Here is Why Laying Off Your Employees During COVID-19 Can Hurt Your Company in the Long Run | Opinion

As businesses scramble to stem massive losses amid the coronavirus pandemic, unemployment rolls are exploding. "The number of jobs lost in five weeks is roughly the equivalent of the working populations of 25 states," the New York Times says. It's also "over five times the worst five-week stretch of the Great Recession," according to the Economic Policy Institute. One analyst predicts that less than half of working-age Americans will be receiving wages in May.

Although Europe is faring better, McKinsey says that nearly 60 million jobs are at risk across Europe and the United Kingdom. There are also warnings of a potential "jobs bloodbath" across Africa.

There's no doubt that some types of businesses have no choice but to let many employees go. But others are rushing to take such steps. Case in point: Houston billionaire Tilman Fertitta, owner of the Houston Rockets and a $4.8 billion portfolio including casinos, laid off 45,000 people. "You're doing the people a favor if you get them furloughed first, because you have them first to (the) unemployment line after the severance that you give them," he said. "It's a trick that I've learned many years ago." (Furloughs are temporary layoffs, although there's no guarantee that they'll be brought back to work.)

You'd be hard pressed to find anyone who lost their jobs during this crisis calling such actions a "favor." But it isn't just the workers who are losing out. In fact, before resorting to extensive layoffs, business leaders should take a close look at what's happened during previous crises.

Post-recession 'winners' avoided mass layoffs

A study, published in the Harvard Business Review, looked at thousands of businesses that faced previous crises. The results were striking. Seventeen percent of businesses didn't survive. The vast majority didn't recover their previous growth rates. Only 9 percent of businesses flourished after a slowdown, "doing better on key financial parameters" and outperforming their rivals in both sales and profits growth.

What did that 9 percent have in common? For starters, they avoided mass layoffs. The researchers, from Harvard Business School and Kellogg School of Management, explain that "employees at these companies appreciate top management's commitment to them, and they are more creative in reducing costs as a result. They don't spend their time worrying about job security—as do people at companies that rely on deep staff cuts."

The companies that did best—the "post-recession winners"—empowered their employees to use their creativity. The companies focused on operational efficiency more than their rivals did, while investing in research and development, marketing, and new assets. And they tapped into the minds of their staff to make this work.

It takes creativity and innovation for a company to make it through a crisis. Fear stifles both. As Wharton management professor Sigal Barsdale put it, fear can "cause people to become rigid, less creative." When companies engage in mass layoffs, it spreads fear throughout the entire organization.

The same can be said for high levels of stress. Long-term stress "is literally killing the cells in your hippocampus," New York University neuroscientist Dr. Wendy Suzuki told Forbes Women. One of the results is "zapping your creativity."

All this helps explain why Google found that psychological safety and essential for teams to do their best work. When fears are removed, people feel more free to offer ideas.

When layoffs are last resort, peers develop solutions

To be fair, this is a frightening and confusing time for everyone. Business leaders have so much else to focus on, inspiring a sense of safety in the workforce that could help spark new ideas might not be high on their list of priorities.

The good news is that employees can do this for each other. I've spent years studying peer coaching, in which workers have specifically designed, one-on-one conversations with each other. They open up about their struggles, fears, challenges and more. They help each other develop solutions. They can do this through Zoom conversations while working remotely from home.

Workers can make a huge difference for each other at this time. Research that looked at different kinds of work relationships—some involving subordinates and bosses, others involving peers—found that peers "may provide an antidote to stress at all professional levels," particularly during "periods of uncertainty."

Executives and managers can do this for each other as well. As my company, Imperative, reported in a white paper, peer coaching among managers and leaders can help them get the kind of support they need as well.

The COVID-19 crisis is unlike anything else in modern history. There are no easy answers. But as corporations look to make tough decisions, they should keep in mind that there is no greater resource than the minds of their employees.

Layoffs should be a last resort—never the first. And they should certainly never be seen as a favor.

Aaron Hurst is CEO and co-founder of Imperative and author of The Purpose Economy.

The views expressed in this article are the author's own.​​​​​