Layoffs Create Pitfalls For Finance Executives Looking To Cut Costs

Businesses, especially those that experienced strong revenue growth and a larger workforce during the Covid-19 pandemic, are beginning to tighten their belts in the face of skyrocketing inflation and rising interest rates. They are increasingly looking at layoffs as a way to save capital, among other measures such as a hiring freeze.

Consultants who have worked with companies during downsizing say financial managers play a key role in setting a company's financial goals and deciding what costs to cut. Hardik Seth, a partner at Boston Consulting Group, said CFOs are increasingly involved in the early discussion about the need to cut jobs. They help management understand the range of options available to improve performance, including adapting business models or product offerings, Mr. Shet said.

In addition, finance managers set financial goals to be achieved from layoffs and work closely with human resources departments to help decide where to make cuts, says Susan Gunn, a partner at management consulting firm Bain & Co. added that they also determine the amount of separation. A well-handled layoff in the US takes two to three months, John said, and requires a solid strategy, as well as empathy and transparency.

If some companies are under pressure to act quickly, they risk giving workers inadequate notice, said David Santacroce, a law professor at the University of Michigan Law School. The federal Worker Adjustment and Retraining Act, or WARN Act, requires companies with 100 or more workers to give at least 60 days notice of a layoff if it affects at least 500 full-time employees at the same location, or if is one less- Third, fewer workers are fired than necessary. The number of workers per building.

Image: Twitter to Meta: Putting technology into numbers

States like New York and California have adopted lower notification limits. Some employees at Twitter Inc., which recently laid off nearly half its workforce, are now opposing the layoffs. In a federal lawsuit this month, the plaintiffs allege the company violated the WARN Act and its California equivalent by failing to provide proper notice of mass layoffs. San Francisco-based Twitter said in a legal filing last week that it had met its legal obligations by giving workers 60-day notice to terminate their employment, including wages and benefits. Twitter did not immediately respond to a request for comment.

“If the economic outlook changes so drastically and quickly, cuts need to be made faster and with less thought,” said Andy Challenger, senior vice president at Challenger, Gray & Christmas. "Then it could go wrong."

Layoffs will increase as the economy weakens, the teacher said. said Santacroce of the University of Michigan Law School. "The same is true of the number of cases where the [employer surveillance] law has allegedly been violated. There seems to be no reason to think that will change."

But layoffs may not help companies in the long run.

Companies that downsize rarely outperform their peers that don't, says Wayne Cassio, a professor emeritus at the Denver School of Business in Colorado who has studied the costs of downsizing for decades. Cascio, along with two finance professors, studied the impact of layoffs on more than 4,000 public companies over the 37 years ending in 2016.

Citing research published last year, Cascio said companies that collapsed as a "quick fix" or an easy option to restore profitability did not outperform competitors that persevered through the downturn. According to Cascio, labor costs often make up a large part of a company's operating budget and are therefore an easy target for managers to save cash. “Is the risk that when the economy picks up, you have to hire the same people you fired?” He says. "Quick fixes never seem to work."

Christine Bruton contributed to this article.

Write to Jennifer Williams-Alvarez at jennifer.williams-alvarez@wsj.com