I am incredibly disappointed in Lego’s recent decision to lay off 1,400 staff even tough they have near-record profits. Here are the facts:
- Lego’s revenue fell 5 percent in the first half of 2017 to 14.9 billion Danish kroner ($2.38 billion) compared with 15.7 billion Danish kroner in H1 2016.
- Net profit came in at 3.4 billion Danish kroner, compared with the first half of 2016’s 3.5 billion Danish kroner.
- They will therefore lay off 1,400 people – approximately 8% of the workforce.
Normally in a situation like this, I’d suspect leadership of doing layoffs to placate stockholders, but Lego is privately owned, so that’s clearly not the case here.
Crucially, the company is not losing money. In fact, even though sales have fallen slightly, profits are essentially constant and at near-record levels for the company, so it’s hard to see exactly what motivates this move.
What has really surprised me is that there has been no pushback or criticism from the financial press. It makes you wonder: What kind of a business climate are we living in when this kind of decision is met with nothing but approval from all observers?
I’m sure no one at Lego or in the financial press cares the slightest bit what I think, but I thought it was important that someone speak out against this kind of leadership. Hence this article.
Lego´s chairman of the board and former CEO, Jørgen Vig Knudstorp, says that the layoffs come because the company has become too big and complicated:
The way we do business, the way we do our marketing, the way we do our market management, but also how we run the whole administration of the company unfortunately has become too complicated as we’ve grown the company massively over the past 12 to 13 years.
That’s what’s really hindering us in executing in a strong way – as we used to – and therefore we are finding it harder to grow in some of our very well penetrated and established markets.
But if the organization has become too complex, you don’t fix that just by laying people off – you do that by fixing the organization. In that context layoffs may even be counter-productive. Trying to streamline your organization becomes a lot harder when you’re simultaneously laying off 8% of your staff and dealing with the ensuing organizational and psychological fallout.
Mostly I’m disappointed with the attitude towards employees revealed by this decision. Layoffs carry huge psychological costs for both those who lose their jobs and for those who remain and therefore they should be a last resort when all other options are not sufficient. In this case, lego clearly had many, many other options.
I see this move as a huge lost opportunity for Lego. They could have cemented their reputation as a good workplace that can handle a minor drop in sales and profits in a way that doesn’t make staff pay the price.
As a consequence, I have removed all mentions of Lego from my next book, Leading with Happiness. I’d included them in a couple of places as an example of a company where leadership cares deeply about its people – this is clearly not the case any more.
What should they have done instead? In my next book I share the story about a tech company that lost half their revenue and found a way to come out stronger and more profitable without laying off a single person. If a company can do that when it’s very survival is threatened, Lego could definitely have done something similar when they’re still incredibly profitable.
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