Yahoo! Rumors, Lawsuits and Low Morale

If you haven’t already heard the news, Yahoo, one of the nation’s top tech companies, is downsizing. CEO Marissa Mayer is scaling down Yahoo’s operations in an attempt to save money and protect the company’s bottom line. While there is nothing unique about a company scaling back its operations for budgetary reasons, the problem with Yahoo is that so far, Mayer’s strategy has created little more than a huge mess.

To be fair, from time to time, we all need to do a bit of housecleaning. For some people, this means hastily clearing out any perceived excess and simply dumping it on the front lawn where everyone can see it.  For others, it means carefully taking stock, deciding what to keep and what to discard, and contracting a service to carry any excess out the backdoor to be carted away (notably, out of sight of one’s nosey neighbors). This analogy is not to suggest that the people Yahoo is laying off are in any way akin to rubbish. On the contrary, the real problem at Yahoo is that Mayer’s attempt to downsize has resulted in a huge mess that everyone is looking at rather than a behind-the-scenes downsizing effort that everyone can eventually come to admire. In this post, we examine four things Yahoo has done wrong in its attempt to downsize and discuss how to avoid making similar mistakes in organizations large and small.

Yahoo! Rumors, Lawsuits and Low Morale

Mistake #1: Letting the Rumor Mill Turn

The rumors have been circulating for months now—Yahoo is downsizing. It is no surprise then that the company is suffering from what many insiders describe as “extremely low morale.” With low morale, of course, comes lower performance and a brain drain. Indeed, the New York Times reported in early January that a third of the company’s employees have left in the past 12 months, including some of the company’s highest performers. The brain drain is evidently alarming enough that Mayer has started to offer impressive retention packages to keep other key players from leaving the ship too. In reality, however, Yahoo is already adrift. Indeed, Yahoo’s current state of chaos stands as a striking example of what can happen when a company neglects to value transparency and permits rumors, even entirely unfounded ones, to take hold. In short, the rumor mill and Yahoo’s failure to manage it has both depleted the company’s talent pool, lowered morale and subsequently, impacted productivity.

Mistake #2: Giving Layoff Notices to People Not on the Layoff List

While this may sound shocking, it happened. With the rumor mill running at full speed, it is not surprising that communications at Yahoo are currently not at their best (despite the fact that Yahoo is a company in the communications business), and in early January, this led to a major error. 30 employees were apparently let go in conversations with their supervisors only to later be told that they were not on the layoff list. What can be learned from this error? Among other things, it reminds us that internal communications are critical, and this includes having clear lines of communication between senior and middle management levels.

Mistake #3: Breaking the Law/Falling Out of Compliance 

If things are not already bad enough at Yahoo, in its attempt to downsize, it has also potentially made a few critical errors. In a lawsuit filed in a district court in California in early 2016, Gregory Anderson, a former Yahoo editor, alleges that Yahoo’s senior managers routinely manipulate the company’s rating system to lay off workers. Anderson also says that when he was fired (along with about 600 other apparent “low performers”) the cut amounted to an illegal mass layoff, and under California law, layoffs that impact more than 50 employees in a 30-day period at a single location require at least 60 days notice. Yahoo never provided such their employees with 60 days notice, despite firing 1,100 employees in late 2014 to early 2015. If Yahoo is found to be in violation of California’s labor laws, they will owe all the dismissed workers a payback ($500 per day and benefits for each day of advance notice the company did not provide). Where Anderson’s case appears to get a bit fuzzier is in his allegation of sexism. He claims his performance reviews were low—lower than his female colleagues’ reviews—and that his managers were low-balling his scores in order to retain women workers. Whether or not Anderson’s allegations of sexism or his allegations that Yahoo failed to comply with state labor laws are upheld in court is yet to be seen, but there is no question that Yahoo will have some additional explaining to do over the coming months.

Mistake #4: Appearing to Use Performance Reviews Only to Instigate Layoffs

While Mayer’s commitment to quarterly reviews may be viewed as a strength, in the context of Yahoo’s currently toxic corporate culture, the reviews (every Yahoo employee is rated quarterly on a scale of 1 to 5 using a range of metrics) have come to be seen as merely punitive. As a result, the review process itself has been tainted. Reviews are seen as something to fear rather than welcome, and the idea that they might also be used to help workers perform better on the job is something the company will likely take years to reestablish. In a culture where performance reviews appear to be strictly linked to firing criteria, there’s also little room for growth, change or risk. This, of course, is bad for workers’ personal development and for the company itself, since it ultimately promotes a culture of stagnation rather than innovation.

How to Avoid Yahoo's Mistakes

How to Avoid Yahoo’s Mistakes

Like it not, at some point, every company needs to scale back—often but not always to buffer losses or respond to a changing market. As suggested above, downsizing can be disastrous. If mismanaged, rather than simply lose workers, an organization can also lose face (with the public), lose talent, experience lower levels of productivity, and run into troubles on the compliance side as well. If one’s compliance errors result in a successful lawsuit, the financial cost can also be significant. While it is yet to be determined, the cost of Yahoo’s downsizing efforts may in fact result in greater losses than gains in the end. To avoid making the same mistakes, it is important to take the following steps:

  • Be transparent—don’t wait for the rumor mill to start turning.
  • Have excellent communication networks in place prior to downsizing.
  • Ensure middle managers are kept in the loop as executive decisions are made about layoffs.
  • Ensure your layoff plan is in compliance with state and federal labor laws; offer staff additional compliance training courses prior to engaging in the downsizing process.
  • If you already have a performance rating system in place, ensure it doesn’t come to be seen as simply a mechanism through which to determine who will be on the layoff list.
  • Prior to a mass layoff, spend time preparing managers for the transition; provide additional training to ensure managers are able to effectively support the process.
  • Assist employees with the transition; for remaining employees, engage them in dialogues about the loss (they may disagree about the firings or simply miss a coworker and friend); for employees on the layoff list, provide assistance moving forward.
  • Keep up morale up and work with remaining employees to achieve buy in; if they support the downsizing efforts, the transition will be less rocky.
  • Recruit or assign a change manager to oversee the process—someone with the expertise required to manage the change before, during and after the announcement of the layoffs.
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