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A Darwinian workforce

The environment has changed so much, it’s survival of the fittest

With Treasury suggesting the unemployment rate could peak at around 10% for the June quarter – it’s more important than ever for companies and their employees to stay connected and work together.

No one has the answer for how long the COVID-19 situation will last. So how do businesses maintain their workforce to look after both their people and their business?

The old rules no longer apply. Redundancy, once the norm for businesses trying to stay afloat in a recession, should be the last resort. Workforce restructuring, on the other hand, should be the first option on the table and can be adapted to fit your business. It’s increasingly being seen as a key ingredient to come through this period of recession with an engaged workforce prepared to recommence and scale up operations quickly when the time is right.

We’ve been through this process ourselves. Once it became clear that what was considered a health pandemic was quickly turning into a global economic recession we conducted our own extensive scenario planning and cash flow analysis. The route we took was to save jobs, with our Partners unanimously agreeing to take a pay decrease, and 93% of our people voluntarily reducing their hours

Our CEO Greg Keith, and National Managing Partner of Financial Advisory Said Jahani, sat down to discuss how businesses are managing their workforces during COVID-19, what we can expect workforces to look like in the future, and the top 10 learnings from our experience in workforce restructuring.

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Velvet-Belle Templeman

Welcome to Boardroom.Media.  My name is Velvet-Belle Templeman and I'm here talking to Greg Keith, Chief Executive Officer, and Said Jahani, National Managing Partner of Financial Advisory at Grant Thornton. Greg is a former Insolvency and Restructuring partner and Said is an expert in turnaround and corporate restructuring. Today we'll be talking about how companies can restructure their workforce to help weather the impending economic downturn and hopefully save jobs in the process. Thanks so much for joining us, Greg and Said.

Greg Keith

Thanks Velvet-Belle.

Said Jahani

Thank you Velvet

Velvet-Belle Templeman

So Said, the unemployment rate before Christmas was just above 5%. Some economists have suggested that Covid-19 could see the unemployment rate rise as high as 30% and Treasury's modelling released yesterday suggests that unemployment will peak around 10% for the June quarter. What are your thoughts on this?

Said Jahani

Well, I think whichever way you look at it, we're heading for, you know, either low double digit unemployment or at best high single digit unemployment. Treasury consensus seems to be on the money. There was also some IMF modelling that came out yesterday as well, which supported that sharp increase. Obviously, without the government stimulus that we've had over the last few weeks, it would be a lot higher. I don't actually think it will get to 30%. I mean the big question around, you know, what it will peak at is going to be linked to how long this crisis is going to last for, which I don't actually think any of us have the answer to.

You know, there was interesting data that came out yesterday as well from CPO around credit card and debit card spend, which saw up to 60% declines across a wide variety of sectors in consumer spending.  And there was this significant multiplier effect as essentially a point increase in unemployment, you know, will lead to a decline in GDP as people have less money to spend. Obviously, there is a big role for government to play here as being a bit of a stop gap and a circuit breaker, otherwise, we will just continue to go into this death spiral as unemployment continues to rise.

Greg Keith

Although I noticed, Said, that it appears people are still spending on alcohol and food, so it looks like that's going to help us get there.

Said Jahani

Hopefully.

Velvet-Belle Templeman

Now, correct me if I'm wrong, but aren't wages typically the largest expense of any business? So for cashed up businesses, this must be a tempting area to look to cut back on. Is redundancy the only option available to make those savings?

Said Jahani

Well, look, historically employers may have looked at redundancy, you know, in the first instance when they were considering dealing with surplus labour. But we're in unprecedented times here and what we're saying to clients is you need to be a lot more innovative in how you deal with your workforce and how you, yes, deal with probably the largest expense in your profit and loss. In fact, you know, what we're actively encouraging clients to do is consider redundancy as a last option. Not just because it actually creates a large upfront cash drain on the business as you have to fund termination payments in circumstances where we need clients to think about how they can actually stockpile cash. But probably just taking a longer term picture, you know, and when this crisis is over and it will be over at some point in time, the ability to recommence operations, the ability to scale back up to pre-Covid-19 levels will be a lot harder and much more costly for a business that has let go and terminated their workforce or large chunks of their workforce, as opposed to approaching it in a more innovative and flexible way.

So what we're saying to clients is, you know, try to take a more collaborative approach with your workforce to achieve a flexible outcome to deal with what may be surplus labour and it's much more powerful. It can be much more cohesive, developing a sustainable approach to this issue. And look, it will take different forms for different businesses. It really depends on a case by case situation. But you know, we're trying to encourage employers to look at it more innovatively, and look at redundancy as a last option, not a first option.

Velvet-Belle Templeman

Now, Greg, Grant Thornton has recently looked at their own business and you've made some pretty big changes to how you operate in anticipation of a coming slump, haven't you?

Greg Keith

Yeah, look, we have Velvet-Belle. We felt there was a couple of issues. The first one of course that hit us was around the health pandemic and that made us really stop and question how we actually worked. And so we were concerned for our people's health and their wellbeing and then the flow on impacts on their family. And we were also concerned from a business perspective of losing a whole, you know, team or a chunk of our office. So we really encouraged our people to work from home and so over 10 days we went from 15 per cent remote work to 95 per cent remote work.

So part of our restructure has been how we work together. And then almost immediately on the back of that no sooner had we caught our breath, then it became clear that the health pandemic was actually leading into a potentially global recession.  And so we felt that there was a lot of uncertainty around the impact that would have on our clients and on the economy, and as Said’s just mentioned, how long this will go for. But what we did know is that from the late 80s and the Global Financial Crisis, you’re always better to go hard and go early because it only gets tougher when the impacts really start to take effect.  What we also know is that cash is king. And whilst profitability is always important, the emphasis on your ability with cash flow becomes absolutely critical. So whilst people may be trading with you, do they have the capacity to pay and what impact does that have on your business?

So we did some scenario planning, the nine months. We ran it out from March to Christmas and we made assumptions on reductions in both revenue and collections. And of course, we reduced all of our discretionary spending.  Which really meant that we then had to balance the cash flow and look at our other fixed expenses. So for our partners that's meant a reduction in their take home pay of 20% of their base wage and there's no profit draws. So whilst we're continuing to work probably harder than we ever have and additional hours in actual fact, we reduced our take home pay for the partners between 30 and 50%.  

For our people, we explained the issues to them. We were very open and honest and transparent and we asked them whether they would voluntarily agree to reduce their hours by 20%, which obviously has a flow on effect to pay. And we received a 93% acceptance, which just blows me away, that we received enormous support and acceptance from our people because we really want to keep people employed. And as Said said, it's just so critical to come out of this with an intact and engaged workforce. Also, you know, what is clear is that it has unified us because, people really do care about each other and their wellbeing and their mental wellbeing and their financial wellbeing. So it's been a bit of a manic March for us. But I feel we're in a pretty good position.

Velvet-Belle Templeman

And Greg, why workplace restructuring?

Greg Keith

Well, it's almost Darwinian, isn't it? It's survival of the fittest because the environment's changed so much and we know that in the short and medium term we can see that the environment's changed and we don't even really know what the long term holds. I think there'll be a new normal, I don't see us ever going back exactly the way we were in how we work and how we interact with one another. So the old rules no longer apply. And therefore, this unique situation of a global health pandemic leading to a likely global recession means that we needed to be agile. And you know, we've got to be courageous in making decisions whilst most being calm and decisive.

So, we'll never get all of the perfect information, but we do have to make judgement calls and accept that restructuring is critical if we're going to shape our business to a form where it's going to be able to engage and be successful. Not only to survive this current transition and we don't know how long this period will go for, but also to have one eye on the future to figure out how can we set ourselves up so that when we do come out of this, you know, we're in a position where we can be successful in the long term. And so, you know, in that environment I think restructuring is absolutely critical and there would be very few businesses that are able to go through this period without making a change.

Velvet-Belle Templeman

This sounds like a brilliant initiative for knowledge workers and office based workforces, but can this be applied to other industries like the trades?

Said Jahani

I might take that one, Velvet. I think it can, as I said before, every case and every business is slightly different. So you just need to think about how you adapt it. But you know, there were ways even before Covid-19 where, you know, employers were being flexible in how they dealt with their workforce. Whether it's working from home, whether it's job sharing, in one view, this is an extension of that. And it's a response to a reduction in demand. So as a consequence of demand for your services or your products declining, you know, you need to pull back the labour force lever. How you pull that back is, I think, what will distinguish your recovery at the back end. As Greg's mentioned, you know, we've done sort of the 20 per cent reduction in hours and in remuneration, you know, we've seen that doesn't necessarily suit every business out there.

So we've seen situations where some businesses have actually broken their workforce into two and had a Team A and a Team B working like a relay team. We've seen situations where clients have actually stood down their workforce or parts of their workforce and relied on JobKeeper providing income support. And then we've also seen situations where through the JobKeeper legislation that's recently passed, which has created flexibility for employers to be able to change job descriptions, change roles and duties for their workforce, taking a more broader approach to how they allocate roles and responsibilities.

Velvet-Belle Templeman

This all sounds very much aligned with the Prime Minister's call to all businesses to keep their workforce. And as you mentioned, the generous JobKeeper package certainly supports this. Greg, will we see more examples of workforce restructuring and what are some variations that you think we might see?

Greg Keith

Said has just touched on a couple of them. I mean, obviously, you know, as he said, I think some people will do the Team A and Team B, I think that's becoming increasingly common rather than just working from home. In fact, Velvet-Belle, you yourself are saying your organisation is doing a bit of that yourselves. I think that people are also questioning their core business at the moment and assessing what it is they actually make and we've seen people shift into hand sanitiser, ventilators moving into takeaway rather than restaurants. And that's also changed who it is they actually need and what skills they need. So people are looking at their employees versus the contractors and assessing how they can shift work more so towards their employees.

They’re also looking at in relation to their remuneration, do they cut jobs or save jobs by spreading that across the load. And then whilst we're talking about the basics around the workforce, I think we've also got to mention that in times like this you also need to look at some of your other fixed expenses and challenge yourself around things like your rent. Obviously the Prime Minister has also been quite vocal about encouraging people to have conversations around how they might vary that or extend their lease and spread that out. And of course the banks are being incredibly accommodating at the moment as well so that fixed repayment terms can also be negotiated, which can take some of the pressure off the workforce having to carry all of the load.

Velvet-Belle Templeman

You mentioned some pretty strong changes to your own company, Greg, from implementing this yourself what advice would you give to anyone considering workforce restructuring for their business?

Greg Keith

I'd start off by wishing them good luck because it's not for the light-hearted. But I think there's probably 10 things that come to mind. The first I touched on earlier, and that's go hard and go early because it gets tougher. If you wait until your cash resources are being impacted, then you have to go in harder. And so go hard and go early is the first one. I think you've got to treat your work colleagues with respect and so being open and transparent with them around the facts is really important and it helps to build trust, which I think is so critical for people to get through this. If we want to say we're all in this together and you actually have to be willing to trust people with more information.

I think it helps if you can share with them that you've done scenario planning so that you've got some facts and you haven't just put your finger in the air, but you have done what you can to come up with the right options.  The fourth point is that cash is king and you need to shift your thinking. So in our case, for example, next year we're not going to do a normal budget. We're going to do a cashflow forecast. So we're really shifting our business mindset towards cash. The fifth one is the workforce needs to understand that the owners are leading in the pain, they can't see that they’re taking all the pain, they need to know that the owners are taking more pain. So they can see that there's some equality and some fairness in that.

The sixth, I'd say is that shared pain is a lot better than a couple of people taking it all.  So saving jobs over cutting jobs has such an impact on people's mindset, their wellbeing. But it also says a lot about your culture of the organisation, about the values of an organisation. And if you're wanting people to remain engaged and have trust with you when we come out of this, I think that at least giving that your absolute best is critical. The seventh, I would say is communication is really important, and of course that's changed in this environment. You can't just get everyone together in a room. It has to be done virtually. And so for me, I found using the live webinar was more personable and authentic. It may be a little bit riskier because you can stumble a bit and you're going through some tough messaging, but at least people can see you and they know it's live and it's real.

The eighth, I would say is that choice is empowering and I really can't understate this. We didn't take from our people, a day a week. We gave them the option to voluntarily give that,  So whilst the end result might be the same, the feeling they have if someone's taken something from them as compared to them realising that this was critical to save jobs and that they chose to give that so that others could be retained employed, gives them a completely different emotional connection to the situation. The ninth is that I think people need to understand that there's a reason we're doing this. And so for us now, the mantra that we've really brought in is we want to save as many jobs for as long as we can. I think that that's something that we can all connect to.  And the last, and the 10th one is just remain calm. You know, people want to see calmness in leadership, but you’ll have to be courageous because leaders have to step up in these sort of tough times.

Velvet-Belle Templeman

Some great advice there. Thanks Greg. Now Said, if as the Prime Minister says, the measures we put in place now need to work for the next six months, will workforce restructuring change the way the businesses work in the long term, or will it simply be a matter of going back to business as usual when the market turns?

Said Jahani

I think it will probably be somewhere in between.  It's an interesting question, I've had a number of conversations with clients already, who are thinking about that very point and I think the consensus seems to be that we probably will go back to a degree of normality after the crisis ends.  But the pendulum probably won't swing all the way back to where we were. I think people have become either by choice or by force, more comfortable in doing business virtually without having to necessarily jump on planes, doing more business online and doing more business working from home. So I suspect we will retain elements of that more so than we had previously. Which will have positive and negative impacts for various businesses out there in the broader community. Where we exactly land I'm not quite sure and I think we'll find a medium somewhere on that continuum, but this has been a learning experience for everyone involved and it will be interesting to see how the dust settles.

Velvet-Belle Templeman

Said and Greg, thank you for your time.

Greg Keith

Thanks a lot for having us.

Said Jahani

Thank you.