After the Layoffs, What Next?

“Periwinkle, Definitely periwinkle.” Claire Ladd’s insistent voice filled the room, but it was greeted with dead silence.

“Did you hear me, Harry? I said periwinkle. It’s the color of the fall season. And Harry, no suits this year. We’re seeing all separates out of Milan, Paris, and Seventh Avenue. The woman’s suit is dead.”

Harry Denton shook his head and stared blankly at the woman across his desk. He knew he should be paying attention to her. After all, Claire Ladd represented a major apparel distributor for Delarks, the Chicago-based department-store chain of which he was CEO. But ever since Denton had read that morning’s Women’s Wear Daily, he had been unable to concentrate on anything but the headline stripped across the top of the second page: “Delarks Merchandising Chief Defects—Will Others Follow?”

Ladd walked around Denton’s desk and gently shook him by the shoulders. In the 20-odd years they had known each other, starting when they were both “rack runners” in New York’s bustling garment district, their relationship had always been honest—and even familial. “Snap out of it, Harry!” she laughed. “I’m not hawking periwinkle sweater sets for my health. Are we going to place orders here today or not?” When there was no immediate response, Ladd leaned closer, looking at Denton quizzically. “I mean, Harry,” she said, “I was expecting a big order from you—everyone says Delarks is soaring again. You saved the chain. You’re a hero on Wall Street. And when I was walking through the Springfield store last week, the place was filled with customers. It was packed—not like the old days, when you could set off a cannon in there and no one would notice. And Harry, the customers: they were buying. We like that.”

Denton sighed. He liked it too. In fact, he loved it, as did the company’s board of directors. Just that Monday, they had informed him that his contract had been renewed for two more years, with an increased salary and more stock options. They were delighted with his performance—and with Delarks. In just one year, Denton had transformed Delarks from a boring, outdated chain that catered to “aging dowager princesses,” as Denton called them, into a fun, chic shopping emporium for the Midwest’s growing population of affluent female baby boomers. The 28-store chain, with shops in small and mid-size cities such as Bismarck, North Dakota, and Peoria, Illinois, had been on the verge of bankruptcy when Harry was lured away from his job running a national chain’s flagship store in Manhattan. Now Delarks’s success was the talk of the retail industry, in large part due to a leap in revenues to $400 million and the accompanying 20% surge in the chain’s stock price. But the truth was, success wasn’t tasting as sweet as Denton had hoped it would.

The problem, Denton knew, was that Delarks’s transformation had involved quite a bit of bloodshed in the form of layoffs. Turnarounds always do; Denton had made that clear to his direct reports in his first week on the job. His strategy included refurbishing dowdy-looking stores and slashing overhead to meet the huge remodeling costs. And the strategy emphasized the need for a highly trained sales force that could execute “link selling,” in which shoppers who enter the store looking for one product end up leaving with five, and feeling happy about it to boot. Link selling meant that “deadwood”—a term he never used publicly, of course—would have to be cleared out to make room for a new breed of sophisticated, energized sales associates.

In other words, Denton told himself, layoffs had been inevitable. Especially at a company like Delarks, which had for years been run by an old-fashioned, even patriarchal, group of managers led by the founder’s son. Even after Delarks went public in 1988 and hired some new senior managers, the chain boasted salaries and benefits that were out of line for the industry, as well as a no-layoff policy.

Denton was well aware of that policy when he made the decision to cut Delarks’s employment rolls by 20%, about 3,000 people in all. Some of the layoffs were less painful than others. For instance, most people understood that the chain’s in-store restaurants had to be shut down. Gone were the days when women had time for a leisurely lunch as they shopped. The restaurants were rarely busy; closing them eliminated about 400 jobs. The consolidation of several half-empty distribution centers was also widely accepted by the organization. But people seemed to take the firing of several hundred longtime saleswomen very hard. Denton had predicted such a reaction, but he knew he had no choice: many of the old-timers were the lowest producers. And they had neither the abilities required for link selling nor a feel for the new kind of merchandise Delarks was offering: urban, modern, and trendy.

The pink slips had gone out on a Friday morning before lunch. That was the way Denton had always done it; indeed, it was the way he had always seen it done in the industry. It gave people time to clean out their desks and say their goodbyes before the end of the day. It also gave the survivors a weekend to cool off before returning to work. Denton wasn’t coldhearted about the process, but having lived through about a dozen downsizings in his career, he believed there was really no “kinder, gentler” way to fire people. The best approach was to do it quickly and in one fell swoop, and to make sure that everyone received a fair severance package. In fact, Denton believed he had gone beyond fair. The laid-off employees had been given two months’ pay and free outplacement services for one month, practically an unheard-of deal in the retail industry.

Still, the reaction had been severe. Not so much from the fired people; most of them went quietly. But the survivors were angry, and even the new staff Denton had brought in with him were upset. Many thought he should have held meetings before the layoffs to warn people they were coming. But he had rejected that idea. His view was that when a company is in deep financial trouble and a new CEO is brought in to save it, everyone knows that layoffs are next. Why make matters worse by rubbing their noses in it?

But now Denton was nervous. The wounds opened by the layoffs were not healing. In the newspaper article about Rachel Meyer’s defection, the reporter had speculated that the move by Delarks’s head of merchandising was connected to the downsizing initiative. The company was a morass of bad feelings, the article suggested, although Meyer had said “no comment” when asked directly about morale at the company.

An anonymous source quoted in the article had been more forthcoming. “There’s no trust at Delarks,” the source had said. “People feel like senior management isn’t honest with its people. They just want to fix up the company fast and mop up the damage later.” Denton felt stung. Who had said that? Was it someone from inside? Denton felt he had been honest, although maybe in the rush of executing the turnaround he hadn’t done enough to prove it.

“This company is a mess, Claire,” Denton blurted out. “I feel like everything I’ve built in the last year is collapsing around me.”

“What—you’ve got to be kidding!”

Denton pulled the newspaper out of his desk drawer and showed it to her. “Rachel Meyer is leaving,” he said, “and she’s walking right across the street to Blake and Company. That’s bad on its own, but what if she takes other people with her? What if she takes Liz Garcia?”

Ladd frowned. Garcia was Delarks’s director of sales-associate training and one of the main reasons for the chain’s turnaround. Denton had brought her with him from New York, and she had performed just as expected, giving Delarks’s sales associates the savvy, direction, and skills they needed to connect with the company’s new clientele. Her contribution was critical, especially because Denton had switched the salespeople’s compensation system from one based on salary to one based on commission.

“You can’t lose Liz,” Ladd said quietly. “Harry, I’m going to get out of here so you can take care of the business that really matters now. Can we meet in a week?”

Denton nodded. “Thanks, Claire,” he said. “Maybe I’ll have stopped the bleeding by then.”

But by the next day, the bleeding was worse. Garcia was still on board. But Thomas Wazinsky, Delarks’s head of HR, told Denton that rumors were flying: four or five other senior people were supposedly on their way out, including the head of the profitable store in Wichita, Kansas. And there was also talk that “legions” of salespeople were packing up to leave the company.

“Is this just talk?” Denton pressed Wazinsky. “Have you received any official resignations?”

“No—no letters,” Wazinsky allowed. “But Harry, you’ve got to realize, people are terribly unhappy. Morale is really low.”

“That’s not what you told me when we paid $20,000 for that employee attitude survey!” Denton snapped. “It didn’t say people were ready to quit in droves.” Three months earlier, Wazinsky had hired a small, local consulting firm to take the pulse of the company’s employees. The results showed that pockets of employees were disaffected but that most were satisfied with the chain’s new strategy. The consulting firm said that the results were typical for a company going through a downsizing, and even a bit more positive than usual. But it also recommended that Denton get out into the organization soon, both to reassure people that there would be no more layoffs and to explain the ones that had been necessary.

Denton had taken part of the advice. He did visit about half of the stores, and he did explain why Delarks had laid people off, but he refused to promise that there would be no more layoffs. In a turnaround situation, Denton knew, you have to leave your options open. And in fact, Denton had been right not to make assurances. Four weeks after his visits to the field, he decided to shut the chain’s worst-performing store, in Madison, Wisconsin, eliminating another 200 jobs. After that, Denton felt relatively sure that the downsizing of Delarks was over, but again, he thought it would be unwise to make that news public. Too risky.

Now Denton was reconsidering: the time may have come to tell people that no more layoffs were impending. He tried the idea out on Wazinsky.

“I doubt people will believe you,” he replied. Wazinsky was one of the few executives left over from the old regime. A native of Minnesota, he had been with the chain nearly 30 years, his entire career. Denton felt as though Wazinsky had never warmed to him and at times had even wondered if he should let him go. But he had decided a few months ago that Wazinsky, on balance, was a very valuable resource: he was keyed in to the organization in a way that Denton was not. It sometimes seemed, in fact, as if Wazinsky knew every single employee in the company on a first-name basis.

“Harry, can I be straight with you?” Wazinsky asked.

“Of course. Aren’t you always?”

Wazinsky shrugged. “I might as well go for broke here, since I think my days are numbered—”

“Are you quitting?” Harry cut him off.

“No,” Wazinsky said, “but I bet you’re thinking of firing me.”

An awkward silence filled the CEO’s office.

“You’re not going to be fired, I promise you that,” Denton said finally. He meant it, and as he said the words, he was struck by how much trouble he was in if even Wazinsky didn’t trust him. After all, the two of them spoke every day, often about the most confidential details of the turnaround strategy. The one exception had been the closing of the Madison store. Denton hadn’t told anyone about that in advance except for members of the board, for fear of the news leaking to the press before the employees heard officially.

“I guess I should have told you beforehand about Madison,” Denton acknowledged.

“Madison was a big screwup, if you don’t mind my saying,” Wazinsky replied with a rueful smile. “Yes, you should have told me—and you should have told Sylvia O’Donnell, the store manager. She should not have gotten her letter along with everyone else. People aren’t going to forget that.” Wazinsky paused, then went on. “I mean, Harry, there are stories going all around this company about the day Madison closed. They say people ran into Sylvia’s office after the announcement and found her sitting there in shock, shaking her head and saying, ‘I had no idea,’ over and over again.”

“I was just trying to make sure people didn’t find out through the press or the grapevine,“ Denton quietly protested.

“Well, whatever you were trying to do doesn’t matter now,” said Wazinsky. “It backfired.”

“So now what?” Denton asked with a short laugh. “I mean, it’s crazy, isn’t it? Sales are up, and I just got our last quarter’s results a few days ago. We’re going to have solid profits by year’s end. But if the rumors are true, our great big success is going to shrink in a hurry.”

The two men stared at each other, lost in thought. Then both started to talk at once. They were struck by the same plan: to hold a series of “town meetings” at every store in the chain, in which Denton would talk straight with the employees. He would promise no more layoffs, apologize for the ways those in the past had been handled, and set the tone for the company’s future. “We need to clear the air,” Denton said. “People should be celebrating around here, not complaining.”

The first town meeting was called for two days later in one of the chain’s largest stores, in St. Paul, Minnesota. All 600 employees were invited to attend the session, which was held in the conference room of a hotel in downtown St. Paul, near the store. As he surveyed the crowd before going on stage, it looked to Denton as if all 600 employees were there. He couldn’t help but notice that the room was remarkably quiet. There was tension in the air.

Denton was tense, too. At the airport in Chicago earlier that day, Wazinsky had approached him with a pained look. “Harry, I just listened to a voice mail from Liz,” he said. “She wants to meet with you as soon as possible.”

“How bad is it?” Denton demanded. “Is she leaving?”

“Well, she says she can’t stand working in a place where everyone hates coming to work. My guess is she’s considering joining Rachel across the street.”

Now, several hours later, Denton tried to block out his concerns about Liz and summon up his confidence. He cleared his throat and began speaking. “Delarks is a retail chain to be proud of again,” he said, “thanks to you. In the past 18 months, there have been many changes in the way Delarks does business. What we asked of you wasn’t easy—far from it—but you rose to the challenge and made success happen.”

Denton had expected applause at that line, but there wasn’t any. He moved on to the hard part: the layoffs. “I’ll be honest with you,” he began, “I probably should have handled the downsizing differently—”

Here, he was cut off by applause, raucous and prolonged. He waited until it died down, and continued. “Layoffs are never easy. I’m not even sure there is a ‘right’ way to do them. But I take full responsibility for doing them in a way that felt wrong to a lot of you.”

Again, the room broke into loud applause. But Denton could tell the applause wasn’t a positive release of energy: people looked angry. He decided to cut his losses and move right into the question and answer period.

He didn’t recognize the first person to approach the microphone—a middle-aged man in a plaid flannel shirt. Denton figured he was someone from the stockroom.

“Delarks may be making a lot of money now, Mr. Denton,” he said pointedly, “but it’s not a family anymore. It doesn’t feel right. You and your folks from New York are always hiding up there on the eighteenth floor. You don’t care anything about the people who are earning your big salaries for you.”

Again, cheers.

The man continued, “You just fired people like Mae Collier without any warning. Just up and fired her. That woman gave her whole life to Delarks. She was like a mother to a lot of us, especially the girls on the sales floor. You treated her like a hired hand. That’s not right. You broke the heart of the store that day.”

Denton had no idea who Mae Collier was, and the truth probably showed on his face. She had been a saleswoman, obviously, and most likely one who had low sales per square foot. But beyond that…

“Is Mae coming back?” the man at the microphone interrupted Denton’s thoughts.

Denton hadn’t expected this. He knew he would have to handle tough questions about how he had managed the downsizing. He had even expected that he would have to grovel about how he had botched the Madison closing. But to be questioned about an individual employee like this Mae Collier—that was not something he had prepared for.

He stalled for a moment, but he knew there was no point trying to placate the crowd with some sort of fudged half-truth. When he spoke, his answer was simple. “No,” he said, “Mae Collier is not coming back. None of the employees who were let go are coming back. Delarks is a different store now, and we need to let go of the past and focus on the future, and our future is very bright.”

Another member of the audience pushed her way to the microphone. “People are hurting,Mr. Denton,” she almost shouted. “You can’t talk about the future with us until you make up for the past.”

“That’s what I’m trying to do right now,” he shot back, exasperated. “What do you think I’m standing up here for?”

No one answered directly, but the crowd was rumbling unhappily. Denton was about to speak again when Wazinsky appeared at his shoulder and pulled him back from the podium. “Don’t dig yourself in any deeper,” he whispered. “Wrap it up. Say you’re sorry and let’s get out of here.”

Denton turned back to the crowd, ready to close the meeting with an appeal: give me chance, he wanted to say. But, looking out, he could see people were already filing toward the door. No one would listen to him anyway. He shut off his microphone and followed Wazinsky to a back exit of the hotel.

Bob Peixotto is vice president for total quality and human resources at L.L. Bean in Freeport, Maine.

Harry Denton is increasingly isolated from the company he has chosen to lead. He has put strategy before people, when his people should have been an integral part of the strategy. In his quest for a bold turnaround, he has broken trust at every turn. Thomas Wazinsky speaks for the entire company when he confides, “I think my days are numbered. I bet you’re thinking of firing me.” Faced with fear and distrust and the imminent defections of top-level people, Denton needs to do the following:

Stabilize key people. He must carefully assess his senior staff, deciding how much he trusts each person and determining the value that each brings to the company. Then he should sit down with them privately and acknowledge his mistakes and what he has learned. He should express his confidence in them, his desire to have each person on his team, and his vision for Delarks’s future—including what’s in it for them. Finally, he should ask for each person’s commitment. Straight talk, heartfelt expressions of confidence, and a picture of an engaging future are more powerful motivators than any retention bonus.

Appoint a “change cosponsor.” Delarks has undergone a drastic restructuring. A CEO can rarely lead a change of such magnitude alone. Denton needs help. He should ask Wazinsky to cosponsor the company’s change efforts.

As one of the few executives remaining from the old regime, Wazinsky seems to have unique credibility with the company’s employees. If he is seen embracing the changes at Delarks, the whole effort will be viewed in a new light by the front-line people. But Denton will first have to heal the breach in trust that he opened up when he failed to tell Wazinsky about his plan to close the Madison store.

Clarify the change message. Although the downsizing is over with, Denton and his senior team need to develop a brief, compelling message that includes three elements: the case for change, a view of the future, and a commitment to what will not change. Everyone in the management team should know the message well and repeat it often.

The people at Delarks need to understand the case for change: how the industry changed and why the company needed to respond. Denton may want to go beyond the message, in fact, to launch an education program that would enrich people’s understanding of the business, demonstrate commitment to their development, and show trust by sharing information. By creating business-savvy employees, the program would also make future efforts to change easier.

The view of the future should describe the key elements of the change: the refurbishment of stores, the repositioning of the product line, link selling, and the new compensation system for sales associates. It should make clear the desired outcome of the changes, and it must be based on values that the people at Delarks can embrace.

Finally, Denton needs to spend some time alone thinking about what will not change. He’s already rejected Delarks’s former customers as “aging dowager princesses” and its longtime employees as “deadwood.” One can bet that these “private” confidences have spread widely enough to become legendary. Denton needs to find something about Delarks’s past that he can personally appreciate and publicly revere, something he can use as a cornerstone for the company’s future. Delarks’s people need to know that Denton values their past efforts.

Communicate, communicate, communicate. Communication must be constant, candid, and two-way. Denton has been assuming that people understand his intentions. But, because of the company’s longstanding policy against layoffs, they were not anticipating the downsizing. And many may not have recognized the company’s deep financial troubles or the way the marketplace was changing. A 20% surge in the stock price has not been nearly as important to people deep in the organization as the trust, long-term relationships, and predictability that used to exist. Denton needs to develop listening posts to stay in touch with his organization. At L.L. Bean, for example, we sample reactions to potential changes from a specially selected panel of employees.

Denton should also resume the town meetings. In 1995, following a voluntary reduction in the work-force at Bean, company president Leon Gorman conducted 27 town meetings over a two-week period. Nearly a third of each meeting was reserved for questions from the audience. This was the richest part of each meeting. It let frontline people vent their feelings and know that they had been heard.

Invest in the survivors. Delarks must create a way to help the sales force change. New performance expectations need to be clear and linked to the business case. The company has a golden opportunity to signal real trust in its frontline people by asking them to help define the competencies required for link selling. Top employees can be tapped as trainer-coaches to help their peers. Denton is likely to be surprised by the emergence of a group of energized leaders of change.

Drive out fear and build in trust. Denton should remove as much uncertainty as possible by declaring layoffs a last resort and by being clear about how decisions affecting individuals and stores will be made. People should understand that layoffs are not random acts and that their strong performance and support for the company’s new directions can limit their vulnerability.

At the same time, it doesn’t make strategic sense for Denton to assure people that there will never again be layoffs. No one would believe him. The only promises the company’s leaders should be making are short-term tangible ones that can be kept.

Keep the spirit of change alive. Communication should not be limited to a onetime town-meeting blitz. Delarks’s leaders need to repeat frequently the key points about the change effort. Frontline people need continual opportunities to vent their feelings. New information about the company’s direction should be delivered to employees regularly. Such updates can occur at team meetings and should focus on measurable goals and clear milestones; and questions should be welcome. As progress, small wins, and new behaviors are celebrated, a renewed sense of energy and momentum will carry Delarks to higher levels of prosperity.

Jim Emshoff is CEO of IndeCap Enterprises, a consulting firm based in Lake Forest, Illinois.

I’m surprised that Denton has been so successful in improving Delarks’s performance. Generally, a company whose staff is unraveling wouldn’t experience this kind of turnaround.

That does not mean I think Denton is some sort of miracle manager. To restore his employees’ trust and rebuild morale, he has serious work to do. But let me be very clear about what he should not do: under no circumstances should Denton back-pedal or pretend to “start over” with his current staff. He should definitely not hold another town meeting or any other event in which Delarks’s employees are encouraged to rehash the bloodletting they have just lived through.

Why not? Because whether or not any of the employees realize it, they have all been through the toughest part of the restructuring. Denton has already convinced the employees, old and new, that if Delarks hadn’t changed, it would be bankrupt. That’s why he has a shiny new sales force in place. That’s why he has successfully changed the merchandise and the way the stores are operated. And that’s why, in an amazingly short time, Wall Street is taking notice. Saying to employees, “Trust me—when we get through this, we’re going to have a stronger company,” is difficult. Many senior managers fail to get this point across in turnarounds. Denton, somehow, has succeeded.

No, this is not the time to look back. Instead, Denton must begin to capitalize, in a very tangible way, on the solid foundation he has built. Specifically, he should focus on three things.

First, capitalize on the company’s financial strength. The company’s stock price—and its sales—are up. The stock may be rising on the early part of an S curve; it may shoot up even more rapidly in the near future. Denton needs to share that success with his senior management team by giving them a large stock-option award, phased in over five years. He needs to make sure that they have an incentive to remain with the company through thick and thin.

He should also open up an option or stock-grant program for all Delarks employees. People need to understand that the changes at Delarks are not just skin deep—that the company is no longer the old-school, paternalistic place it once was. And the way to do that is to let them into the organization’s heart. Denton should want his employees to understand exactly what the restructuring was all about; he should want them to be looking at the financial pages in their newspapers and doing the math. The sales staff, the stock clerks, and the sanitary workers should see how a stock uptick means they will have that much more money for their retirement or for their children’s college tuitions.

The sales associates need particular attention. If the commission program was designed properly, they should be taking in much more money than they did under Delarks’s salary system. But Denton must make sure that the salespeople are drawing the right conclusions. They should understand that the commission program is a real, positive change resulting from the restructuring.

Second, rebuild a cohesive senior management team.Build, in fact, might be a better term; it’s not clear that Denton ever had a proper leadership team to begin with.

Denton is a loner, that much is certain. His way of keeping people in the dark has been largely responsible for all the free-floating anxiety in the organization. The fact is, you can’t work as a loner when you hold the top job in any organization. This seems to be Denton’s first leadership position, and anyone in a new job needs time to learn and adjust. Even so, Denton must change the way he manages.

He should start by focusing on Liz Garcia. After all, she came with him to this company. She had faith in him at some point—enough to leave another job—and she has been successful at Delarks. Denton should bring her in and say, “Look, we’ve crossed phase one of this thing, now the fun can begin. I want you to take the lead in building the next-generation plan for the sales associates. I’m making you responsible for tweaking the commission program to encourage cooperation among the salespeople. I’m here to help, and so is Wazinsky.” And Denton should ask her some challenging questions. Can we rehire some of the old sales associates and retrain them in the new system? Do you think virtually all the stores’ customers are new? Should the company segment its sales force? Have we missed other opportunities to turn the staff into a team? These assignments should remotivate Garcia. What she needs is an opportunity to move from being a trainer to becoming an integral part of the company’s senior-leadership team. I would be surprised if, after receiving Denton’s proposal, she didn’t decide to stay at Delarks.

When Garcia is back on board, Denton should turn to the rest of the senior managers. Holding an off-site session dedicated to sharing the senior group’s knowledge about Delarks and defining the innovations needed to take the company to the next level would set things right quickly. I would strongly recommend that Denton hire a facilitator to help him run the session. He doesn’t need a repeat of the town meeting. But the senior management team probably will be no larger than 15 people, and he can use the meeting to bring them together. The way he announces the stock option plan, for example, can help bond the group.

The key will be letting his managers know that he understands how Delarks fits in with their careers and with their lives in general, and that their experience should be both challenging and enjoyable. And he should impress upon them that he wants them to become the agents of a new culture that travels down through the organization.

Third, create a permanent communication process for all Delarks employees. When I was CEO of Diner’s Club, we had a successful program, and my suggestions stem from that. Denton should start a program called Take Stock in Delarks. If he follows my first recommendation, all Delarks employees will be stockholders and thus will be doubly interested in the company. To capitalize on that interest, he should issue a quarterly report on progress and challenges and then use the reports as a vehicle to generate discussions in individual stores. Subsequently, he can report on what he has learned and any employee ideas he has implemented, thus strengthening the connection between management and staff. Denton might also consider hosting an annual meeting or celebration as part of the program.

It will probably be a couple of years before the program takes hold—that is, before employees believe that the program isn’t a gimmick. But if Denton takes my first two suggestions to heart, resolves to keep his focus on the future, and stops playing the lone ranger, morale should improve to the point that it mirrors those amazing turnaround numbers.

Richard Manning is the former editor of the Boston Business Journal and New England Business magazine. He is now a writer, editor, and consultant north of Boston.

Denton needs to start all over again where he should have started in the first place: with his employees. And he needs to start with a display of honesty and forthrightness that so far has been incredibly lacking on his part.

The first thing he has to do is stop the bleeding. He has to send out a companywide memo that says two things: the layoffs are over, period, and I’ll soon be visiting all 28 stores to meet with all the company’s employees. If a copy of the memo ends up on page one of the next day’s Chicago Tribune, well, that’s simply a risk that Denton will have to take. His main problem has been isolation, after all, and anything that will bring him closer to his workforce will redound to the company’s benefit. Even a press leak.

Denton needs to explain to his people in the memo that from the outset he had the equation upside down. The memo might look something like this:

“I felt that the way to turn the company around lay along the course of improving infrastructure, improving the product, and improving merchandising. And I was wrong in that assumption, because the assumption ignored the development of the company’s most important assets: its employees.

“I realized this suddenly over the last few days when I learned that the head of merchandising was leaving, the head of HR was totally demoralized, and the chief of sales-associate training was poised to jump. I’d become so enmeshed in the balance sheet that I thought I could take the pulse of the company’s most important assets by commissioning something as preposterous as an employee attitude survey. Such surveys are nothing but an invitation to dissemble, shrug, and flatter, and they often have no bearing on reality.

“What I have ignored all along is that in any corporation, large or small, the most important assets all wear shoes. They walk if you tell them to—as I’ve told 3,000 to do in the past year—or they walk if they’re scared for their jobs. No steel mill, no law firm, no clothing retailer will be able to prosper if the assets that wear shoes are not managed the same way a prudent manager manages merchandising, infrastructure, and other parts of the business.

“This has been my greatest failing so far. In admitting that, I am putting my rear where I know everyone else’s been all along: on the line. I should have been in Peoria and Bismarck and Madison talking with employees at the very outset, but I was not. I’ve been relying on outside consultants and managing in the splendid isolation of the eighteenth floor. And I’ve just come to the terrible realization that no matter what I do with the ledgers, if the company’s assets decide to vote with their feet, there will be no company left. Dresses don’t sell dresses. People sell dresses. People unload trucks. People stock stockrooms. People work cash registers.

“I’ve been blissfully ignorant of those truths for the past year, and it’s my fault that morale is low and that people are talking about leaving in droves. To get things back to where they should be, Thomas Wazinsky, our head of HR, will organize employee feedback circles at each of the stores. The purpose of the circles will be to come up with ideas about how to make the company work better and to let employees know they have a real say in how the company operates. Store managers will present the circles’ findings at monthly meetings at headquarters in Chicago.

“‘Meaningful work,’ to quote William Butler Yeats, ‘is not the filling of a pail but the lighting of a fire.’ I want Delarks people to know they can light fires at the company.”

Gun Denhart is the founder and chair of Hanna Andersson Corporation, a children’s clothing direct-mail company in Portland, Oregon.

I don’t believe that all is lost for Denton. At least not yet. But if he is to save Delarks, he must act fast, and his first priority must be rebuilding his employees’ trust—in him and in the company.

First, I would suggest that he try again to meet with small groups of employees throughout the organization. He must be honest with them. No manager can promise a completely rosy future, and so he can’t guarantee that there will never be another layoff at Delarks. But he should tell them that if the need ever arises again—if Delarks finds itself in a position in which downsizing is the only way to ensure survival—the situation will be handled much, much differently. And he should promise that employees will be kept up-to-date on the company’s performance so that they will never again be blindsided.

It might be a good idea if Denton began these meetings with an apology. And at some point in the meeting, perhaps after he has assured people that there will be no more layoffs in the current restructuring, he should give them a chance to talk. People need to show their emotions, and Denton should let them do so without getting defensive. He should just listen until everyone who wants to speak has had a say.

I realize that that will be very difficult for him. He does not strike me as the kind of person who is sensitive in that way—who knows when to talk and when to listen. But perhaps he can prepare a bit beforehand—by role-playing with someone, for example—or at least make sure that his HR director is by his side at the meetings to raise a warning finger if he begins to get defensive or to talk over his employees.

Denton must understand, before hosting these meetings, that people are going to be very angry and that given the opportunity, in a safe forum, they will vent their true feelings. But he must also understand that anger is not going to be the only emotion fueling the storm. The employees who remain at Delarks are probably feeling quite a bit of guilt as well. After all, some of their closest friends—people with lifelong careers at the company—are now looking for work, while they still collect their pay. He must be ready to acknowledge that guilt and to take on some of it as his own.

When a meeting is over, Denton should hand out a letter to each employee that confirms his apology and his assurance that such a mismanaged downsizing will never again occur. That Denton means what he says and is ready to stand by his word must be made very real to everyone who attends.

The meetings are just a start. To follow through on his promises, Denton must change his management style. Specifically, that means visiting his stores on a regular basis. Getting to know employees’ names and histories. Keeping people informed about the state of the business. Delarks employees should know if the stores are doing well or poorly. They should know why, and they should have a way to tell Denton what works at Delarks and what does not. In other words, they must be active participants in Denton’s strategy for success, not just tools.

Denton’s new management style must also include a commitment to communication—in both directions—with his senior management team. It is unconscionable that he did not inform his HR director or the manager in Madison that he was going to shut down that store. Denton has a great problem with trust. He has to realize that none of his employees will ever trust him unless he begins to trust them.

At least Denton realizes that something is dreadfully wrong at Delarks, and he wants to make things right. To that end, I would recommend that he contact Business for Social Responsibility, an organization based in San Francisco whose mission is to help managers achieve commercial success while maintaining the highest possible respect for people, the community, and the environment. With that help, and with some hard work, he may be able to salvage what was once a strong, positive company culture.

Saul Gellerman is a management psychologist in Irving, Texas, and the former dean of the Graduate School of Management at the University of Dallas.

I’d fault Delarks’s board of directors more than Denton for what looks like an impending disaster. Denton is a former store manager with no prior experience as a CEO. Without an informed mentor—someone who can ask tough questions and demand thoughtful answers—an inexperienced CEO can turn into a loose cannon, as Denton did.

There’s no evidence of oversight by the board on Denton’s decisions. It was content to look at the numbers, never inquiring whether they were sustainable or what the costs and risks of achieving them were. In brief, the board’s governance was superficial and helped create this looming fiasco.

That said, the immediate question is, What’s best for Delarks now?

In the short run, nothing is going to change the fact that Delarks lacks an effective leader. Denton lost much of his credibility when he axed the entire Madison store without warning. That shock made the isolated gripes of the disaffected few suddenly seem all too valid to the previously silent majority. It left the survivors anxious and cynical. After the Madison massacre, they probably lived in dread of Fridays. And after the St. Paul meeting, where Denton did more preaching than listening, they most likely lost all faith in the CEO.

The company still needs Denton’s strategic guidance, but it needs someone else to implement his strategy on a day-to-day basis. In brief, Delarks needs someone to front for Denton, someone the frontline troops will believe.

The only senior executive in the case who could play that role convincingly is the head of HR, Wazinsky. His job title should be changed to executive vice president. But Denton should make this appointment with his eyes open, because Wazinsky—although he may have the respect of Delarks’s employees—was not a strong HR director.

First, he settled for an amateurish employee-attitude survey. His consultants focused on a side issue—how morale at Delarks compared with that of other downsizing firms—and never got down to the key question: What issues were driving the “disaffection” that burst out of its “pockets” like a virus when Denton made his big blunder and closed the Madison store?

Second, there is no evidence that Wazinsky warned Denton that Delarks would be wide open to an age discrimination suit if he based mass layoffs on anything but performance. Firing “several hundred longtime saleswomen” like Mae Collier could come back to haunt Denton in ways that he fails to recognize.

Nevertheless, the appointment of Wazinsky would at least temporarily calm a very troubled organization. The message Wazinsky should try to convey is that while the good old days are gone forever, the company will cling to its original core values—decency and respect for each employee—even as it sheds some outdated values—the guaranteed job security and disregard for change that characterized the old Delarks.

Keeping Denton behind the scenes is a first step, but not the last. To rescue Denton’s career at Delarks, the board’s chair would have to intervene. Specifically, he or she would have to insist that Denton agree to cooperate with a consultant of the chair’s choosing. In other words, Denton would have to want to fight on at Delarks so much that he would be willing to work with an outsider to learn a new management style.

If Denton does not agree to this course of action, the board would be better off owning up to its mistake. It should buy out his contract and shop around for a more thoughtful CEO. Of course, that implies major disruptions on the board itself. But that’s the price of looking only at results and ignoring how they were achieved.

Fortunately, Denton already seems open to change. He’s upset and knows that he’s in trouble, both of which are good signs. They mean he’s beginning to face the possibility that his own decisions are at the root of his difficulties.

One final point. Whenever you contemplate firing people, whether you’re letting a single individual go or carrying out a massive downsizing, the most important consideration is always this: How will your decision affect the survivors? If morale plummets, you could lose your best people and get only the minimum effort from those left behind. In short, no economic gains for a lot of psychological pain.