Tough Decisions for CEO’s and Owners

There is a lot of discussion these days about layoffs and how public and even private companies are having to prioritize “profits over people” yet some feel it should be the other way around. But right, wrong, or indifferent that prioritization is a well-embedded necessity in the financial dynamics of business. And unfortunately, that is becoming more and more a devastating reality for some.

Let’s take this out of the hypothetical and use a real world example that is being played out in meeting rooms and boardrooms all over this country right now.

What Would YOU do?

You are the CEO of XYZ Corp and you have almost 1000 employees. Business has been great over the last ten years and you have led the successful expansion of the company sales, increased profits, market share and shareholder earnings consistently over that time.

You are extremely proud of the fact that you have been able to create 300 new jobs to meet the demands of that growth and provide employment for people in your communities. You hired them all in good faith based on projected growth, you are close to your people and even know many of their families.

But then, the business climate starts to cool through no fault of your own. Costs are up and sales are slowing and you have to adjust your forecasts for the future down and your company’s value starts to decline. You immediately look for ways to cut expenses but demand continues to slow and fixed expenses are almost impossible to reduce significantly.

Then, you are forced to start lowering your prices to meet increasing competitive pricing pressure and that further erodes your gross margins and profitability. You are also experiencing a significant increase in wage pressure due to a tightening job market. You’ve now enacted drastic, almost draconian, budget cuts to try and stem the losses and the sinking value of your company, but you’ve run out of significant areas to cut.

Cash starts to be an issue and you are having to stretch out your accounts payable days to the point of losing discounts and supplier’s credit departments are beginning to threaten a freeze on new orders. Word hits the street and now customers are starting to worry that you might not be able to deliver their orders.

Finally, your bank, your board and major shareholders start calling you looking for answers. They ask what your plan is to reduce payroll and bring your headcount back in line with your reduced revenue forecasts to preserve liquidity. You don’t WANT to let any of your people go. You will still need those people when business comes back and layoffs seem so harsh and a last resort.

But you also understand your fiduciary responsibilities. And, while layoffs seem unbearably inhumane, you are also painfully aware of the “lifeboat capacity” theorem that states there are times when you have to make the heartbreaking decision to “sacrifice the few in order to save the many”. You are in charge. They want answers.

What do YOU tell them?