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A company I’ve done some work for in the past recently lost a major bid. The super-boss called the entire team into a conference room and said, “You lost the bid, you’re all fired.” Some of the team had been with the company for over thirty years. The carnage hit multiple rungs of the ladder, from some new engineers all the way up to a vice president. All of them had been working hard right up until the meeting.
The particulars of the situation — how the message was actually conveyed, the extent to which there were equitable severance packages, the degree to which each may have failed to perform his or her duties — matter a great deal, and because I wasn’t there, I shouldn’t pass judgment. I can say, however, that the company culture could have grown in a petri dish. It was the worst I’ve seen of leadership in corporate America. The folks who were let go might rightly miss their lost paycheck, but at least they get a chance at a more ethical work environment somewhere else.
When it comes right down to it, the people associated with your business are your business. If your customers all quit, or if your employees all leave, you’ve got nothing. The effects of this are obvious from small-time real estate, where sole proprietorships only ever sell at book value (the cost of the house), all the way up through corporate America, where “succession planning” is a big deal.
Good companies recognize this by offering training and development. In terms of performance reviews, outside training courses, and other self-improvement perks, employees at mid-size companies like the one I mention above probably receive over $5,000 a year in improvement-related perks. At some companies, like UTC, benefits can be far more substantial. My favorite example is Toyota, who (although I can’t remember where I read it) didn’t lay off anyone at their US Sienna factory and instead set them in motion on a circular assembly line, honing and improving their techniques until the recession picked up enough where they were on A-work again.
Suppose GAAP required capitalizing employee training and holding it on the books as a form of goodwill. Then when you fired someone, you’d be forced to recognize the true impact of your decision: you’d have to write down all that training. Talk about restructuring charges.
Suddenly “you lost the bid, you’re all fired” might not seem like such a good idea. Maybe there’s another way to make some money with that team…