Make Sure You Chop The Dead Wood Mass layoffs won't work if you can't get rid of weak managers.
By Geoffrey Colvin

(FORTUNE Magazine) – Here comes the wave: General Motors to lay off 15,000, Whirlpool 6,300, Gillette 2,700, Aetna 2,400--even Greenspan's amazingly smooth anti-lock brakes can't slow a speeding economy without forcing companies to cut back. So we'll see plenty more such announcements in coming weeks and hear justified teeth-gnashing over the plight of the laid-off, the return of the business cycle, etc. Let's just remember that a more significant trend, one you won't see reported on any newspaper's front page, is the opposite: We're in the middle of a vast and dangerous wave of nonfiring. Across America heartless executives every day are not firing employees by the thousands. The damage to millions of lives, and to the economy, is beyond calculating.

This is no joke, and here's why. An infotech-based economy multiplies, rather than diminishes, the importance of getting the maximum contribution from every employee. Increasingly, that's the only competitive advantage you have. Economies of scale are worth less every day; ditto patents (so easy to circumvent) and most of the other nonhuman factors on which companies used to build margins. People are all that's left, and for most companies that's a big problem because it means underperformers--especially underperforming managers--have to be moved aside or moved out. The great majority of companies can't handle it.

Let's be clear about the corrosive effects of avoiding this problem. A recent survey from McKinsey is fairly chilling: Keeping poor performers means that development opportunities for promising employees get blocked, so those subordinates don't get developed, productivity and morale fall, good performers leave the company, the company attracts fewer A players, and the whole miserable cycle keeps turning. McKinsey asked people who had worked for subpar managers what it was like, and they agreed strongly that the experience "prevented me from learning," "hurt my career development," "prevented me from making a larger contribution to the bottom line," and, ultimately, "made me want to leave the company."

It gets worse. Employees know who the underperformers are. They know that the top executives know who they are. So every day the top team fails to address the problem, it's sending a message: We're not up to managing this outfit. Refusing to deal with underperformers not only makes your best employees unhappy, but it also makes them think the company is run by bozos.

Why don't companies act? Some fear it would lower morale, which is nonsense. McKinsey asked thousands of employees whether they'd be "delighted" if their company got rid of underperformers, and 59% strongly agreed--yet only 7% believed their companies were actually doing it. Executives often say they leave poor performers in place because they want the company to be seen as humane. That's just more evasion of reality, of course. As Ed Michaels of McKinsey says, "The attitude is, 'Let's be fair to Charlie. He's been here 21 years.' But we say, 'What about the eight people who work for Charlie? You're not being fair to them.' " Debra Dunn, a senior executive at Hewlett-Packard, puts it like this: "I feel there is no greater disrespect you can do to a person than to let them hang out in a job where they are not respected by their peers, not viewed as successful, and probably losing their self-esteem. To do that under the guise of respect for people is, to me, ridiculous."

Most companies have serious work to do here. Where to start? That's easy: at the top. Dealing systematically with underperformers is hard--emotionally always, and sometimes legally as well--and like most good things, it doesn't just happen. Helen Handfield-Jones of McKinsey says, "The top executives have to model this behavior. They have to look at their own direct reports and start taking action. Once they've made progress, they should expect other leaders in the business to do the same."

The very-best-performing companies know this and practice it. The McKinsey study bears it out, but we've had enough statistics. Just accept the point: Successful companies deal with underperformers systematically, every day; unsuccessful companies don't. As the economy slows, a company does absolutely no one any favor by showing it can fire people 1,000 at a time but can't one by one.