Your small business has just taken a serious blow – a key customer cancelled a big order for the fall. How do you deliver the bad news in-house? How do you tell employees there won't be year-end bonuses or additions to staff and, worse, layoffs could be in the cards?
It's best to take an upfront, honest approach.
"You need to treat people with respect and sensitivity by telling them why these things are happening," says David Zweig, associate professor of organizational behaviour at the University of Toronto's Rotman School of Management. "You can't pass the buck and blame it on something external."
Here are tips from Prof. Zweig and other human resource experts:
Choose the setting carefully: Bad news is best delivered face to face, says Prof. Zweig. If employees work in several locations, one alternative is a telephone conversation via Skype. "You want to convey sensitivity and be able to interact face-to-face. That way, you can gauge reactions and make sure people really understand you. Sending an e-mail with negative news does not show respect for your employees."
Avoid speculation and lack of clarity: "Decide if you will lay people off, and then tell them in a straightforward way," says Vince Marsh, managing specialist in leadership and team development at Deloitte & Touche LLP in Halifax. "Saying 'there may be layoffs' is very tricky, because it leads to speculation," says Mr. Marsh. The possibility of layoffs creates unnecessary anxiety in employees who should not worry about their jobs. "If the information is not factual, the rumour mill starts. That's something to avoid."
Consider an initial meeting: This will limit some of the gossip, says Prof. Zweig. "You can't control the gossip, but you can limit it by putting out accurate information and addressing peoples' fears."
Bad news should be delivered by the leader: "Don't delegate the job to an HR person, or someone in payroll," says Mr. Marsh. "It should handled by the owner-manager or someone responsible for that division."
Share industry reports to support your case: "If the world is getting tougher, then provide documentation that shows how tough things are," says Ronald Burke, professor emeritus, organization studies, at York University's Schulich School of Business in Toronto. "You can say, 'Here's the industry picture, and here's our company picture. Here are the changes going on, and the threats we are facing. We need to do more, with less, if we are going to survive this together.'"
Try to avoid adjectives such as "bad": Saying "bad news" carries an emotional punch. It's better to describe the news simply as a "serious situation," says Mr. Marsh. "The situation is creating the news – not the employees, or something they did. This externalizes the problem because it's probably out of their control. What you want to do is reduce anxiety, not make it worse."
Tell the truth and say how you feel about it: "If you feel badly about delivering this news, let them know that," says Mr. Marsh. "As much as possible, be authentic, sincere and compassionate."
Communicate that you, as owner-manager, are in the same boat: "It's critical for the person at the top to say, 'I'm going to make sacrifices, too,'" says Prof. Burke, who is co-editor of a textbook titled Human Resource Management in Small Business: Achieving Peak Performance. "You can do this more readily in a small business than a big one. If the guy at the top is taking a hit, people can see it. In a large organization, the people at the bottom don't know if the guy at the top is making any sacrifices."
Encourage employees to come up with cost-saving ideas: "Employees know how the business can save money and operate more efficiently," says Prof. Burke. "I would certainly encourage them to find ways to cut costs without cutting people. Cutting people is the last option. There are a lot of things that can be done before you get to that stage that could keep the company viable."
In this lacklustre economic environment, employees are keen to ensure the business's survival. "The job market is not that great," says Prof. Burke. "People are interested in keeping their jobs, and making sacrifices is easier to pull off in a small business."
Some cost-saving measures include short-term salary reductions, shorter workweeks and an end to merit pay. "There are a lot of ideas that a small business can tap into, without layoffs," says Prof. Burke.
While layoffs may be necessary, you don't want to risk losing the people you want to keep. "When outcomes are delivered poorly, without a lot of respect for employees, someone who survives that round of cuts and sees how their fellow employees were treated will think, 'Why would we stick around?'" asks Prof. Zweig. "They might expect the same level of treatment if there are further cuts needed."
In short, owner-managers should be open and provide explanations for any layoffs, backed by solid facts. "If it's a short-term situation, tell your employees," says Prof. Zweig. "You're trying to reduce anxiety, so people can live with a negative outcome, knowing that down the road you will be doing whatever you can to reverse the situation."