a place where you can sweeten it if you want to. Whether it's in many organizations will do this by level. A more junior person might get resume review and resume help. A very senior person might get a concierge outplacement service. But that's another place where you can sweeten the pot a little bit and either offer longer services through an outplacement vendor or better services up their ladder of service offerings. But I look at that whole package as severance. It's it. To me, it's not just as simple as the check that I hand you on the way out the door.

Is the cash portion often paid all at once?

Often, yes. That seems to be more typical. It's easier to get people off the books. Number one, anytime you leave somebody still on your payroll, it can be a little fraught in terms of if they go out on a medical leave, different things like that. So if you're going to leave them on a salary continuation, it has to be really well written to cut off being able to go out on a medical leave or something like that while they're still on it. The other weird one I've seen in salary continuation is that let's say I tell you to get salary continuation for six months, but in there it says that as soon as you get a job, you're supposed to tell me because I'm going to discontinue your salary continuation lump sums, just stop that problem altogether. But some companies still want to do that. Let me pay you every twice a month kind of thing. And I will tell you, having worked in an organization that did that salary continuation where you were supposed to report in when you got a new job, we'd taken the time to go research on LinkedIn when people got new jobs, let me tell you how much money we could reclaim because nobody ever reported in. So great it was in there. So do you either let that happen, don't put it in there, or just pay them all at once? Honestly, I talked to your accountant. There might be reasons within a deal or within an accounting preference for the firm to do it one way or the other. I personally like the lump sum the best. Easiest it's the cleanest, you're done. But I'm not a finance person. I'm not an accountant. So they may have reasons. They don't like that.

Fair enough. Timing wise, you referenced doing these layoffs before close and after close. Can you tell me the difference?

I think there's a few differences. One is have you clearly identified pre close what's going on and what you need to do. And if you have, the sooner you can do it the better. If you haven't identified, if you really don't know what's happening yet how the teams are going to come together, then I would wait because you may let go of the wrong people and that gets into figuring out who are you letting go, which is slightly different conversation. There's a little bit of that. The other very much comes down to the deal and what can you write off against the cost of the deal? What are the tax implications against the deal? And that's again where your finance team, your tax team really comes in. They may clearly tell you that we would rather book that severance within certain period of time. And sometimes it's pre deal, sometimes it's within the first 30 to 60 days post deal. But you look to them for the guidance about how that deal is written. It could be timing towards the fiscal year. It could be governed by your fiscal year. Now you got to get it done before the end of the fiscal. It could be we got to get it done before close or within 30 days of close so that we can put it all in the package. When we say this is a write down because of this deal or whatever they're working on, I stick close to my finance team on that one because they're going to have reasons from a financial perspective why it's better to do it in one time or another.

Got it. And it sounds like it's a little more challenging to do it before closing after.

It can be. If you're going to do it before close, it has to be done by and clearly done by the existing organization. It cannot be perceived to be done by the acquiring organization into the target. It's got. The target has to do it. The acquiring organization has to do it. Got to be really separate. If you try to do it pre close, you can do it pre close. But it's tough. It's tough unless it's really clear cut why you're going after the group that you're going after. If what you're trying to do is mesh together an HR team and figure out who you need at the end, that can be really, really tough to do before you start to see how the team gels a little bit.

Sounds like a tax is a big influence on that decision.

Tax is a big influence on everything in M and A in my opinion. Tax and finance because they're spending money, but just the whole, like accounting. And if we do it this way, this is what it means. And if we do it that way, that's what it means. And I learned very early on in my deal days that there were things I could poke on and say, hey, guys, from a people perspective, this is going to go down a lot easier if we do it this way. And then they would say, yeah, we can make that work, or no, from a financial perspective, we can't do it. You got to figure it out. I'm like, okay, this goes back to. And I hear the HR for M and A team saying this all the time. How close are you with your deal team? How upfront in the deal are you on your deal team? And this is where building that business partner relationship, just like we try to do it with our clients in standard hr, having that business partner relationship where you are at the front of the deal with that deal team the whole way through, gives you the most flexibility when it comes down to what are they going to tell you and how do you need to work together on any kind of a layoff or reduction or severance or how you're going to roll benefits out. Getting outside of the layoff view, if you're close in the beginning, you don't have to be all the way at the very front end. But if you're close in the beginning and marching the whole way through, then you're planning that together and interactively. The best deals I've worked on are the ones where the whole team is involved together as quickly as possible, or at least the core team members.

That's a great tip for HR, M&A practitioners tuned in. Does layoffs cause attrition? Like additional attrition?

They certainly can. There's a few triggers in my mind. One is the communication. Are they just going to hit us with another wave? I don't understand why they do this. So I don't like my organization anymore. They treated people poorly. So I don't want to be here anymore. You lose that link, that engagement link to the company, and that can drive turnover. Another aspect to it can be a disagreement with the strategy of the organization. I really believed that Project X was the future. And you just laid off half of Project X. I'm going to go find a new job because I think the company is going to tank. So a true alliance to where we think we're headed directionally. The other, quite honestly, can be who you keep. And that's the tricky one. And that's why sometimes it's hard to do some of this pre before you know how the teams gel together. There's some really great work that's been done over the course of many years now and continues to be out there about organizational network analysis. Who are the right people? Who are the people who really keep your organization humming and moving underneath the covers? Because it's not always the top of your org chart. If you take out the wrong connectors, you can lose a whole group because they no longer feel connected. Or you can keep somebody who has a very poor internal reputation. And so a bunch of people will leave because they don't want to work for that person. They want to work for the person that you just let go of. You need to know your population, you need to know the interplay. Who are those key hub people and what are the reputations internally so that you're not triggering something you didn't need to.

Yeah, it's like the mayors and the neighborhood grill masters. You got to really keep tabs.

Yes.

I always wondered that with all these layoffs, how do you efficiently do that? You know, like there's the other side on the hiring side. You don't want to have a bias towards somebody that got laid off because that doesn't really tell you whether they're a good high performer or not. I guess with that, it's just more. Are you being pragmatic based on titles and structure as opposed to really performance based?

In my perspective, you've got to be some of both. There's certain key hierarchical leaders that are going to end up staying with you for the deal, but you need to know who and why. So let me go to a little small company that a big company I worked for bought along the way. This company was a producer of electronic content. But what the big company really wanted was the platform by which the company sold their electronic content. They didn't care so much about creating electronic content. They wanted the software, the delivery and the payment tracking because they wanted to integrate it into their system so they could sell electronic content. And they didn't have a great system for doing it yet, but they didn't really care about the creators, the creative team that was in this little company that they wanted to buy. So when you look at who they put stay bonuses on versus who they didn't, they went right after the software creators, not the content creators, the software creators. And people came back and said, whoa, what are you doing? You're treating our key people so poorly. Let's throw some more severance money at them so that these people over here aren't unhappy. But that's the person we really want to keep. And that's why so that gets back to what's what am I after when I'm buying this company? What am I really after? But what do I have to do to make sure that the group around that person that I really want to keep? Because by the way, I need to keep those people at least for a while, that they stay happy. Because if they think this hero leader over here should be better compensated or better taken care of, I may lose them if I don't take care of this hero leader, even though this hero leader I don't need anymore.

It's going to be a complicated balancing act here.

Oh yeah, this is why being involved on the deal team on the early side, because then you're in having those conversations from the very beginning and that gives you as much time as possible to start to suss out what are those relationships? Who are those hub links that are really critical to keep beyond the top of the organization chart? Who are the performance issues? Who are the performance all stars? Who are your hidden gems? The more time you have to deal with that, as you point out, you're moving pretty fast here. So the more time you have by getting to meet that leadership team earlier in the process, the more time you have to figure this out in a really big deal. If you have time to do an organizational network analysis study, there are tools out there and there are consultants out there that can help you do that as quickly as possible. So in a really big deal, if you can afford to have some of that done or you've got a team that doesn't, serial acquirers might have a team or a contract to help do that. I highly recommend it. But there's ways to get at it. One of the key ones that you can actually use and see, for example, is how many emails are moving, how many people are in how many meetings. These are some weird ones that you have to know your own rhythms in your company, but you can see sometimes in the traffic in the systems who those key people are based on what's going on in their inbox. Just on counts, you're not looking at their emails, you're looking at the counts. And Microsoft has some really interesting analytics around that that you can get to. They're not as good as those more personalized analyses where you're actually looking at the person and understanding how they interlink. But as much data as you can gather, it makes sense to gather, but you're never going to have enough time to get it 100% right.

Interesting. Gotta look at the big picture. Retention incentives, severances. Who's influencing who. Is there a formula for number of HR people you should have ready or allocated per x number of layoffs?

Oh, wow. I don't know many HR people who can process more than 12 to 16 in a day.

Wow. So where do you get additional help?

Sometimes you just have to send out the managers. Sometimes you have to hire some temporary help. Sometimes you have to draft every single HR person you have in the organization. That's why at that big layoff we had a central place because we literally drafted every single HR person, including some of the recruiters, literally everybody, to try to get through it as fast as we can. We had a remote HR staff because it was a major retail. So we had people out in the country, we brought them in to headquarters because it was a headquarters layoff. So we literally accessed every single person that we could to make sure that we had enough. You need to allow a minimum of 20 to 30 minutes per meeting, minimum. And if you're doing those one on one, there's your math. And trying to get an HR person to do more than eight hours of that. Yes, you can take a lunch break in the middle of that. So a little bit more than eight hours. But trying to get through more than about eight hours of that in a given day is really emotionally draining and difficult. And so if you can't get through it, then yeah, you got to go to multiple days. What I would say if I were going to go back and do that on multiple days, I would hit different units on different days so that you're hitting the whole unit and you can talk to that unit afterwards versus a little bit over here and a little bit over here and a little bit over here and everybody sits on tenter hooks for the rest of the night. It's hard emotional work. It's hard emotional work for managers as well. I will tell you that in that massive layoff that my boss and I had to go do an emotional rescue of a vice president, not an HR person of one of our line vice presidents, because they were. We knew they were sinking because it's that hard. Especially in an organization with long tenure individuals.

Wow. Yeah, I haven't thought about that.

We actually had two rooms set aside during that layoff. One was for laid off individuals who were really struggling with members of our outplacement staff who were specially trained in handling those situations. Almost like A mini eap. Actually, I think they might have been eap. Yeah, I think we actually brought in EAP to help. So we had one room where it was a combination of EAP and our outplacement. People who could do one offs with people really struggling. And then we had another room for managers who needed to decompress, managers and HR people who needed to decompress where they could go hide for a little while and find the ear of somebody who was experienced in helping bring them back to center again. It was a rough day. And anybody who says it's not run. Anybody who says telling somebody that they don't have a job anymore is easy scares me. It's not. It's just not. If you're human, it's not easy. And that's why I always go back to respect and dignity. Treat somebody with respect and dignity, it goes so far and how they can hear and how they absorb and what they share outside that. The organization treated me decently. It sucks that I lost my job, but they treated me decently on the way out and that's huge. But in order to do that, the managers and the HR staff, there's a cost, there is an emotional cost.

What's the best approach to make people feel better during layoffs?

After some of those big ones, you really do have to take some recovery time, whether it's group or take a downbeat individually. But you got to come at it with that level of compassion and it does draw it out of you. There's a reason in the psychology business that they talk about self care.

I want to learn some techniques like how do you do this? There's probably a lot of people are going to have to do this at some point.

And then there's a few things. One is coming together is not massive, not 100 people at a party style kind of a thing, but a small group getting back together and talking about it. Just saying, how did your day go? What was your. What surprised you? What didn't work? A little bit of a debrief, hey, what could we have done differently if we had to do this again, what would we do differently? What did we learn from this? That will often open the door to saying, oh my gosh, I had this horrible conversation and then just sharing it together. Maybe it's over. One of the things I used to do when we would do this at that same retailer because we went through layoff after layoff after I brought in snacks and my office was the safe haven, my team knew they could come into my office. They could find cookies, they could find candy, they could find coffee cake, you name it. They could find beverage, legal beverages because we were at work during the day, so no beer and wine, just. But they could find a beverage, they could find a snack and they could sit for a few minutes whether I was there or not, because somebody else would come wandering through so that quiet space to decompress and then we would get together at the end of the day, have a little sugar, have a bottle of water and talk and just regroup together.

I'd like to say, and you're talking about the employees.

I'm talking about my HR team. I'm talking about the managers who are remaining behind the employees. In most cases, the employees who are leaving, you've already walked out.

Okay.

This is the support staff. The team that's actually doing the layoff, performing the meetings, need that chance to come back and decompress. And you know what, sometimes if you can do it, giving them a day off as well. So decompress. You do your layoffs on Thursday and decompress Thursday, late in the day together and then say, you know what, just take Friday off. Or at least most people take Friday off. We'll see you on Monday. Have a couple people stay back in case there are questions or problems that pop back through on Friday. But people need that chance to get their head back and resettle and I think that's really important. Quickly followed on the leadership side by those staff meetings with the people who are remaining that say, did this and it's done and now we need to work forward together. And so you insert your strategic message. But at the end of the day, they need to be having that team meeting with their whole team or whenever their team is done with their portion of the layoffs and say, okay, our team's done and we're going to divvy up what work remains and we're going to figure this out and we're going to go forward together and we're going to miss our co workers again. This was in an organization with a lot of people with 20 plus years of service. So people who would have kids together, raise their kids together, grandchildren together, and the teams needed that moment to mourn as well. But then you've got to uplift and you've got to keep going. It's hard.

Can you walk me through the communication in those one on ones when you are breaking the news?

So typically the manager role is no more than three or four sentences.

So that's basically, hey, you probably heard about Our acquisition. Unfortunately, part of this strategy is to cut our R and D division and that includes your role. That's it.

Evelyn here is here to walk you through your package. And then in a lot of cases, we thank the manager and they leave.

Any nice like thing a manager could.

Say before, just the less they say, the better. You never want to apologize. You never want to say the word sorry. It doesn't work.

It's not. It doesn't mean anything.

It doesn't mean anything. You can say, unfortunately, your role was one of those impacted. Evelyn's going to walk you through your package and then I'll go back to your desk with you to gather your things. Different offices, different companies have different policies about how fast they want you out the door. Some of them are right now, some of them are. I've worked at some organizations. This, I'm sorry, back to the strategy. This is something else. In some organizations I've worked at, you actually serve 30 days of notice inside the company and you can look for other jobs while you're still considered active. Wrap up your work, transition your work to somebody else. Other companies, they walk you out, right? Then typically I would do that based on what your traditional pattern has been. Don't change your traditional pattern now. So then the manager would exit, I would walk somebody through what their package is and then typically either the manager or another member of management would then be waiting for them to walk them back to their desk, gather up their things and see them out. And then the HR person goes on to the next one. It's a little crazy, but like I said, there's some companies I know that I've worked for where you get to stay your 30 or 60 day, even your war notice period. You actually stay as an active employee in this special status and be able to use the company systems and you're still working and transitioning your workout. And that's another way to do it. And that's actually a very positive way to do it. From a risk perspective, a business risk perspective. If you can tolerate it, that's actually a really nice way to do it. Because then people do feel both themselves and the people around them, that they had the chance to apply for other jobs, to look for and apply for other jobs while they were still employed with the company.

Do you ever get exposed to lawsuits that are directly related with doing layoffs?

They do come up. Typically they're one offs. Oftentimes they are age related. That's the diciest one. So you have to be really careful. Age or Other discrimination to be really careful with your warrant activities and your adverse impact analysis. If you're not doing an adverse impact analysis, you need to be. Any lawyer worth their salt is going to tell you that even if you don't know how to do it yourself, you turn it over to an outside lawyer and they'll do it for you. But that's really critical because that is usually your key to heading off a lot of that lawsuit activity. The other thing is I would never give out a severance package, whether it is for a layoff or for a performance basis without a release attached to it. So you don't get your money without a release. I have seen organizations do that for performance and I looked at them and I said, warm nuts, we need to change that. And sure enough, we did. So once you get that release back, that precludes most lawsuits. Again, you want your release to be very carefully worded. You certainly don't want to be having egregious violations of different policies and practices that you're now asking people to sign away their rights to sue. But you definitely want that release in there. But there's always somebody in the big ones that will. They'll reject your severance package and sue instead. For me, I go back to having really good standard HR policies. Usually if you're doing the right things for an HR perspective all the way through, you've got your defense for a lawsuit, you're going to be okay from the lawsuit. If your HR practices are shaky, that could get messy. And I've seen organizations with shaky HR practices and day to day gets messy, let alone in a layoff or in a merger.

Great tips. Make sure you got the right legal view on this as well.

Absolutely.

What are the things to avoid when laying off people? I know we talked about not doing it on massive volume over zoom publicized here recently. So definitely try it best to do one on one and figure that formula out to make it happen. What else should we avoid doing when laying people off?

Be gentle, don't apologize. Be clear about why. What is this really doing in the business in your own head as well as in your communications? Make sure it makes sense. So when I'm sitting with a deal team or sitting with a business unit going through a deal and we're talking about this, how does this play? Where's our roi? How is this really going to help us be stronger? How is this going to save us money and not hurt us along? Really clear about that strategy. Final one is avoid if at all possible, what we like to Call death by a thousand cuts. So don't do five people and the next week do five more people and the next week do five. No, even try to avoid monthly.

You want it done in one day.

Figure out what you're doing and do it. And this is what happened. Like I said, the major retailer that I worked at, now, it wasn't because of a deal. It was because there was constant cycle of cost cutting. But every time you go back to bite that apple, it just demoralizes the remaining people more and more. If you think you're going to have to go deeper, you're actually better off either waiting just a little until you know how deep you need to go, or taking a guesstimate and going a little deeper than you initially thought to avoid doing a second one in close proximity.

So a great way to view it. It sounds like a big part of this is being very direct and forward. It doesn't sound like you're sugarcoating anything.

No. And something that I really believe in. And again, this is inclusive of M and A, but separate from M and A. I as a business partner, as an HR business partner, I'm at the table. That's a requirement. And that means I'm looking at the business. I just happen to be focused on how people are impacting the business. So I'll call an ROI example. If something's going on around the table and I don't see the roi, I don't understand the ROM math. Whether it's truly an HR issue or not, I'm going to ask. And I think that's one of the reasons why my deal teams have really liked working with me. I'm looking at the deal. I'm just supposed to be paying attention to the people. Somebody else is paying attention to the tax. Somebody else is paying attention to the ip. We all have our specialty, but we're all deal people. We're all deal team. If you're sitting over there as an HR person waiting for the deal team to come to you and afraid to speak up because you think you don't have just as much knowledge or right to speak up about what's happening in that deal as anybody else, if you really don't feel like you know what you're talking about, learn it. Go find the resources, ask the questions. Talk to people on your deal team that you trust. Come to M and A Science and learn more. Go to other M and A things about finance or tax, you know, wherever you feel like you don't truly know. Go learn so that when you're in those conversations and they're talking about the wisdom of the deal and should we do this cut and what is it going to take that you can be a member of those conversations just like you can at your business leaders staff meeting. It's no different to me.

You got to own a seat at the table.

Yeah, seat at the table. True member of the business team. You just happen to be focused on the people and I think that's really critical. Like I said, whether it's M and A or it's any HR role, know your business. Know your business deeply. Know all the pieces of your business to the best of your ability. Be willing to speak up in a diplomatic but thoughtful, data driven way. I worked for one organization that I'll name this one and we won't talk about it from a deal perspective, we'll talk about it from a values perspective. I worked for Amazon for a number of years. There are a few things I took away from Amazon. They're in their leadership principles that I live by all the time. Know your business. At Amazon it was know your business A to Z. Know your business, all of it, as much of it as possible. Because you're going to be a better partner in every facet. If you know your business, disagree and commit, have your data, be able to have that conversation, have that conversation in the room as a team, with the whole team, committed that this is how we operate. Make your decision, you leave the room. That's what you're doing. And you're not having all these side conversations and the politics over here. It doesn't mean there's not politics involved. It means when we get in the room, bring your data, hash it out politely, nicely, in a businesslike fashion. Leave the room. Execute the decision that was made until and unless the data tells you you need to do something different. Then you come back in and you put all the data back on the table and you have that disagreement and you have that discussion. And again, you commit. These are really key features. The other piece is customer is always in the room. Whoever your customer is, everybody's got a customer. HR has got a client. Whoever your customer is, if you're talking about a deal and you're talking about layoffs in the deal, your mindset needs to be, there's an employee in the room. What are they going to say? What are we going to tell them? How are they going to feel about what we're talking about? If they heard this, if they heard even the expurgated version, is this serving their needs? And it's no different, like I said, if you're doing an M and A layoff, whatever you're doing, but have the mindset that says that person sitting in the corner in the room, that client is here. Are we serving them in what we're doing? And I live by those three things, no matter who I've worked for since I left Amazon a number of years ago. And it makes a difference everywhere I am in every role I play. And it certainly makes a difference when I'm doing deals. It absolutely makes a difference when we're trying to figure out how to get our way successfully through a layoff.

I got to get you on the podcast. I host my daughter, we teach kids leadership lessons. And that's like we asked them their top three principles that led to your success. Evelyn, I know it's hitting our time. Before we wrap up, I gotta ask you, what's the craziest thing you've seen in M and A, which is like, most of your experience?

I'm gonna give you two opposite ends. Shouldn't say opposite ends of the spectrum, but opposite ends of the deal type spectrum. One was this organization that really didn't care if everybody quit. It was two large organizations merging and we were all flabbergasted because I was working for a consulting firm at the time. Everybody in the consulting firm was flabbergasted that this is what we were being basically ordered to process. So that one was really nutsy. The other was actually orchestrating a corporate divorce of a small little three person company with two owners. And the reason that they were selling was literally to orchestrate the divorce. And that was some of the wackiest negotiations because it was literally like sitting between a married couple where they're never going to agree on anything.

Oh, wow.

It was wild. It was absolutely wild. We finally got it done. We absorbed the IP and absorbed the original founder and moved our way forward with it. But yeah, like I said, that was like sitting at a divorce court table. And even when you give them what they wanted, it suddenly wasn't what they wanted because it was good with the other person.

Wow, A divorce of a divorce.

Yeah, it was fun.

Evelyn, this has been great. I enjoyed our conversation and learned a lot about layoffs today.

I'm glad you did, and thank you so much for having me.

Cheers. And here's to the deal.

Foreign.

Thank you for taking the time to explore the world of M A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple podcasts We'd love to hear from you. If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.