The People Behind the Synergies

There is an old saying:

A recession is when your neighbor loses their job. A depression is when you lose yours.

The number of WARN notices appearing in the news lately—sprinkled between LinkedIn posts from newly minted “Open to Work” connections—suggests we may be in recession territory.

Then a close relative called me recently and suddenly the recession became a depression.

The emotional progression was familiar. Panic. How am I going to feed my family? Will I ever find another job in this market? The end is near. Rationally, we know it isn’t. Emotionally, that realization often arrives much later.

Unfortunately, many of us experience that roller coaster at least once in our careers.

I still remember the first time the depression hit me personally.

As a young accountant, I was heavily involved in acquisition diligence, both buy-side and sell-side. It was exciting work. We built financial models, quantified synergies, projected returns, and justified transactions. Like many finance professionals, I became quite comfortable discussing workforce reductions in spreadsheets and PowerPoint decks. We even developed our own language for it. The people whose positions would be eliminated after a transaction became “synergies.”

How quaint. How clinical. How detached.

Then, as Sam the Snowman said in Rudolph the Red-Nosed Reindeer says, “It hit! The storm of storms!”

I still remember the day our entire facility was summoned to gather in the lobby while the CEO formally announced the deal and the impending closure. I knew it was coming. I had seen enough of the diligence process to understand the likely outcome. In fact, that is precisely why I found a reason to avoid the mandatory gathering that morning.

Yet knowing intellectually that something is coming and experiencing it personally are two very different things.

That memory never really fades.

It permanently alters the way you think about employment. It reminds you that even with the best employers, employment is ultimately at-will. The relationship may be positive. The company may be well-managed. The intentions may be honorable. Yet circumstances change, acquisitions occur, markets shift, and decisions get made.

All of that led me to wonder whether there is a better way.

I understand the legal realities. Employers face risks involving notice requirements, discrimination claims, inconsistent treatment, and a seemingly endless list of potential liabilities. Thoughtful planning, scripting, and process discipline are necessary. Any executive who ignores those risks is being reckless.

But when most of the value in a modern business resides not in its equipment, buildings, or balance sheet assets, but in its people, should there not be a more human way to navigate restructuring while still operating within those legal boundaries?

I do not pretend to have the answer. I am not a Human Resources professional.

What I do have are questions.

One observation has always struck me as odd.

In small companies, founders and executive teams know exactly who their star performers are. They know who closes the critical sales. They know who solves impossible client problems. They know who quietly carries the organization through difficult periods. When cost reductions become necessary, do they discriminate? Of course they do—and in many cases they should. They discriminate in favor of the people most critical to the future success of the business. The stars stay. The lower performers are far more likely to leave.

As organizations grow, informal knowledge is replaced with systems. Performance reviews, succession planning, leadership assessments, compensation structures, talent rankings, and high-potential programs are all designed to accomplish the same objective: identify, develop, and retain the people who create the most value.  In other words, to discriminate in favor of high performers.

Which makes what often happens during restructuring so interesting.

Sometimes the risk-management processes become so dominant that they overwhelm the very talent systems the organization spent years building. In the name of consistency and process discipline, performance distinctions become secondary. Positions are eliminated. Organizational charts are redrawn. Entire groups are treated identically because they occupy the same role or sit within the same department.

• Everyone in the affected position receives the same notice.
• Everyone receives the same package.
• Everyone is encouraged to apply for internal openings.

From a process standpoint, that may appear fair. From the perspective of a top performer, the message can be quite different.

Throughout their career, they have experienced differentiated treatment. Raises are differentiated. Promotions are differentiated. Incentive compensation is differentiated. Leadership opportunities are differentiated. The organization spends years communicating that exceptional contribution matters.

Then, when restructuring arrives, differentiation suddenly disappears.

The top performer and the marginal performer receive the same termination paperwork because they happened to occupy the same position when the music stopped.

Then we wonder why employee loyalty has become so elusive. Trust breaks and both parties adapt accordingly. Companies reserve the right to restructure. Employees reserve the right to leave. Both become free agents, and the costs of that free agency are rarely included in the original restructuring model.

As I said, there must be a better way.

Businesses need to retain their most valuable assets, don’t they?

If employees—particularly the highest-performing employees—are truly among a company’s most valuable assets, why do some restructuring processes seem designed to remind them how interchangeable they are?

Consider the extraordinary sums being paid today for elite AI talent. Some of the most valuable companies in the world are spending millions of dollars to attract and retain a relatively small number of exceptional people. Why? Because everyone understands those individuals create disproportionate value.

Which led me to another question.

If we readily acknowledge the value of exceptional talent when we are trying to recruit it, why do we seem to forget that value when we are evaluating the costs and benefits of restructuring?

And that question eventually led me back to a place every finance professional knows well:

The balance sheet.

Think about the last analysis your finance team meticulously constructed to plan valuation and synergies. We prepared rigorous analyses for some costs.  Others were implicitly treated as unknowable and therefore irrelevant.

The spreadsheet shows pages of supporting documentation on annual payroll reductions, benefit reductions, severance costs, WARN costs, facilities closures, and potential legal exposures.

Then someone asks: “What is the expected cost if 20% of our top quartile performers voluntarily leave within the next 12 months because they conclude they have no future here?”

“Do we need to offer stay bonuses?” 

The room goes silent. Not because the cost is unimportant. Because the people cost is difficult to estimate. So it’s excluded.

It’s interesting that even with uncertainty, we build probabilistic models in sales forecasts, customer lifetime values, new product launches and even interest rate hedges – but not when it comes to valuing people and talent?

We routinely model uncertain outcomes, yet when discussing talent, we often stop modeling altogether.

• What is the expected turnover among high performers following a restructuring?
• What are the recruiting, training, and productivity costs of replacing them?
• What happens when succession candidates leave?
• What revenue is at risk when key customer relationships walk out the door?

These questions are difficult. That does not make them irrelevant. And surely not zero.

A restructuring model that includes severance, benefit, facility and litigation costs, but excludes high-performer turnover, leadership pipeline damage, recruiting and retraining costs, lost productivity, and erosion of trust is not conservative.  It is incomplete.

So while it seems fair to ask Human Resources to find a better way, we also need some soul searching in Finance.

Why do organizations systematically undervalue intangible assets when making decisions, despite claiming those same assets are their source of competitive advantage?

Businesses that cannot measure intangible assets perfectly should not pretend those assets do not exist. The goal of leadership is not merely to manage what is visible, but to exercise judgment over what is valuable.

Are we complicit in the illusion?

We accountants implicitly acknowledge workforce value every time a business is acquired. We simply refuse to identify it clearly.

Before the acquisition, the assembled workforce has a carrying value of zero. After the acquisition, the buyer may pay tens or hundreds of millions above book value. Somehow the workforce became valuable overnight.

Of course it didn’t.

The accounting changed. The people didn’t.

The tragedy is not that accounting treats workforce value conservatively. The tragedy is that when we bury it, managers often adopt that same conservatism when making strategic decisions. We have confused the inability to precisely measure an asset with the absence of the asset itself.

No CEO of an AI company believes their best engineers have a value of zero. No founder believes the leadership team that built the company has a value of zero. No acquirer pays millions in goodwill because they think the workforce is worthless.

Yet many restructuring models, ROI analyses, and quarterly decisions proceed as though those assets do not exist because they are difficult to place in a spreadsheet. The result is that organizations often manage what is visible while neglecting what is valuable. In the short term returns look great. That may be acceptable for financial reporting. It is a poor framework for building enduring enterprises.

The inability to measure an asset perfectly does not make it worthless.

If anything, the history of business suggests the opposite. The assets that create the greatest value—trust, leadership, talent, culture, and innovation—are often the very ones that prove most difficult to place on a balance sheet.

Maybe the real challenge for Finance is not finding a better formula.

Maybe it is remembering that what matters most is not always what is easiest to measure.