Assumptions without evidence are dangerous, as outlined in the HBR Case Study The Layoff . Robin Astrigo, CEO of his family’s namesake company, leaps to the assumption, based on ONE quarterly earnings call, that he needs to lay off employees. His leadership team, based on Robin’s dictate, jumps to the same conclusion that yes, layoffs are the only option, and fails to adequately, soundly and rationally assess alternatives. Strategy, and a long-term vision, are both sorely lacking.
Robin’s emotional reaction to the earnings call – described as “excruciating” – appears to be dictating his conclusions. He also seems to live in fear of disappointing his dead father, the company founder, while not factoring in that maybe business conditions are different than in Dad’s day. Perhaps the company wasn’t even publicly held then.
The case says that Astrigo profits dropped by double digits – serious, yes, but the company is still profitable and has plenty of cash. We’re talking about one quarter’s earnings here, and he’s holding a drastic senior leadership meeting at 4 p.m. that day? If the situation is really that dire, the company should be looking at a long-term strategy to dig out, over a period of many quarters or even years. Heck, if it’s that dire, Robin should have started that process BEFORE the call. Instead, he’s just chasing the next earnings call.
There’s another investor-relations possibility why the earnings call was brutal – Wall Street doesn’t like surprises. It’s possible, although not detailed in the case, that Robin has not been forthright with analysts all along about what the company is facing, or giving sound earnings guidance, and therefore is now taking the hit.
Perhaps Robin needs to learn to cultivate Wall Street a little better. As Laurence J. Stybel and Maryanne Peabody point out in their analysis of this case, he should focus on speaking to long-term shareholders, à la McDonald’s. Rather than focus on the quarterly call, which is almost always bound to bring out a naysayer or two, Robin should focus on telling the company’s story on his own terms. One way to do that is to develop a well-honed, well-tested thoughtful strategy first, and then share it with the market via an analyst day or other meeting. He should also try to get himself scheduled as a speaker at as many investor conferences as possible. That way, Robin gets to tell the story of what the company faces on his OWN terms, in less emotional, less combative settings, and also helps adjust Wall Street’s expectations over the next few quarters.
Robin actually seems quite directionless and spineless. He worries about “what the board would think,” and what Daddy would think from beyond the grave. He fails to ask his senior-management team to question his logic or develop other alternatives. His formation of teams of two is a bad idea: that allows a little too much coziness in private dining rooms and not enough questioning. When someone like Marzita Vasquez rightfully questions the company’s strategy, it wouldn’t have been so easy for Bob Slater to shoot her down in a group of three or more. What are the odds Marzita will bring this up again in the larger group setting? With the exception of Vasquez, and non-senior leadership member Sushil Bhatia, Robin’s leadership team comes across as self-interested and simplistic – certainly not servant leaders.
Jürgen Dormann, not surprisingly, got it exactly right in the Case Commentary. Dormann, a real-life chairman and CEO, faced a similar situation at ABB – actually, a much direr situation than Astrigo. Dormann focused on consolidating leadership at the board level, shaking up the executive committee, opening up communication and asking for advice from experts – the employees of the company. Best of all, Dormann espouses servant leadership – Robin must model humility. Instead, he’s running like the proverbial scared rabbit.