Executive Rules of Etiquette for RIFs

By Elizabeth Torphy-Donzella - Shawe Rosenthal LLP

October 18, 2019

By now most everyone has heard about the travails of WeWork arising from the swift downfall of founder Adam Neumann. If you have not heard, you are missing some fascinating stuff.  A Wall Street Journal piece was first to chronicle Neumann’s manic behavior (such as pondering how to become immortal and transporting large amounts of marijuana on a private jet trip, much to the chagrin of the jet’s owner!). In the wake of these disclosures, private equity investment firms that had committed tens of millions to WeWork became skittish, a planned IPO was pulled, and a faction of WeWork board members called for Neumann’s removal as a CEO. Indeed, within roughly a week of the WSJ article, he was forced to vacate his leadership role. Goldman Sachs, Morgan Stanley, and other investment houses now have written down the value of their investments by tens of millions of dollars.

All of this was bad (WeWork needs LOTS OF cash and the fallout from the failed IPO may prove fatal). But this, from the WSJ article, caught my employment-lawyer eye:
 

A few weeks after Mr. Neumann fired 7% of the staff in 2016, he somberly addressed the issue at an evening all-hands meeting at headquarters, telling attendees the move was tough but necessary to cut costs, and the company would be better because of it.

Then employees carrying trays of plastic shot glasses filled with tequila came into the room, followed by toasts and drinks.

Soon after, Darryl McDaniels of hip-hop group Run-DMC entered the room, embraced Mr. Neumann and played a set for the staff. Workers danced to the 1980s hit “It’s Tricky” as the tequila trays made more rounds; some others, still focused on the firings, say they were stunned and confused.
 

This made me think –do norms of behavior that once were assumed need to be explained to a younger generation of management? In particular, do we need to restate rules of etiquette for leaders to observe as it relates to a significant labor or employment event? Perhaps, alas, the answer is “yes” (although I choose not to think sociopathic behavior now is the norm).

Below are a few proposed rules.

• Recognize that people’s jobs often are deeply intertwined with their sense of purpose and self-worth. That does not mean that reductions in force or terminations should be disallowed (businesses that fail to address problems will fail, depriving the market of goods and service, and employees of jobs). It simply means that when these decisions must be made, they should be done respectfully and deliberately.  No parties in the wake of the job action and thoughtful planning on things like how employees will collect their personal effects and who they may contact for questions about final pay, benefits, and employee assistance resources (if any).
• Look left and right before you cross the road. That is, if you find yourself at the sobering place of off-boarding staff, ask about upcoming “spends.” The optics of unveiling a splashy new lobby at your headquarters complete with high priced art work or going ahead with a Mediterranean cruise event for top executives, even one that was planned in better times and is not refundable, may be costly for your brand, not to mention employee morale (note the “stunned and confused” WeWorkers above).
• Think three moves ahead. Undeniably, labor costs are often among the largest “spends” of a company and cutting those costs may be the only way to avoid calamity. At the same time, recruiting new staff to replace employees is a huge “lift” both in terms of time and hard costs. There may be options short of job cuts, at least to try first, to address financial exigencies. When the 2008 meltdown occurred, some companies first tried “shared sacrifice” options, including reduced compensation for all in connection with reduced working hours. Although the Fair Labor Standards Act does not permit overtime-exempt employees to accept pay cuts based on the quantity of their work, the U.S. Department of Labor at that time recognized that a reduction for an extended period due to economic conditions was permissible, unlike weekly or more short-term changes. Employees who are committed to the company will likely see themselves as being “part of the solution.” Those who “vote with their feet” will generate labor cost savings!

And one last, in case it needs restating. For God’s sake, no tequila shot parties!