The Hidden Costs of NOT Developing Your Leaders After a Layoff

The benefits of developing current and emerging leaders are well known to most senior business executives. What may not be as well known, and what can be more damaging to the organization in the long-term, are the hidden costs of not developing leaders in these economic times, especially after a layoff.

Typically ignored in the planning for a layoff are support mechanisms for those employees who stay. Layoff survivors, both managers and front-line workers, are shouldering heavy, if less obvious, burdens of their own, including an infectious sense of anxiety and the uncomfortable feeling that they ought to be grateful just to have a job.

After the recession in the early 1990s organizational psychologists confirmed what managers always suspected—layoff survivors are less engaged, less productive and absent more often after the layoff.

Costs to the Organization

The following are a few examples of the organizational costs of not developing leaders after a layoff:

A December 2008 study of more than 4,000 layoff survivors by the research group Leadership IQ found that since watching their colleagues get laid off, nearly 75 percent said their own productivity had declined, almost 70 percent said the quality of their company's product or service had dropped and 81 percent said the service that customers receive had declined.

A five-year study of 300 firms conducted by Cigna and the American Management Association showed that layoff survivors had a 100 percent to 900 percent increase in medical claims, especially for mental heath, substance abuse and cardiovascular problems.

A 2008 study conducted by The Academy of Management Journal revealed that even a modest downsizing can unleash an exodus of layoff survivors; the study found that companies that had laid off just 0.5 percent of their staff experienced, on average, a turnover rate of 13 percent, compared with an average turnover rate of 10.4 percent at companies that had no layoffs.

A recent Fortune magazine article names five hidden costs of layoffs:
  1. Brand equity costs: the damage a layoff may do to your company's reputation.
  2. Leadership costs: the loss of potential talent.
  3. Morale costs: the emotional drain on those who are left behind.
  4. Wall Street costs: the effect layoffs can have on stock price.
  5. Rehiring costs: the difficulty of hiring and training new employees when the economy improves.
Senior leaders need to be aware that the costs (both known and unknown) of cutting back on leadership development efforts today can hamper the firm’s ability to recover tomorrow.

We Need Stronger Leaders Now, More Than Ever

In a time when high performance is critical, organizations that conduct layoffs may find that the survivors are disenchanted, de-motivated and disengaged—characteristics that can drag down the fiscal health and the competitiveness of the entire company.

Layoff survivors often find themselves burdened with extra work, fewer resources, higher demands for productivity, an uncertain future and survivors’ guilt.

At the same time organizations confront the unexpected costs of higher turnover, lower productivity, increased stress-related illness and workplace hostility.

It is imperative that firms invest the time, money, and energy to develop the new skills and deploy the new strategies required to lead effectively after layoffs.

Organizations must learn or strengthen their capabilities to:
  • reestablish trust in the organization’s management team and their business decisions;
  • rebuild employee confidence in the viability of the organization; and
  • re-engage the commitment, connection and competence of the surviving workforce.
Four Key Processes for Workplace Recovery

In his book Charging Back Up the Hill, Mitchell Lee Marks identifies a four-step process for workplace recovery:

1. Empathy: Letting people know their leaders acknowledge that things have been difficult and will continue to be difficult for a while.

Empathy means communicating clearly, authentically, and often with survivors that leadership recognizes their feelings, needs and problems. Employees are not used to hearing their leaders admit that the transition has taken an emotional toll on them. Expressing genuine empathy helps reduce negativity and increases receptivity.

2. Engagement: Creating understanding of and support for the need to let go of the old and accept the new organizational reality.

Helping survivors understand the business case for change in addition to helping them manage the emotional transition from the old way to the new way is critical to reengaging their commitment to and connection with the organization.

Leaders can sincerely engage survivors by helping them accomplish their immediate work objectives, clarifying priorities and providing resources to get the job done while at the same time creating an environment where it is safe to process the grief, stress and anxiety that burdens many survivors.

3. Energy: Getting people excited about the new and future organizational direction and giving them support in achieving it.

Employees become re-energized when they understand what's in it for them to embrace the new organizational reality and they have a sense that they can succeed in it. Establishing a clear link between organizational success and personal success lowers stress and creates energy.

4. Enforcement: Solidifying new thought processes and behaviors that are aligned with the new reality.

Enforcement means taking specific action steps to create the momentum and consistency necessary for shifting the culture and mindset of employees. Leaders must ensure that their communications, actions, processes and systems are aligned to send a clear message that reinforces the new business imperatives.


Make no mistake about it—workplace recovery in the aftermath of layoffs is difficult, emotion-filled work; it’s even harder during a recession, but in these turbulent economic times mediocre leaders are a luxury that most organizations can ill afford.

This recession, like all recessions, will pass and the economy will recover. When the dust settles, the question that Wall Street and boards of directors will be asking senior business leaders is: In terms of our leadership development investments—did you reduce our costs in the short term at the expense of our long-term human capital needs?

Or, put another way—did you follow the herd or did you lead?

What’s your answer going to be?