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Communication is Key to a Corporate Reorg

Posted on November 2, 2016
Image of the Boston, Federal Street old Bank of Boston Building (now Bank of America)

In early 1990, I worked for Bank of Boston (which, after a number of iterations, is now part of Bank of America), and the stock price had been slowly declining before hitting an all-time low of $4 per share. As the price plummeted, senior executives began quiet discussions about reorganization. The first one known to employees was brilliant and highly successful: Executives involved employees in an aggressive cost-cutting exercise. For any employee who proposed a cost-cutting measure that was accepted, he or she got to keep 10% of the amount saved. This incentivized employees to explore options, some small, some quite large. Proposals were submitted by secretaries and vice presidents, janitors and directors. Everyone jumped on board to right the ship together.

The reorganization that followed took on a much different tone. Rolling layoffs began, and every three or four months another wave of people at all levels were told, “Sorry, today is your last day.”

The morale and cohesiveness that had blossomed over the prior four to six months was suddenly eviscerated. Fears and anticipation grew on a daily basis. After each round, those remaining breathed a sigh of relief, but deep down they worried they would be tapped for the next wave. I don’t recall the total number of people who lost their jobs over the nine-to-twelve-month period, but I do remember the day I was told I had to tell a subordinate, “I’m sorry today will be your last day.”

She cried. I felt awful. Sick. I never saw her again after that day, but now, some 25 years later, I still think of her.

Reorganization does not have to be so exhausting and painful. Rose Beauchamp, along with Stephen Heidari-Robinson and Suzanne Heywood, authors of ReOrg: How to Get It Right (Harvard Business Review Press, November 2016), argue in a McKinsey&Company article, "Reorganization without tears," that chaos can be minimized and even averted with good communication. They argue that when the top dictates instead of engaging people, fear, paranoia, uncertainty, and distraction often run rampant.

They recommend an employee-first approach to reorganization, highlighting four specific approaches to avoid the chaos:

  • Frequency — One should not have to be reminded to treat people with respect, but part of that is keeping people informed. The authors argue that it is better to communicate more often than not enough. When people hear something multiple times, they believe it. I would argue that this is about building trust.
  • Clarity — The authors cite a study that found about half of the unemployed workers in Michigan suffered mild to major depression. The unknown causes anxiety. As the authors write, "leaders can minimize that anxiety by stating in plain language what they know, what will come later, and when it will come. They can also reassure people by reminding them of that will not change."
  • Engagement — For a reorganization to be successful, people need to be able to communicate back up the chain. The authors state it must be clear whom one should contact on the reorg team with questions. They go further to suggest that setting up a confidential email address allows workers to comment on the process in a safe manner and allows the reorg team to learn about breaks in communication.
  • Design — While the authors note that every reorg is different because every company is different, being as open as possible is important to the success of a reorganization. If a company can involve people at all levels of the organization in the reorg design and process, there will likely be more ownership, which translates to a higher success rate.

These four approaches are of equal importance, but there is one other recommendation the authors make: Do not forget the other company stakeholders, such as the customer, vendors, unions, and any relevant regulators.

They also note that the Board of Directors should be involved. Here is where I have a question. I cannot imagine a company that has a Board of Directors making any large reorganization plans without involving its board. If a company is, then one of two things are happening: 1) the Board is weak and ineffective and there is no trust, or 2) there is underlying manipulation going on, and the Board needs to act accordingly.

Regardless of my last point, the article is interesting and the authors recommend a solid proactive approach, one I wish had been followed some twenty-five years ago at Bank of Boston. Perhaps the fact that the bank I once knew slowly disappeared was a direct result of how they handled that reorganization.

Link to the article:Reorganization without tears


Anne Converse Willkomm
Director, Graduate Studies
Goodwin College
Drexel University
Posted in leadership-management-skills