Published November 2001

Bankruptcy, layoff delays can put company in peril

No captain ever wants to give the command, “abandon ship.” It goes against every instinct, every emotion, every article of faith embedded in a leader’s heart. Even setting aside any emotional attachment a captain might have, the ship represents the best protection against a perilous sea.

But there are times when a leader has to put his or her instincts aside for the good of all — and, more importantly, do so before those very instincts have delayed a decision to do the right thing.

When a ship, for example, has been stricken in some way, and abandoning ship is in prospect, it is better to do so before the vessel begins to list significantly to one side or the other — which would make launching lifeboats difficult, or sometimes impossible. Certainly a captain of a distressed ship has to make the best decision possible — but does no one any favors by delaying it.

There are two decisions that business CEOs face that are not necessarily as dramatic or as final as a captain’s order to abandon ship but are every bit as emotionally charged. The first involves bankruptcy and the second involves layoffs. In both instances, delay helps no one and adds risk to everyone.

Bankruptcy can be a complex matter, and those seriously considering it for their business should seek out a competent, experienced attorney for advice. That said, though, any business leader should know that bankruptcy comes in two basic forms:

• The kind where your business continues to function and you work your way through the cash or debt crisis and survive.
• And the kind where you shut down and they sell all your stuff and throw the bones to the creditors.

Neither form is exactly pleasant, but from a management perspective, it is important to realize that delay in deciding on the first can, and in most cases does, close the door on that option and dump you into the boneyard.

It is not all that uncommon for business management to wait too long to declare bankruptcy, pick option one only to have a judge find that you are too late and that your recovery business plan is not credible. That helps no one.

In the case of layoffs, too, delay, even if motivated by concern for the workers, may not end up helping them much — certainly if it puts the company, which they might return to, out of business.

If your company is facing a significant decline in sales, and it seems more than just a temporary blip in an otherwise healthy picture, you are probably facing a layoff decision. To help you make this decision when it will be most effective, and handle it right, there are a few things you should know:

• You are probably not shielding your workers from the information or the layoff risk. A sales slowdown is very difficult to conceal from people inside the company.
• While they already know the situation, kind of, they want to hear it from you. You should tell them as soon as possible and give them your assessment of the situation and some idea of when the layoff decision has to be made.
• Be honest as to the prospects of any or all of them being called back.
• Be as helpful as the company’s financial position allows, but don’t promise things that you cannot deliver.
• Be mindful that a layoff is fundamentally different from being fired for cause. If you do not establish an adversarial relationship, it is very unlikely that your workers will. There is no need to treat workers being laid off as if they were shoplifters caught in the act. Fair, straightforward treatment of workers before, during and after a layoff will determine the effects of your actions on the remaining work force.

Neither thinking smart about bankruptcy nor approaching a layoff the right way will eliminate the pain. But if your business is worth working for, it is worth saving. Thinking ahead, planning ahead and doing the right things for your people will give it, and you, a better chance of surviving.

James McCusker, a Bothell economist, educator and small-business consultant, writes “Your Business” in The Herald each Sunday. He can be reached by sending e-mail to otisrep@aol.com.

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