Move Quickly, Don't Dither When Deciding On Layoffs

Many executives put off decisions about layoffs. They weigh every conceivable option before cutting staff.

While admirable, the go-slow approach can prove costly. Just ask John Dean.

As the new chief executive of First Interstate Bank of Oklahoma, Dean arrived in the Sooner State in 1986 after First Interstate bought the failed First National Bank & Trust Co. of Oklahoma City. It was among the largest U.S. bank failures at the time.

Dean struggled for nearly a year to grow the business without layoffs. To save jobs, he implemented strategies such as encouraging early retirement and outsourcing security to a firm that promised to hire bank employees.

"Frankly, had I spent more time on downsizing and less time on findings ways to grow, we could've acted faster," said Dean, who later served as chief executive of Silicon Valley Bank. "Because we were hemorrhaging losses, it would've been better to move as quickly and prudently as possible."

A Helping Hand

Dean's heart was in the right place. He felt compelled to try everything before cutting people.

"It's tough emotionally to lay off people doing good work," said Dean, now managing general partner at Startup Capital Ventures in Palo Alto, Calif.

Dean knew that the predecessor bank's failure meant that his Oklahoma employees had already survived layoffs and pay cuts under the old regime. He sought to boost morale.

He announced a generous early retirement program in which older employees received part of their salary as a bridge until they qualified for Social Security. He also started new businesses and transferred workers to these fledgling units.

"People appreciated that we were trying to help them," Dean recalled. "There was trust and camaraderie because we were taking care of our employees."

Making a Painful Move

Dean's bosses at the parent company supported his efforts to avoid layoffs, he says. They approved his expenditures to save jobs and explore growth opportunities.

But First Interstate also wanted to improve the bottom line at its newly acquired Oklahoma bank. Dean knew he couldn't delay the layoff decision forever.

When Dean realized he could no longer postpone layoffs, he cut his management ranks by 25% along with other jobs. And he created a pool of laid-off workers who wanted to stay at the bank so that they would get first dibs at any openings over the next few years.

In the 1990s, Dean turned around two other banks. He applied the lesson he learned in Oklahoma by acting more decisively in terminating personnel.

"In a turnaround situation, it's better to move too quickly than too slowly," he said. "You don't have time to try lots of experiments and look at things for another month or two if you're hemorrhaging losses every day."