How tech companies can avoid chaotic redundancies and protect their brand reputation

The UK’s tech sector is booming. A surge in investment into software and digital companies at the start of the pandemic continued into 2021. As more businesses focused on digital transformation, tech companies enjoyed easier access to funding, and increased investment has turned the likes of Revolut, Wise and eToro from unicorns into decacorns. Such rapid growth led to bulk hiring and higher wage spend. 

But as the risk of a global recession looms, investors and consumers are more cautious. As a result, start-ups, scale-ups, and more established tech firms are restructuring and looking into making redundancies to cut costs. Online car retailer Cazoo recently announced plans to make 15% of its workforce redundant, digital bank Nuri plans to cut around 20%, while trading platform Bitpanda is laying off 34%. 

However, in the race to hire more people to keep up with demand, employee support for redundancy hasn’t always been a high priority. 

Why has redundancy support not been a high priority for tech companies?

For start-ups in particular, the focus is to secure enough funding to grow and change the world. Why would a young company want to focus on redundancy if it’s intent on growth? In fast-growing tech companies, putting redundancy support measures in place early on may be seen as setting up for failure, especially when a winning mindset is fundamental to business success.

But tech companies must protect their reputation as employers to safeguard future growth. If employee support is not a priority, the risk of mishandled redundancy increases. 

The risks of mishandling redundancy

Poorly-managed redundancies can lead to reduced morale, employees resigning in protest and mistrust of management. A mishandled redundancy can be a real threat to the health of a business. Significant damage can be done to a company’s reputation including far-reaching consequences such as harm to the organisational culture and investor confidence. Chaotic redundancies often lead to public criticism.

Fintech company Klarna’s CEO faced criticism for telling employees they were being made redundant via a pre-recorded video message and promoting on LinkedIn a list of around 560 employees who were being made redundant. The list had been created by an employee to help colleagues find new jobs. But newly-redundant staff publicly hit out at Klarna’s senior management, revealing that the reasons for redundancy were never made clear and that some people on the list had only been hired weeks earlier. This will have damaged Klarna’s reputation in the eyes of potential investors and employees.

Redundancy is a sensitive issue and should be treated as such. Digital-first mortgage lender Better.com was negatively affected by the actions of its CEO who let 900 employees know they were being made redundant via a Zoom meeting, which went viral. Insensitive remarks made during the meeting and the company’s perfunctory approach resulted in the CEO being placed on leave and multiple executives resigning. Though employment regulations are different in the US, what do these actions say to the employees who remain at Better.com?

Companies must consider the impact on individuals and how a message will be received, as it will be received differently by different people. If a company is laying off 900 employees, 900 meetings or calls must be held, not one. The decision to cut so many employees in this way will have wider implications for Better.com. As negative media attention continues, retention could become a challenge and hinder future growth.

How tech companies can support employees through redundancy and protect their reputation

Redundancy can have a devastating impact on individuals; the human impact can’t be underestimated. It’s important to have legally compliant employee support structures in place – whether you plan to make redundancies or not – and to implement an outplacement programme that helps employees look for new opportunities and move forward.

Redundancy should be a last resort. In the UK, companies must explore other options, such as redeployment, before making employees redundant. If redundancy is necessary, a formal procedure should ensure everyone is treated fairly and rights are protected. This is not only ethical but protects a company’s reputation and makes it easier to hire top talent once conditions improve and there’s a need to upsize.

The human and business value of outplacement support

Outplacement support can prove a lifeline for employees and employers in making sure redundancy runs smoothly, employees are helped through transition, and the company’s reputation is protected.

Outplacement provides space and support for people, encouraging outgoing employees to think well of the company and reducing the risk of legal problems. It’s also cost effective – cost per head is generally competitive when compared to the potential cost of litigation if an employee challenges redundancy or if a company loses investment or contracts due to the fallout. There has been a number of high profile companies who have handled redundancies poorly which has severely damaged its reputation and lost business as a result as clients have sought to distance themselves from a perceived toxic brand.

When it comes to outplacement, plan ahead. Many companies don’t think about it until there’s pressure to make hard decisions quickly. If personal wellbeing is a focus throughout an employee’s time at a company, including during redundancy, the transition will likely be smooth. Outplacement is key to achieving this.

LHH career transition support

LHH provides a range of outplacement solutions to companies and their employees.